Jaya invests in a new mutual fund. The fund averages 10%

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Gmat_mission: Legendary Member; Posts: 1622; Joined: Thu Mar 01, 2018 7:22 am; Followed by:2 members

Jaya invests in a new mutual fund. The fund averages 10%

by Gmat_mission » Sat Nov 30, 2019 4:00 am

Jaya invests in a new mutual fund. The fund averages 10% growth annually for the first three years, but it loses 30% of its value in the fourth year. At the end of four years, the value of the mutual fund is approximately what percent of the amount Jaya originally paid?

A. 93%
B. 90%
C. 88%
D. 85%
E. 80%

[spoiler]OA=A[/spoiler]

Source: Veritas Prep

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Source: Beat The GMAT — Problem Solving | Sat Nov 30, 2019 4:00 am

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by [email protected] » Tue Dec 03, 2019 10:01 am

Hi Gmat_mission,

We're told that a mutual fund averages 10% growth annually for the first three years, but it loses 30% of its value in the fourth year. We're asked for the value of the mutual fund, at the end of 4 years, is approximately what percent of the amount originally paid for it. This question can be solved in a couple of different ways, including by TESTing VALUES.

IF... the original purchase price of the fund was $100...
then the value at the end of the 1st year was $100 + (.1)($100) = $110
then the value at the end of the 2nd year was $110 + (.1)($110) = $121
then the value at the end of the 3rd year was $121 + (.1)($121) = $133.10

and the value at the end of the 4th year was approximately $133 - (.3)($133) = $133 - $39.90 = approximately $93

$93 out of the original $100 is 93/100 = 93%

Final Answer: A

GMAT assassins aren't born, they're made,
Rich

Contact Rich at [email protected]

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GMAT/MBA Expert

Scott@TargetTestPrep: GMAT Instructor; Posts: 8086; Joined: Sat Apr 25, 2015 10:56 am; Location: Los Angeles, CA; Thanked: 43 times; Followed by:29 members

by Scott@TargetTestPrep » Thu Dec 05, 2019 7:01 pm

Gmat_mission wrote:Jaya invests in a new mutual fund. The fund averages 10% growth annually for the first three years, but it loses 30% of its value in the fourth year. At the end of four years, the value of the mutual fund is approximately what percent of the amount Jaya originally paid?

A. 93%
B. 90%
C. 88%
D. 85%
E. 80%

[spoiler]OA=A[/spoiler]

Source: Veritas Prep

After 4 years, the value is:

1.1 x 1.1 x 1.1 x 0.7 = 0.9317, which is about 93%.

Answer: A

Scott Woodbury-Stewart
Founder and CEO
[email protected]