Question of the Week

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

Answer: 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).