From the BBC:
A Scottish banknote has sold for a world record price at auction. The £1 note, dated 1836, sold for £9,000 at the charity auction held by the Clydesdale Bank, beating the previous record of £7,000 set in 2001.
That sounds like one heck of a return, but actually they only beat inflation by 2.7788% per annum.
Assuming that the note was held by somebody who had withdrawn it from the bank, i.e. it actually cost him £1 (rather than being a note that was printed put never put into, or already taken out of circulation), if you index £1 in 1836 up to 2008 using the Retail Price Index, you would have ended up with £78.51. If you divide £9,000 by £78.51 to adjust the profits for inflation, the compound rate of interest you would have needed, over and above inflation and after tax to end up with £9,000 exactly in the bank, would be 2.7788%. The Excel formula is =(9000/78.51)^(1/173).
That's still a very good long run rate of return, but it's not quite as spectacular as it first sounds, is it?
Wednesday, 23 September 2009
Compound interest
Subscribe to:
Post Comments (Atom)
4 comments:
Have you ever done the sums on Antiques Roadshow? People say what they paid in say, 1971 and then you hear the "insurance value" for today. It's generally in line with inflation.
And the downside is that "insurance value" is about half the amount you'll get when you sell an antique.
OC, I don't watch Antiques Roadshow, to be honest.
That's a bit like the old chestnut that Manhattan was no great bargain at 24 dollars and a string of beads. My own view is that it depends on how good the beads were.
D, Manhattan was fairly priced, IMHO. It's only the people, the buildings, the roads, the subway etc that make "the land" worth so much.
Post a Comment