You invest $1,000 in a mutual fund for two years. The mutual fund earned 25% in the first year and lost ...

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Q:
You invest $1,000 in a mutual fund for two years. The mutual fund earned 25% in the first year and lost 10% in the second year. How much is your mutual fund worth at the end of the second year?
a) $1,150
b) $1,375
c) $1,125
d) $1,250
A:
The correct answer is c).
If you invest $1,000 and earn 25% you will now have $1,250 at the end of the first year ($1,000 times (1+0.25)=$1,250). Now you have $1,250 and earn –10% in the second year, so you are now left with $1,125 at the end of the second year ($1,250 times (1-.10)=$1,125).

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