Sarah invested £12000 into a unit trust 5 years ago. The value of the unit trust has increased by 7% per annum for each of the last three years. Before this the, the price decreased by 3% each annum. Calculate the current price of the unit trust.
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To calculate the current price of the unit trust, you need to follow a step-by-step approach.
Step 1: Calculate the value of the unit trust after 5 years:
Start with the initial investment of £12000 and calculate the value after 5 years.
Value after 1st year = Initial investment + (Initial investment * 7%)
Value after 1st year = £12000 + (£12000 * 0.07) = £12840
Value after 2nd year = Value after 1st year + (Value after 1st year * 7%)
Value after 2nd year = £12840 + (£12840 * 0.07) = £13757.80
Value after 3rd year = Value after 2nd year + (Value after 2nd year * 7%)
Value after 3rd year = £13757.80 + (£13757.80 * 0.07) = £14718.37
Step 2: Calculate the decrease in price over the previous two years:
Calculate the decrease in price over the previous two years using a 3% decrease for each year.
Price after 3rd year = Value after 3rd year - (Value after 3rd year * 3%)
Price after 3rd year = £14718.37 - (£14718.37 * 0.03) = £14277.45
Price after 4th year = Price after 3rd year - (Price after 3rd year * 3%)
Price after 4th year = £14277.45 - (£14277.45 * 0.03) = £13852.13
Step 3: Calculate the current price of the unit trust:
The current price of the unit trust is the price after the 4th year.
Therefore, the current price of the unit trust is £13852.13.
Note: This calculation assumes that the percentage changes (increases and decreases) are applied annually and the value is compounded.
amount after first 2 years
= 12000(1.03)^2 = 12,730.80
amount of that after 3 years at 7%
= 12730.80(1.07)^3 = 15,595.78