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...
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.
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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%
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These little things we have to keep in mind. The stock market is open only 5 days in a week, Saturday and Sunday are a holiday. No wonder my answer was not matching the one in the book. Considering a rise for only three days I get the right answer.
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