Answer
The financial adviser is not using percentages properly. The actual percent loss of the original investment is 2%.
Work Step by Step
We can find the amount that the original investment decreased.
$decrease = (0.30)(\$10,000) = \$3000$
We can find the value of the original investment after a decrease of 30%.
$value = \$10,000 - \$3000 = \$7000$
We can find the amount that the first-year value increased.
$increase = (0.40)(\$7,000) = \$2800$
We can find the value of the investment after an increase of 40%.
$value = \$7,000 + \$2800 = \$9800$
The original investment decreased by $\$200$. We can express this decrease as a decimal.
$\frac{\$200}{\$10,000} = 0.02$
To express a decimal as a percent, we can move the decimal point two places to the right.
$0.02 = 2\%$
The financial adviser is not using percentages properly. The actual percent loss of the original investment is 2%.
