What is the investor's profit at the end of the week in the following case: An investor bought a stock for $4 on Monday. The next day the price dropped 15%. It increased over the rest of the week at 5% per day.

Expert Answers

An illustration of the letter 'A' in a speech bubbles

The price of the stock on Monday when they were bought is $4. It crashes by 15% on Tuesday to reach $4*(1 – 15%) = $4*0.85.

The price recovers by 5% over the rest of the week. For three days the price rises 5% everyday so the price at the...

Unlock
This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

Start your 48-Hour Free Trial

The price of the stock on Monday when they were bought is $4. It crashes by 15% on Tuesday to reach $4*(1 – 15%) = $4*0.85.

The price recovers by 5% over the rest of the week. For three days the price rises 5% everyday so the price at the end of the week is:

$4*0.85*(1.05)^3 = $3.93

For the original price of $4 at which the stock was bought the price at the end of the week is $3.93.The investor’s loss is (4 – 3.93)*100/4 = 1.75%

Therefore the investor has not made a profit but a loss of 1.75%

Approved by eNotes Editorial Team