Solving for Rates You invested $5,000 in the stock market one year ago. Today, the investment is valued at $5,500. What return did you earn? What return would you suffer next year for your investment to be valued at the original $5,000?
A) 10%, -9.09%, respectively
B) -10%, +9.09%, respectively
C) 110%, -10%, respectively
D) 110%, -9.09%, respectively

Question

Quizplus · Accepted Answer

To find the return earned, we use the formula:

Return = (Ending value - Beginning value) / Beginning value

Return = (5500 - 5000) / 5000 = 0.10 or 10%

To find the return needed for the investment to be valued at $5000 again, we need to use the formula:

Ending value = Beginning value + (Return * Beginning value)

5000 = 5500 + (Return * 5500)

-500 = 5500 * Return

Return = -500 / 5500 = -0.0909 or -9.09%

Therefore, the answer is A) 10%, -9.09%, respectively.

Solving for Rates You Invested $5,000 in the Stock Market