How good is your money maths?

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  • ExPat_Taff
    ExPat_Taff Posts: 2 Newbie
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    Oh yes, that would make a difference! DOH!

    Thanks Diver 1 (and particularly for not pointing out the undeniable truth that yes, I really was being particularly thick!)
  • Vixster53
    Vixster53 Posts: 1 Newbie
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    Can't see the correct answer - am I doing something wrong?
    Kind Regards
    Vix
  • flossy_splodge
    flossy_splodge Posts: 2,533 Forumite
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    That was fun and a great example of how to interest bored kids in a classroom!
    :T
  • Chris_twirler
    Chris_twirler Posts: 1 Newbie
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    I didn't see what the answer was can someone please help?
  • alahol2
    alahol2 Posts: 62 Forumite
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    zagfles wrote: »
    If you can do a bit of simple algebra it's obvious really:

    (1+x)*(1-x) = 1-x^2

    It's even more obvious if you use 100% instead of 10% ;)

    So how does this relate to the question?
  • Brian_Steele
    Brian_Steele Posts: 96 Forumite
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    ExPat_Taff wrote: »
    I may be being particularly thick, but surely the time this runs for means that the changes are compounded?

    Four years fall then four year rise.

    Start with £100.00 in year 1, by year 2 it's x0.9 = £90.00, year 3 £81 and year 4 £72.90; then rise by 10% (i.e x1.1) year 5 £80.19, and so on to give £88.21, £97.03 and then £106.73.

    Or like I say, am I being really dim?

    Your maths is basically right, but you made the error of saying you were still at £100 at the end of year 1. In other words, you went down 10% three times and up 10% four times. If you do four each way then you get the right answer of £96.
  • Consumerist
    Consumerist Posts: 6,310 Forumite
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    It doesn't even matter in which order the years of gain and loss occur. After the eight year period you'll be about 4% worse off than if the market had stayed the same throughout.

    All of this, of course, assumes you don't have to pay any charges. If you do pay charges, you'll be worse off under any of these scenarios.
    >:)Warning: In the kingdom of the blind, the one-eyed man is king.
  • YoungAndy
    YoungAndy Posts: 3 Newbie
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    Dear ExPat Taff, If year 1 is your starting point, year 9 is your end point... So you've only got 3 of the first 4 in the sequence.

    Multiply your first attempt by 1.1, and your second by 0.9...
  • John_Pierpoint
    John_Pierpoint Posts: 8,391 Forumite
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    edited 5 September 2013 at 5:57PM
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    Now do "the rule of 72" on the current rate of inflation and you will understand just why the government is hard at work hoping that all those foreigners, who are lending us oodles of money, won't notice that the we are ripping them off by printing the money we are using to pay them interest every year.

    For those of us who are stuck in the UK; ie those wicked "baby boomers" like me who must have been asleep when the government squandered all that North Sea oil money - we are being royally ripped off. if we were foolish enough to think we could finance our own dotage.

    http://en.wikipedia.org/wiki/Rule_of_72
    [out of date version follows]
    http://www.bankofengland.co.uk/education/Pages/inflation/timeline/chart.aspx
    Current policy:
    http://www.thisismoney.co.uk/money/news/article-2408375/Low-rates-fuel-inflation-boom-bust-warn-economists.html?ito=feeds-newsxml

    http://en.wikipedia.org/wiki/Inflation_tax

    http://www.youtube.com/watch?v=D4yBrxmEOkY

    Ah well all we have got left now is our "human capital" and a bit of hopeful "fracking".

    The rest of the country is being bought up by foreigners, using that printed money.
  • zagfles
    zagfles Posts: 20,323 Forumite
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    alahol2 wrote: »
    Originally Posted by zagfles viewpost.gif
    If you can do a bit of simple algebra it's obvious really:

    (1+x)*(1-x) = 1-x^2

    It's even more obvious if you use 100% instead of 10% ;)
    So how does this relate to the question?
    x is 10%, or 0.1, in this example.
    A rise of 10% means multiplying by (1+0.1).
    A fall of 10% means multiplying by (1-0.1).
    4 rises and 4 falls just means multiplying the above 4 times, ie (1-x^2)^4 giving a bit over 0.96, ie you're left with 96% of the original value.
    As you're multiplying the (1+x) or (1-x) factors it obviously makes no difference what order they happen in, ie whether it's 4 rises then 4 falls, or 4 falls then 4 rises, or 3 rises, a fall, a rise, then 3 falls etc.
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