If an investor earns 10% on her investment in the first year and loses 10% the next year, she will have neither a gain nor a loss.

Question

Quizplus · Accepted Answer

This statement is false. Let's assume that the investor starts with $100. After the first year, she earns 10% which gives her a return of $10, bringing the total to $110. However, in the second year, she loses 10% of $110 which is $11, leaving her with $99. Therefore, she has a loss of $1 or 1% overall.

If an Investor Earns 10% on Her Investment in the First