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  1. You buy one company stock with $500. It falls to $400. Calculate the dollar loss and ROI. What risk did you face?
  2. You have a car worth $18,000 and still owe $14,000. Calculate your equity and identify the asset and liability.
  3. You want to start a sneaker-cleaning side business. Name one startup investment, one expense, and how you would earn revenue.
  4. Your friend says a credit card is free money. Explain how credit works and what can happen when you carry an unpaid balance.

Verified Answer :

Final answer:

Investing in stock can lead to losses, as shown by a $100 loss and a -20% ROI. Car equity is determined by subtracting debt from the car's value, revealing $4,000 in equity. Starting a sneaker-cleaning business involves investment in supplies, expenses for marketing, and generating revenue through service fees.


Explanation:

1. Stock Investment Calculations

If you initially invested $500 in a company stock and it fell to $400, the dollar loss can be calculated by subtracting the current value from the initial investment. Here:

  1. Dollar Loss = Initial Investment - Current Value
  2. Dollar Loss = $500 - $400 = $100

The Return on Investment (ROI) can be calculated using the formula:

  1. ROI = (Dollar Gain or Loss / Initial Investment) x 100

Since this is a loss:

  1. ROI = (-$100 / $500) x 100 = -20%

The risk faced in this investment is the potential for capital loss when stock values drop, leading to financial loss.

2. Car Equity Calculation

If your car is worth $18,000 and you owe $14,000, your equity in the car can also be calculated:

  1. Equity = Car Value - Amount Owed
  2. Equity = $18,000 - $14,000 = $4,000

In this scenario, the asset is your car valued at $18,000, while the liability is the $14,000 debt owed.

3. Starting a Side Business

To start a sneaker-cleaning side business, one possible startup investment could be purchasing cleaning supplies, such as specialized cleaning solutions and brushes. A related expense might be marketing costs to attract customers, such as flyers or social media ads. Revenue could be earned by charging customers fees for cleaning services, such as $25 per pair of sneakers cleaned.

4. Understanding Credit Cards

Your friend claims that a credit card is "free money," which is misleading. A credit card allows you to borrow money up to a certain limit, but it must be repaid over time. When you carry an unpaid balance, you incur interest charges, which can add significantly to the amount you owe, potentially leading to debt accumulation and negative impacts on your credit score.


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