Mutual fund

[DanaJ]

Source: Veritas Prep

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%

Experts: only Veritas Prep experts, please!

[Night reader]

Source: Veritas Prep

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%

Experts: only Veritas Prep experts, please!

IOM A 93%

(1.1^3)*0.7=0.9317 (93%)

[ikaplan]

I used plug-in numbers here:

started with 100 as a base- the increase for the first three years results in $133,1

0,3*$133,1=39,9

when you subtract $39,9 from $133,1 you get cca.93 (7% decrease from the original sum)

[David@VeritasPrep]

Nice Job!

OA is A

Correct answer: (A)

Solution: To figure out percent change, we need a starting value. Since we are not given one, we can choose our own: $1000 is a nice round number. For the first four years, the fund gains 10% per year. After the first year, it is worth $1100. After the second, $1,210. After the third, $1331. In the fourth year, the fund drops 30%, or $399.30 (which we can round to $400 since we are looking for an approximate value). This means that the ending value is roughly 1331-400, or $931. Given that our starting value was $1000, our ending value is roughly 93% of the starting value.