# Can anyone help me with this question as fast as you possible please!!!!!

• Jul 24th 2005, 03:20 AM
Caro
Can anyone help me with this question as fast as you possible please!!!!!
One of the often made assumptions is that an investment that averages x% over the term of an investment and and investment with a fixed return of x% over the term of the investment are equivalent.
Investigate the assumption to see if it is warranted. Justify and make suggestions re investments. :confused:
• Jul 24th 2005, 08:49 AM
Math Help
Quote:

Originally Posted by Caro
One of the often made assumptions is that an investment that averages x% over the term of an investment and and investment with a fixed return of x% over the term of the investment are equivalent.
Investigate the assumption to see if it is warranted. Justify and make suggestions re investments. :confused:

The key here is understanding the exponential growth involved in investments. You see you are earning x% on your initial investment but you are also earning x% on the x% that you earn. Here is an example:

2 year investment of \$1000, return 10%

First year \$1100
Second year \$1210 (notice you earned \$110 this year)

2 year investment of \$1000, 8% then 12% (average 10%)

First year \$1080
Second year \$1209.60