Question

Phil Mickelson won the 2006 Masters Golf Championship and his prize money was $1,260,000. Bubba Watson won the 2012 Championship and his prize money was $1,440,000. What is the average inflation rate for this prize money? What is the equivalent prize money of Bubba Watson in 2000 dollars? (2 points)

Answer 1

a)	Number of years between 2012-2006 =6 years
	Increase in amount = $144000-1260000 =$180000
	We can calculate the effective interest rate by using future value formula
	FV= PV*(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= periods in a number
	1440000 = $1260000*( 1+r)^6
	1.14286 = (1+r)^6
	r = 0.0225047
	r = 2.25%
6)	Equivalent price in money of Budda in 2000
	Years between 2000-2006 =6 years
	We can calculate is by using the present value formula
	PV= FV/(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= periods in number
	= $1260000/( 1+0.023)^6
	=1260000/1.14283
	= $1102530.58
Note: Intermediate calculations have been rounded off at 2 decimal points which may result in the wrong final answer
. Please let me know if the wrong, if any. I will correct it immediately.