Question

If you had $1,000 to invest into the following funds, which one would have the highest value (not including any fees) at the end of the second year? Green Fund with Year 1 return of -9.5% and Year 2 return of +10% Purple Fund with Year 1 return of +10% and Year 2 return of -9.5% Yellow Fund with Year 1 return of +30% and a year 2 return of -25% Orange Fund with Year 1 return of 0% & Year 2 return of 0%

Answer 1

Investment = $1,000

Green Fund:

Year 1 = -0.095 * 1000 = - $95

Amount after 1 year = $905

Year 2 = 0.1 * 905 = $90.5

Amount after 2 year = 905 + 90.5 = $995.5

Purple Fund:

Year 1 = 0.1 * 1000 = $100

Amount after 1 year = 1000 + 100 = $1100

Year 2 = -0.095 * 1100 = $104.5

Amount after 2 year = 1100 – 104.5 = $995.5

Yellow fund:

Year 1 = 0.3 * 1000 = $300

Amount after 1 year = 1000 + 300 = $1300

Year 2 = -0.25 * 1300 = $325

Amount after 2 year =1300 – 325 = $975

Orange Fund:

0% return for both the years.

Amount after 2 year = $1000

Thus Orange Fund has the highest value at the end of the second year.