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cheshire
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An investor will use $2,000 to purchase 10 shares of a certain stock a Updated on: 13 Aug 2025, 15:54
Originally posted by cheshire on 13 Aug 2025, 15:54.
Last edited by cheshire on 13 Aug 2025, 15:54, edited 1 time in total.
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the question just isn't very concise or grammatical, that being said, I don't think it's too difficult to assume what the question is intending as long as you use context. Official questions are almost always going to be clearer.
adipisci
and select for CD assuming 5% loss the amount she should invest in the CD to meet her goal under the assumption that the stock price will have decreased by 5% at the end of one year.

It is quite straightforward when we know the answer and explain it assuming 5% loss is in stock. But the question quite clearly says the loss is in the investment she makes in CD. From that without knowing answer and in time pressure, how do you suggest we ignore what the question says and assume the loss in stock?

MartyMurray
An investor will use $2,000 to purchase 10 shares of a certain stock at $200 per share. At the same time, she will invest another sum of money in a certificate of deposit (CD) that earns 2% simple interest annually. The investor would like to know how much money she should invest in the CD to meet her goal of net earnings (before any taxes or other fees) of $360 from the two investments at the end of one year.

In the table, select for CD assuming 10% gain the amount the investor should invest in the CD to meet her goal under the assumption that the stock price will have increased by 10% at the end of one year, and select for CD assuming 5% loss the amount she should invest in the CD to meet her goal under the assumption that the stock price will have decreased by 5% at the end of one year. Make only two selections, one in each column.

This question is fairly straightforward. So, our goals in answering it will be to execute well so that we don't somehow arrive at an incorrect answer and to answer it relatively quickly to bank extra time for harder questions.

Since the timeframe for the stock price change is one year and the return on the CD is simple annual interest, to determine how much she should invest in the CD, we can use the following:


Return on Stock + Return on CD = 360

Return on CD = 360 - Return on Stock

0.02(Amount Invested in CD) = 360 - Return on Stock

Now, one thing we can do to answer this question quickly is notice that the fact that the specific way she invested $2000 in the stock was by purchasing 10 shares at $200 per share doesn't matter. Regardless of how many shares she bought or the price of those shares, the value of her $2000 stock investment will increase or decrease by the same percentage as the increase or decrease in the stock price.

So, if the stock price price increases 10% and we let \(C_1\) be the amount she should invest in the CD when the return on the stock is 10%, we have the following:


\(0.02C_1 = 360 - 0.10(2000)\)

\(0.02C_1 = 360 - 200\)

\(0.02C_1 = 160\)

\(C_1 = 8000\)

If the stock price decreases 5% and we let \(C_2\) be the amount she should invest in the CD when the return on the stock is -5%, we have the following:


\(0.02C_2 = 360 - (-0.05(2000))\)

\(0.02C_2 = 360 + 100\)

\(0.02C_2 = 460\)

\(C_2 = 23,000\)

Correct Answer
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8000, 23,000
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An investor will use $2,000 to purchase 10 shares of a certain stock a 10 Sep 2025, 00:29
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I felt - the question said assume 10% gain on CD and 10% gain on stock. So effectively 12% gain on CD (as 2% SI) and 10% gain on stocks to get to the total profit of $360.

Isn't the phrasing such that it lends itself to (partially though very scantly, after I saw the solution) a bit of confusion? or am I off the charts here?

More importantly, I was thinking what can one do during exam if one runs into such a wall? This is an OG question - was question no 15 in a highly time-starved DI section of 1st OG mock, lead to squandering of 3.49 seconds - only to see last 3 questions in less than 2 mins- which of course were incorrect.

I think bailing out of the question is the only way out, probably marking it for review. As I write - I think if you read the question twice post jotting down things and see that you dont have understanding the scope of the question - best bet is to bail earmarking it for review (after chanting God's name twice before you do)!

While I got the question incorrect - the sense of directionality did help. I knew that for 10% profit on stock, the amount for CD will be less than in the 5%loss case. Also 10% profit and 5% loss will not be very close. With that guess - I got one part right, however other went wrong! This is also something that can be done. If you have inputs, it may help!
KarishmaB


This is a two part analysis question and I suggest you to check out a few official questions of this type to completely understand what is going on here. Their question stems do get confusing if you are not used to them.
You have to choose an answer for two columns and each column has a heading. Here those headings are "CD assuming 10% gain" and "CD assuming 5% loss."

This is what the question stem says:

In the table, select for CD assuming 10% gain (heading 1) the amount the investor should invest in the CD to meet her goal under the assumption that the stock price will have increased by 10% at the end of one year,
and select for CD assuming 5% loss (heading 2) the amount she should invest in the CD to meet her goal under the assumption that the stock price will have decreased by 5% at the end of one year.

The highlighted are the headings of the two columns. So they are telling us that under heading 1, select the amount the investor should invest in the CD to meet her goal under the assumption that the stock price will have increased by 10% at the end of one year. The 10% increase will be in the stock price. CD gives a flat 2% we are told.

Similarly, they are telling us that under heading 2, select the amount the investor should invest in the CD to meet her goal under the assumption that the stock price will have decreased by 5% at the end of one year. The 5% decrease will be in the stock price. CD gives a flat 2% we are told.
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