A person has invested K5000 in the stock market at the end of the first year the amount has grown to K6250, he has had a 25 percent profit. If at the end of the second year his principal has grown to K8750 , the rate of increase is 40 percent for the year. What is the average rate of increase of investment during the two years?

Answer 1

To calculate the average rate of increase of the investment over the two years, we first need to determine the growth of the investment at the end of each year and then calculate the average percent increase over the two years.

1. First Year:

   • Initial investment: K5000
   • Amount at the end of the first year: K6250
   • Profit: K6250 - K5000 = K1250
   • Rate of increase for the first year: \((\frac{1250}{5000}) \times 100 = 25%\)

2. Second Year:

   • Initial investment for the second year (end of first year value): K6250
   • Amount at the end of the second year: K8750
   • Profit: K8750 - K6250 = K2500
   • Rate of increase for the second year: \((\frac{2500}{6250}) \times 100 = 40%\)

3. Average Rate of Increase:

   • Average rate of increase over the two years can be calculated by averaging the rates of each year: \[ \text{Average Rate of Increase} = \frac{25% + 40%}{2} = \frac{65%}{2} = 32.5% \]

Therefore, the average rate of increase of the investment during the two years is 32.5%.