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You invest $1,000 at the beginning of 2030 in a mutual fund. If in 2030 the...

You invest $1,000 at the beginning of 2030 in a mutual fund. If in 2030 the fund has a holding-period-return of -18.06%, what return in 2031 would be necessary for your investment to recover its original value?

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Answer #1

Value of the investment at the beginning of 2030 is 1000

Holding period return = (Value of investment at the end - Value of investment at the beginning)/ Value of investment at the beginning

-18.06% = (Value of investment at the end - 1000)/ 1000

-18.06%*1000 = (Value of investment at the end - 1000)

-180.60 +1000 = Value of investment at the end

Value of investment at the end = 819.40

Return to be earned in 2031 to recover its original value

=1000 - 819.40 i.e 180.60

Return in % in 2031 = 180.60 / 819.40 i.e 22.04%

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