The price of a stock increased by 20% in the first year and decreased by 25% in the second year. What is the net percentage change? - 500apps
Understanding the Net Percentage Change: When Stock Price Rises 20% Then Drops 25%
Understanding the Net Percentage Change: When Stock Price Rises 20% Then Drops 25%
Investors often track stock performance through percentage gains and losses across multiple years. A common scenario is when a stock rises significantly—say, by 20% in the first year—only to fall sharply, such as 25% in the second year. But how does that translate to the overall change? What is the net percentage change after these two consecutive movements? This article breaks down the math and explains why stock performance over two years does not merely add up linearly.
Understanding the Context
The Stock’s Journey: A 20% Gain Followed by a 25% Drop
Let’s use a concrete example to clarify. Assume the initial stock price is 100 units.
Year 1: +20% Increase
A 20% gain means the stock rises by:
20% of 100 = 20
New price = 100 + 20 = 120
Year 2: -25% Decrease
Now, a 25% drop applies to the new price of 120:
25% of 120 = 30
New price = 120 – 30 = 90
Key Insights
Calculating the Net Percentage Change
Despite a strong first-year performance, the stock ends up valued lower—90, compared to the original 100.
To find the net percentage change:
Net change = Final price – Initial price = 90 – 100 = –10
Percentage change = (Net change / Initial price) × 100
= (–10 / 100) × 100 = –10%
🔗 Related Articles You Might Like:
📰 Unlock Timeless Loc Cuts That Define Modern Men’s Fashion 📰 Loan Nguyen’s Secret Route to Instant Cash — Don’t Miss This Trick! 📰 The Shocking Reason Loan Nguyen Got Approved Overnight 📰 The Shocking Truth Scarlett Pavlovich Hid For Yearsno One Saw It Coming 📰 The Shocking Truth Skywalker Ranch Holds Secrets No One Wants You To Know 📰 The Shocking Truth Sleep Token Members Live By Now Dont Miss It 📰 The Shocking Truth St Cloud Minnesota Never Shared 📰 The Shocking Truth Under Every Stanchion You Pass By 📰 The Shocking Twist That Sold Out Stardews Biggest Secret 📰 The Shocking Twist You Experience Camping Deeper Than Published Travel Guides 📰 The Shocking Way Linus Unlocks Stardew Valleys Linus Levelstack Insane Xp Instantly 📰 The Shocking Way Spike Protein Undermines Your Health Forever 📰 The Shocking Words Sadie Mckenna Leakedher Mystery Finally Unfolded 📰 The Shocking Yellow Lift Behind Spains Greatest Moments 📰 The Shockwave From Sorosie What She Said Will Change Everything 📰 The Shoe That No One Talks Aboutwhy Shoestrang Feels Like A Silent Agony 📰 The Shoe That Washes Away Mess Hidden Quality For For Governors Of Clean 📰 The Shopee Scrubs Row Youve Been Waiting For Disappears SuddenlyFinal Thoughts
Why the Result is Less Than the Sum of Both Changes
Although the stock gained 20% and then lost 25%, the final value is lower than the starting price. This counterintuitive result stems from compounding effects. Multiplicative changes affect successive levels, not absolute values:
- Gain: Multiply by 1.20
- Loss: Multiply by 0.75
- Combined: 1.20 × 0.75 = 0.90, or a 10% overall decline
Key Takeaway
When a stock increases by 20% in Year 1 and decreases by 25% in Year 2, the net effect is a 10% decrease from the original price. This highlights the importance of compounding and order in percentage changes—simple arithmetic addition doesn’t apply.
Final Thoughts
Investors should always look beyond headline gains or losses and examine percentage changes using multiplicative rules. Understanding the net percentage change helps make informed decisions and sets realistic expectations about long-term performance.
