Money maths - how good are you? Poll discussion

Biggles

It's not particularly ambiguous ;-)

If the numbers of years are confusing the issue, think of it as dates starting, for example in May 07.

The fourth year of growth would be complete in May 11 and the fourth year of decline would be complete in May 15 (and the reverse for option .

The whole point is four complete years of growth followed by four complete years of decline, or the question would be, well, pointless.

Mics_chick

I don't understand how option D is different to option C
Can anyone explain please

burgesst

9 Years
Year UpThenDown DownThenUp
0 100 100
1 105 95
2 110.25 90.25
3 115.7625 85.7375
4 121.550625 81.450625
5 115.4730938 85.52315625
6 109.6994391 89.79931406
7 104.2144671 94.28927977
8 99.00374375 99.00374375


I think the error here is that the years listed here represent points in time not whole years. IE year 1 means at the end of year one etc. Therefore there are 8 years here not 9. Remember your number lines from school. To go from 1 to 2 is a jump of one, not 2!

Yakyb

what if it worked as a pension type investment with 100 going in each year and the value of the share being the variable my quick calcs lean me towards b
decreased share value allows you to build up number of shares then when value rises again you totals go up quicker

bigpat

They're the same: either way you will lose approx £1 of every £100 invested.
A B
Year 0 £100.00 £100.00
Year 1 £105.00 £ 95.00
Year 2 £110.25 £ 90.25
Year 3 £115.76 £ 85.74
Year 4 £121.55 £ 81.45
Year 5 £115.47 £ 85.52
Year 6 £109.70 £ 89.80
Year 7 £104.21 £ 94.29
Year 8 £ 99.00 £ 99.00

What I don't understand properly is how options C and D are different. I guess D is the answer because in either scenario, the stock market does not stay the same. It goes down,

nobblyned

trf197 wrote: »

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)

You've got the sum right but the answer wrong, how did you manage that Mr. Maths teacher?! Is it fat finger syndrome?

Both sums equal 0.9900 x original as most peeps have said.

dougsta

nobblyned wrote: »

You've got the sum right but the answer wrong, how did you manage that Mr. Maths teacher?! Is it fat finger syndrome?

Both sums equal 0.9900 x original as most peeps have said.

Agreed - I don't get the 0.75% either - just a round 99%
Option C is the best cos you don't lose anything
Option D is not right cos they are not all equal (A&B are 99%, C is 100%)

yellowtigeruk

I'm sure it's A.

I worked it out with £10. Using the A calculations I ended up with £10.94, using the B calculations I ended up with £9.90.

trf197

My mistake (:o blush:o ) - my only excuse that it was early

I did 1.05 x 0.95 instead of (1.05 x 0.95)^4

trf197

(I'm a bit worried about the bond investor who doesn't understand how this is compounding!)

King_Weasel

So many numbers!

I hope the mathematicians didn't have to get out their spreadsheets to answer this one.

There are two elementary arithmetical principles here that tell us, FIRST, that the values of A and B must be equal and, SECONDLY, that the value of A and B must be less than the value of C. (And the logicians wll tell us that you don't need the first principle to arrive at the answer if you use the second principle twice.)

FIRST PRINCIPLE: which is bigger - 7 x 6 or 6 x 7 ? You don't need to know your times tables to answer this: you can multiply numbers in any order you like without altering the result. The value of A is your original investment - say, £100 - times 1.05 ^ 4 (or 1.05 x 1.05 x 1.05 x 1.05) and then times 0.95 ^ 4. The value of B is £100 times 0.95 ^ 4 then times 1.05 ^ 4. These answers must be the same.

SECOND PRINCIPLE: which is bigger - 10% of £10 or 10% of £20? (Again, you don't need to know what 10% of £10 or £20 actually is.) This is basically what alexjohnson was trying to tell us. I think he's right. So if you add a percentage - 5%, in this case - to your original investment and then deduct the SAME percentage off your new and higher value you are bound to finish up with less. (Take an extreme example if it helps: try increasing your investment by 100% and then reducing it by 100%.) So £100 x 1.05 x 0.95 must be less than £100. And of course you get the same result if you knock the 5% off first and then add it back, as in situation B.

If you can't follow this, get your spreadsheet out after all. You will get an answer, but may not know why.