Problema Solution
a person invested $50,000 in a stock. In the first year, the stock increased in value by 10%. In the second year, the stock decreased in value by 20%. What percentage gain is required in the third year for the person's stock to return to its original value?
Answer provided by our tutors
P = $50,000 the principal
after the first year he will have:
50,000(1 + 0.10) = 50,000*1.10 = $55,000
after the second year he will have:
55,000(1 - 0.20) = 55,000*0.80 = $44,000
let p = the percentage of gain after the third year. after the third year we want the person's stock to return to its original value that is:
44,000(1 + p) = 50,000
by solving we find
p = 0.1364 or 13.64%
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13.64% is required in the third year.