3. Assume you own a painting. If you sold it now, you could get £500 for it. However, the amount that people will be willing to pay in the future increases by £25 in odd years (including the first one) and by £26 in even years, for the next 53 years. If the interest rate stays constant at 5%, when should you sell your painting?

Question

3.	Assume you own a painting. If you sold it now, you could get £500 for it. However, the amount that people will be willing to pay in the future increases by £25 in odd years (including the first one) and by £26 in even years, for the next 53 years. If the interest rate stays constant at 5%, when should you sell your painting?

(A)	In 53 years’ time.
(B)	In 20 years’ time.
(C)	In 4 years’ time.
(D)	In 2 years’ time.
(E)	Right now.

economyst · Answer

If you sold right now and put the money in the bank, after one year you would have 500*(1.05) = 525. After two years you would have 525*(1.05) = 551.25. So, assuming you get no enjoyment from looking at the painting, go with E)