An investment earns 10% during the first six months of the year, and then loses 10% during the second six months. For the year, the holding period return was
A) 0%
B) 20%
C) -1%
D) -5%

Question

Quizplus · Accepted Answer

The investment first grows by 10%, and then decreases by 10%. If we start with an initial investment of $100, after a 10% increase, it becomes $110. A 10% loss on $110 is $11, so the investment is worth $99 at the end of the year. This is a 1% loss from the original $100, hence a -1% return.

An Investment Earns 10% During the First Six Months of the Year