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Rate of
Return
Her name is Gillian.She is choosing her
Husband.
Her name is Sa. She is Gillian’s
best friend.
He is a archeologist.He is dating Gillian. His
name call Matt.
I will not choose handsome boy.
Because they will not loyal to me!
I will choose Matt because he is an
archeologist.Since he likes curio very
much,when I become older,HE WILL LOVE ME
MORE AND MORE.
What??????? It is a wrong
concept!! You are totally wrong!!
Why???????I don`t think
so.
Let me explain to you by an econ concept. I
will explain what is rate of return and use an
example of Curio.
Rate of return of a piece of capital in a certain period is the percentage of the sum of its net receipts and the change in its market value within the period
divided by its initial market value.Net receipts +change in market value
X100%Initial market value
Suppose you are the curio priced on $10000 now. Your value will increase
year by year. He expects your value will increase by a constant amount of
$1500each year. The interest rate is 10%.When will he sell the curio(leave you)??
The annual rate of return from you at different years are listed by the following
table.
Um……
You can see this table.
.
Year Your value of curio Annual rate of returnNow $10000 1 $11500 11500-10000
10000 X100% =15%
2 $13000 13000-11500
11500 x100%=13.04%
3 $ 14500 14500-13000
13000 x100%=11.54%
4 $16000 16000-14500
14500 x100%=10.34%
5 $17500 17500-16000 16000 x100%=9.38% 6 $19000 19000-17500
19000 x100% = 8.57%
Whatever the rate of return from you is larger than the market interest rate, it is more valuable to invest on you than others. To maximize wealth, he
will leave you at the the 4th year which your rate of return will fall below the
market interest rate.
Therefore, Gillian…..if you were that curio, he will love you very much now, but he will leave
you if your market value is smaller than the
interest rate(at the 4th year).Can you see???
Oh no !!!!! I understand
now~……I won't choose Matt now…..I like Edison~~~
Edison….Honey
…..
Gillian…….I love you so much!!!!!
IVY CHEUNG(2)FANNY WONG(26)
ANNIE YUEN(30)
THE END