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 gains from the investment in stocks:
Year 1:
Initial investment in stocks = $5,000.00 * 60% = $3,000.00
After 1 year, the value of the stock = $3,000.00 + ($3,000.00 * 9%) = $3,000.00 + $270.00 = $3,270.00
Year 2:
Value of the stock after 2 years = $3,270.00 - ($3,270.00 * 4%) = $3,270.00 - $130.80 = $3,139.20
Total gains from the investment in stocks = $3,139.20 - $3,000.00 = $139.20
Now, let's calculate the gains from leaving the remaining 40% of the initial investment in the savings account:
Initial investment in savings account = $5,000.00 * 40% = $2,000.00
Total amount in savings account after 2 years = $2,000.00 + ($2,000.00 * 4.9% * 2) = $2,098.00
Total gain from the investment in the savings account = $2,098.00 - $2,000.00 = $98.00
Therefore, the total amount gained during the 2 years from both investments is $139.20 + $98.00 = $237.20.
If all of the investment had been left in the savings account, the total gain would have been $5,000.00 * 4.9% * 2 = $490.00.