Question

You invested $3,000 in the stock market one year ago. Today, the investment is valued at $3,780.

What return did you earn?

What return would you suffer next year for your investment to be valued at the original $3,000?

Answer 1

Answer:

Present Value (PV) = $3,000
Future Value (FV) = $3,780
Rate (r ) = ??
Time (n) = 1 year

Future Value = Present Value * (1 + r)^ n
$3,780 = $3,000 * (1 + r)^ 1
1.26 = (1 + r)
0.26 = r
or r = 26%

A return on 26% is earned on amount invested.

After 1 year:

Present Value (PV) = $3,780
Future Value (FV) = $3,000
Rate (r ) = ??
Time (n) = 1 year

Future Value = Present Value * (1 + r)^ n
$3,000 = $3,780 * (1 + r)^ 1
0.7937 = (1 + r)
r = -0.2063
or r = -20.63%

The investment would suffer a return on -20.63% to value the investment at $3,000 after 1 year.