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 percent, -9.09 percent, respectively
B)-10 percent, +9.09 percent, respectively
C)110 percent, -10 percent, respectively
D)110 percent, -9.09 percent, respectively

Question

Quizplus · Accepted Answer

To find the return, we need to use the formula:
Return = (Final Value - Initial Value) / Initial Value 
Return = (5500 - 5000) / 5000 = 0.10 or 10%

To find the return needed for the investment to be valued at the original $5,000 next year, we need to use the formula:
Final Value = Initial Value * (1 + Return) 
5000 = 5500 * (1 + Return) 
(1 + Return) = 5000 / 5500 
(1 + Return) = 0.9090 
Return = 0.9090 - 1 = -0.0909 or -9.09%
Therefore, the answer is A) 10 percent, -9.09 percent, respectively.

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