Question

Steve buys stock in a technology company. After 5 years the stock that he has purchased has depreciated in value 4% per year. The best description of

this stock's performance is that it is displaying exponential decay

Answer 1

Steve's stock, which depreciated by 4% annually, demonstrates exponential decay. Such a depreciation pattern differs from linear depreciation, and is common in stock market investments, which carry inherent risks and potential for fluctuation in value.

Step-by-step explanation:

Steve's purchase of stock in a technology company, which has depreciated in value by 4% per year over 5 years, is indeed an example of exponential decay. Exponential decay refers to a decrease in an amount by a consistent percentage over time. This concept is distinctive from linear depreciation, where the amount would decrease by a consistent sum each year. In Steve's case, since the value of stock lessens by the same percentage annually rather than a fixed amount, it exemplifies exponential decay.

Investment in the stock market involves various risks and the potential for both gains and losses. Stocks can appreciate or depreciate over time due to a range of factors, including company performance, market conditions, and economic changes. Therefore, while stocks have historically provided a high rate of return over long periods, investors may also experience periods of decline, as Steve has with his technology stock.