Question

Suppose that you have ​$11 comma 000

in a rather risky investment recommended by your financial advisor. During the first​ year, your investment decreases by 30

​%

of its original value. During the second​ year, your investment at the end of year one increases by 40

​%.

Your advisor tells you that there must have been a 10

​%

overall increase of your original ​$11 comma 000


investment. Is your financial advisor using percentages​ properly? If​ not, what is your actual percent gain or loss of your original ​$11 comma 000


​investment?

Answer 1

The financial advisor is not using percentage properly.

Percentage loss=2%

Explanation:

original amount invested=$11000

By the end of the first year, there was a decrease by 30% over the original amount.

This implies that the amount invested at after the end of the first year or at the beginning of the second year

`= (70)/(100) * 11000`

=$7,700

This amount has increased by 40%

`= (140)/(100) *7700`

=$10,780

The financial advisor is not using percentage properly.

This is because the decrease was on the original amount meanwhile the increase was not on the original amount. The increase was rather on an amount less than the original amount .

Since the original amount invested is greater than the amount at the end of the second year, there was a loss

Hence percentage loss

`=(11000 - 10780)/(1100) * 100\%`

`(220)/(11000)*100\% = 2\%`