Question

1. Maria invested $10,000 in the stock market. Unfortunately, the value of her investment has been dropping at an average rate of 3% each year.

a. Write the function that best models the situation.
b. If the trend continues, how much will her investment be worth in 5 years?
c. Given the situation, what should she do with her investment?

Answer 1

a) L = $10,000(0.03)T

b) Investment worth in 5 years = $8,500

c) I advise she withdraws her investment and wait until the market improves before she reinvests.

Explanation:

a) Recall the formula for calculating simple interest is given as

I = PRT

But in this case, interest was not made. Loss was made rather. Thus,

L = PRT

P = $10,000

R = 3% = 0.03

T = T

Hence, the function that best model the situation will be;

L = $10,000(0.03)T

b) Using the formula for simple interest given as

I = PRT

where,

P = principal = $10,000

R = rate = 3% = 0.03

T = time = 5 years

We have to first calculate the amount lost in 5 years.

By substitution, we've

I = $10,000×0.03×5

I = $1,500

Since her initial amount was $10,000; what we have to do now is subtract the amount she has lost from the initial amount.

That is,

$10,000 – $1,500 = $8,500

Hence, her investment will worth $8,500.

c) I advise she withdraws her investment for the moment and then wait for the stock market to improve before she reinvests.

Answer 2

Answer:Her investment would be $8586 in year 5.

Explanation:

10000* 0.03= $300.

10,000- 300 =$9700

Year 2.

9700*0.03= $291

9700-391= $9409

Year 3.

9409*0.03=$282.27

9409-282.27= $9126.74

Year 4.

9126.74 * 0.03 = $273.8

9126.74 - 273.8= $8852.

Year 5.

8852 * 0.03 = $265.56

8852 - 265.56 = $8586

C) She should pull off this investment and invest in a more productive company and ensure she diversifies her investment by investing in different companies.