explain anwser
You save $5,000.00 and invest 60% of it in stocks while leaving the rest in a savings account earning a 4.9% APR. The stock increases 9% in the first year and loses 4% of its value the second year. What is the total amount gained during the 2 years? What would the gain have been if all of the investment had been left in the savings account?
First, let's calculate the amount gained from the stock investment:
Initial stock investment = $5,000 x 60% = $3,000
After the first year:
Stock investment = $3,000 x 1.09 = $3,270
After the second year:
Stock investment = $3,270 x 0.96 = $3,139.20
Total amount gained from stock investment = $3,139.20 - $3,000 = $139.20
Now, let's calculate the amount gained from the savings account:
Initial savings account investment = $5,000 x 40% = $2,000
After 2 years:
Savings account investment = $2,000 x 1.049^2 = $2,098.80
Total amount gained from savings account = $2,098.80 - $2,000 = $98.80
Total amount gained from both investments = $139.20 + $98.80 = $238.00
If all of the investment had been left in the savings account, the gain after 2 years would be:
Initial investment = $5,000
After 2 years:
Savings account investment = $5,000 x 1.049^2 = $5,247.45
Total gain if all investment was left in savings account = $5,247.45 - $5,000 = $247.45
Therefore, the total amount gained during 2 years would have been $238.00 if 60% was invested in stocks and 40% in the savings account, while the gain would have been $247.45 if all the investment was left in the savings account.