Question

Round any decimals to the nearest penny.
You invest $2,000.00 in a stock plan and another $2,000.00 in a savings account. The stock plan decreases by 7% the first year and gains 10% the second year. The savings account earns a 3.7% APR and compounds annually. What is the difference in earnings between the stock and savings account at the end of the second year?

Answer 1

In the first year, the stock plan decreases by 7%, so it is worth 0.93 * $2,000 = $1,860 after the first year.
In the second year, it gains 10%, so it is worth 1.10 * $1,860 = $2,046 after the second year.

The savings account earns 3.7% APR and compounds annually, so after the second year it is worth $2,000 * (1 + 0.037)^2 = $2,077.30.

The difference in earnings between the stock and savings account at the end of the second year is $2,077.30 - $2,046 = $31.30.

Therefore, the difference in earnings between the stock and savings account at the end of the second year is $31.30.