Question

An investment portfolio offers a plan that will increase your holdings 30%

half the time, and lose you 20% the other half. Is this a worthwhile

investment for 1) one year, and 2) for the long term?

Answer 1

It is a worthwhile investment for both one year and for the long term.

Explanation:

While the investment will obtain in the first half of the year gains of 30%, and in the second half of the year losses by 20%, at the end of the year the benefit obtained by the investment will be greater than 0%. Therefore, both within a year and in the long term, it is a viable and favorable investment, since it will yield positive results at the end of the cycle.

So, for example, an initial investment of $ 100 would operate in the following way:

-First half of the year: 100 x 1.3 = 130

-Second half of the year: 130 - (130 x 0.2) = 104

Thus, at the end of the year a profit of 4% of the initial investment will be obtained.