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8 January, 07:07

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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  1. 8 January, 08:56
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    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%.
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