math 141

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Maria just inherited $10,000. Her bank has a savings account that pays 4.1% interest per year. Some of her friends recommended a new mutual fund, which has been in business for three years. During its first year, the fund went up in value by 11%; during the second year, it went down by 19%; and during its third year, it went up by 15%. Maria is attracted by the mutual fund's potential for relatively high earnings but concerned by the possibility of actually losing some of her inheritance. The bank's rate is low, but it is insured by the federal government. Find the expected value of her investment after three years if she invests in the mutual fund.
EV=$

  • math 141 -

    year 1 1.11
    year 2 .81
    year 3 1.15
    mean = 1.023 or 2.3% per year
    10,000 * (1.023)^3 = 10,705.99

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