Suppose that you have $10 comma 00010,000 in a rather risky investment recommended by your financial advisor. During the first year, your investment decreases by 5050 % of its original value. During the second year, your investment at the end of year one increases by 6060 %. Your advisor tells you that there must have been a 1010 % overall increase of your original $10 comma 00010,000 investment. Is your financial advisor using percentages properly? If not, what is your actual percent gain or loss of your original $10 comma 00010,000 investment?

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24 July, 09:45

Suppose that you have $10 comma 00010,000 in a rather risky investment recommended by your financial advisor. During the first year, your investment decreases by 5050 % of its original value. During the second year, your investment at the end of year one increases by 6060 %. Your advisor tells you that there must have been a 1010 % overall increase of your original $10 comma 00010,000 investment. Is your financial advisor using percentages properly? If not, what is your actual percent gain or loss of your original $10 comma 00010,000 investment?

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Felix Cohen · Answer 1

20% loss

Explanation:

At time 0, original investment sum = $10,000

In year 1, loss was 50%.

= $10,000 * (1 - 50%) = 10,000 * 50% = $5,000

In year 2, gain was 60%.

= $5,000 * (1 + 60%) = 5,000 * 1.6 = $8,000.

Therefore, percentage change on original investment

= 8,000/10,000 - 1 = 80% - 1 = - 20%.

Thus, percentage loss on original investment = 20%.