Money maths - how good are you? Poll discussion

Options
Former_MSE_Lawrence
Former_MSE_Lawrence Posts: 975 Forumite
in MoneySaving polls
Money maths - how good are you? This is a repeat of a poll I did back in 2005, to see how good you are at figuring out a basic, but not straightforward money sum. Which of the following gives the best return? (correct answer in next week's e-mail) The stockmarket....

A. rises 5% a year for 4 years then drops 5% a year for 4 years
B. drops 5% a year for 4 years then rises 5% a year for 4 years
C. stays the same
D. all are equal

Did you get it?

FOR THE RESULT AND ANSWER: CLICK HERE
«13

Comments

  • mathynut
    mathynut Posts: 1 Newbie
    Options
    According to my sums both A and B result in converting £100 into £99. So C must be the best bet - £100 stays at £100. That is, ignoring commission charges!
  • reehsetin
    reehsetin Posts: 4,916 Forumite
    Combo Breaker First Post
    Options
    i think its a,
    Yes Your Dukeiness :D
  • katecheshire
    katecheshire Posts: 229 Forumite
    First Anniversary Combo Breaker
    Options
    with A, if you were canny and worked on the principle that what goes up must come down, you would take your profits at the top of the market. So A offers the best potential but C is no profit, no loss, no fun!!
  • trf197
    trf197 Posts: 26 Forumite
    First Anniversary Combo Breaker
    Options
    Definitely "stays the same is the best":

    (A and B are the same sum in a different order - it doesn't matter what order you multiply)

    Case A - rises first then falls:

    original x 1.05 x 1.05 x 1.05 x 1.05 x 0.95 x 0.95 x 0.95 x 0.95 = original x 0.9975 (1/4 percent fall from original)

    Case B - falls first then rises:

    original x 0.95 x 0.95 x 0.95 x 0.95 x 1.05 x 1.05 x 1.05 x 1.05 = original x 0.9975 (1/4 percent fall from original)

    trf197 (Maths Teacher)
  • denny250
    denny250 Posts: 64 Forumite
    Options
    trf197 yep thats the way i did it
    Received £4541 reclaimed from Natwest :j:T
  • halia
    halia Posts: 450 Forumite
    Options
    stays the same is the best bet if you have to leave your cash in for the whole 8 years.
    If you can take it out at any point then obviuosly you go for A

    what about inflation? real return on money if you invest £100, 8 years later it is still £100 but its buying power has decreased
    DEBT: £500 credit card £800 Bank overdraft
    £14 Weekly food budget



  • CCCele
    CCCele Posts: 218 Forumite
    Options
    I'd go for e) put the money in the top savings account at 6.05%.
  • Babbler
    Babbler Posts: 3,083 Forumite
    First Anniversary Combo Breaker First Post
    Options
    Yup - C is the answer IMHO
    Being bored is so boring Im bored of it... :rotfl:
  • ErictheHalfaBee
    ErictheHalfaBee Posts: 14 Forumite
    Options
    Yep - C.

    The trick being that you're not gaining and losing 5% of the same thing:

    If you gain 5% and then lose 5%, you're losing 5% of a bigger amount than your original stake, so you lose more than you gained.

    On the other hand:

    If you lose 5% and then gain 5%, you're gaining 5% of a smaller amount than your original stake, so you gain less than you lost.

    Either way, you end up worse off than just keeping your original stake
  • Biggles
    Biggles Posts: 8,209 Forumite
    Combo Breaker First Post
    Options
    But it's loss of 1% over the eight years, surely?

    £100
    1yr 105
    2yr 110.25
    3yr 115.76
    4yr 121.55
    5yr 115.47
    6yr 109.70
    7yr 104.21
    8yr 99.00

    And similar for option B

    Whichever, am I alone in finding it worrying that less than 1/3rd of people got the right choice (at the time I voted)?
This discussion has been closed.
★ ★ ★ Meet your Ambassadors

Categories

  • All Categories
  • 343.2K Banking & Borrowing
  • 250.1K Reduce Debt & Boost Income
  • 449.7K Spending & Discounts
  • 235.3K Work, Benefits & Business
  • 608.1K Mortgages, Homes & Bills
  • 173.1K Life & Family
  • 247.9K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards