Question

If you had $1,000 to invest into the following funds, which one would have the highest value (not including any fees) at the end of the second year?
Purple Fund with Year 1 return of +10% and Year 2 return of -9.5%
Yellow Fund with Year 1 return of +30% and a year 2 return of -25%
Green Fund with Year 1 return of -9.5% and Year 2 return of +10%
Orange Fund with Year 1 return of 0% & Year 2 return of 0%

Answer 1

Purple Fund:
Year 1 = 1,000 x 1.10 = 1,100
Year 2 = 1,100 x 0.905 =  995.50

Yellow Fund:
Year 1 = 1,000 x 1.30 = 1,300
Year 2 = 1,300 x 0.75 =   975

Green Fund:
Year 1 = 1,000 x 0.905 = 905
Year 2 =    905 x 1.10  = 995.50

Orange Fund:
Year 1 = 1,000 + 0 return = 1,000
Year 2 = 1,000 + 0 return = 1,000

Among the choices, Orange Fund has the highest value on Year 2..

Answer 2

The value of Orange Fund with Year 1 return of 0% & Year 2 return of 0% is highest out of all the funds. The value of the orange fund is $1,000 after two years.

Further Explanation:

Return on investment:

Return on investment is a measurement of the earnings of the investment. It is calculated by dividing the return of the investment with the value of the investment. The higher return on investment is preferable and accepted.  

Determine the fund with the highest value at the end of 2nd year:

Purple fund:

\begin{aligned}\text{Value at the end of 2nd year}&=[\text{Investment value}+\text{Year 1 rate of return}]-\text{Year 2 rate of return}\\&=[\$1,000+10\%]-9.5\%\\&=

\$995.5\end{aligned}

Thus, the value of the purple fund at the end of 2nd year is $995.5.

Green fund:

\begin{aligned}\text{Value at the end of 2nd year}&=[\text{Investment value}+\text{Year 1 rate of return}]+\text{Year 2 rate of return}\\&=[\$1,000-9.5\%]+10\%\\&=

\$995.5\end{aligned}

Thus, the value of the green fund at the end of 2nd year is $995.5.

Orange fund:

\begin{aligned}\text{Value at the end of 2nd year}&=[\text{Investment value}+\text{Year 1 rate of return}]+\text{Year 2 rate of return}\\&=[\$1,000+0\%]+0\%\\&=\$1,000\end{aligned}

Thus, the value of the orange fund at the end of 2nd year is $1,000.

Yellow fund:

\begin{aligned}\text{Value at the end of 2nd year}&=[\text{Investment value}+\text{Year 1 rate of return}]+\text{Year 2 rate of return}\\&=[\$1,000+30\%]-25\%\\&=

\$975\end{aligned}

Thus, the value of the yellow fund at the end of 2nd year is $975.

The value of the orange fund is highest out of all the funds. The value of the orange fund is $1,000.

Learn More:

1. Learn more about the trade-off

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2. Learn more about the expenses

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3. Learn more about the loans and saving

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Answer Details:

Grade: Middle school

Chapter: Investments  

Subject: Business

Keywords: invest, following funds, highest value, not, including, any, fees, end, of, the 2nd, year, purple fund Year, return, year 2, green, orange, yellow, purple.