»
Money Quiz: Can you work it out? Poll results/dis...
(Page 1)
Welcome to MoneySavingExpert.com's Forums!
THE EASY WAY: All the Forum's best tips go in MoneySavingExpert's weekly E-mail Plus you'll get all the new guides, deals and loopholes. It's free & spam free
IMPORTANT! This forum isn't moderated. If you spot a spam, illegal, offensive, racist, libellous post or PM please email abuse@moneysavingexpert.com
Remember, this is an open forum! Anyone can post so always exercise caution when acting on info. Don't post links for personal gain. Except in the referrers section and always declare any interest.
Money Quiz: Can you work it out? Poll results/discussion
Poll started 09 June 08
Money Quiz: Can you work it out?
The question looks simple, but I did it as a poll a few years ago and less than one in three people got it right – will you? The correct answer will be in next week’s MoneySaving E-mail
Which of these would give you the best return?
A. Stockmarket rises 10% a year for 5 years then drops 10% a year for 5 years. - 24% (1272 votes) B. Stockmarket falls 10% a year for 5 years then rises 10% a year for 5 years. - 20% (1055 votes) C. Stockmarket stays the same. - 30% (1570 votes) D. All are equal. - 26% (1386 votes)
Voting has now closed, but you can still click 'post reply' to discuss below.
This was more recent than a few years ago, wasn't it?
I'm sure I've seen it on here recently. Unless I followed a link, maybe?
You're right... I was reminded by the team that I revisited it about a year and a bit ago... but I've decided to leave it as its fun
Martin Lewis, Money Saving Expert.
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
Confucius say stock market like gambling, deck always stacked in dealers favor.
Answer: C
While I agree with your answer, I disagree with your statement. On average, over the long term, the stock market produces better returns than a savings account.
It is like gambling as it is not guaranteed, but the stock market "deck" is stacked in the investors favour.
The Following User Says Thank You to JimmyTheWig For This Useful Post:Show me >>
Martin Lewis, Money Saving Expert.
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
I went for D after trying to work it out in my head but actually it's C, isn't it...?
Got the same result putting 10000£ into Excel and letting them rise/fall, respectively fall/rise, at 10%. The result, £9509.90, is the same in both cases, at a 5% roughly.
Then figures don't lie; now someone tell me why. Because my mind keeps telling me that it shouldn't be like that and you should come out at 10k again either way round. Well, obviously not. But why? Geometrical progression and stuff...don't know.
---
Right, here's my shot. Mathematicians, get ready to crush me.
Let SA be the starting amount and BL the bottom line figure after 10 years.
Scenario A) BL = SA * 1.1^5 * 0.9^5 rise first, then fall
Scenario B) BL = SA * 0.9^5 * 1.1^5 fall first, then rise
With A or B, it does not matter in which order the rise or fall occur, due to the law of commutativity in multiplication. The result will be identical either way.
Hence for both scenarios BL = SA * 0.95099
The factor 1.1^5*0.9^5 = 0.95099 gives us the end amount of roughly 95% of any original investment. Since the factor is <1 , it's wiser to leave the money under the mattress, in which case that factor would be 1, same in, same out (at zero inflation).
Scenario C) BL = SA (money under the mattress)
So better off (no gain, no loss) with C.
Last edited by Schamansky; 10-06-2008 at 6:55 PM..
Then figures don't lie; now someone tell me why. Because my mind keeps telling me that it shouldn't be like that and you should come out at 10k again either way round.
Forget about all the years, that just adds complication. Shrink the problem to one year it goes down, the next year it goes up.
Lets make things even easier to understand and rather than a 10% change lets consider a 50% change.
Now, if you start with £100 and it goes down by 50% you have £50. If that goes up by 50% then you have £75. So you have lost out. (And the same would be true in the other order.)
The answer is that the inverse of +x% is not -x%.
+x% means multiply by (1+x/100). The inverse of this, then, is to divide by (1+x/100).
The Following 2 Users Say Thank You to JimmyTheWig For This Useful Post:Show me >>
An interesting argument, but has the market ever performed in this way?
I am new to this sort of thing, but isnt it the case that over time the value of the stock market, say FTSE100 has always increased at a greater rate than if the money was in a savings account, obviously with peaks/troughs. Therefore the value of your investment would only be less is you were to cash in your investments after 10 years rather than wait for a market recovery? Obviously if you have a fixed term investment, you'd be stuck!!
An interesting argument, but has the market ever performed in this way?
I am new to this sort of thing, but isnt it the case that over time the value of the stock market, say FTSE100 has always increased at a greater rate than if the money was in a savings account, obviously with peaks/troughs. Therefore the value of your investment would only be less is you were to cash in your investments after 10 years rather than wait for a market recovery? Obviously if you have a fixed term investment, you'd be stuck!!
Has it performed exactly like this? I would be very surprised!
Have there been peaks and troughs? Yes, most certainly.
Have there been times when it is down to 95% of its former value. Yes.
I believe that the point of the question is to demonstrate the way percentages work and to be wary of risky investments.
I completely agree, though, (as per my earlier post) that over the long term the stock market should out-perform savings accounts.
So how about if the question were stock market rises by 20% a year for 5 years then stagnates (i.e. 0% rise) for 5 years vs stock market rises by 10% a year for 10 years?
I think this proves the same point whilst accepting ultimate growth.
Pls be nice to all MoneySavers. There's no such thing as a stupid question, and even if you disagree courtesy helps. Take care over copyright. Use excerpts and links rather than copying long text. This site asserts copyright on all comments posted on the board.
Pls be nice to all MoneySavers. There's no such thing as a stupid question, and even if you disagree courtesy helps.
Money Quiz: Can you work it out? Poll results/discussion
Single, 25, Aspie, Gooner 
Linear Mode
