Money maths - how good are you? Poll discussion

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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
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
0
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Replies
(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)
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
£14 Weekly food budget
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
£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)?