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? - Redraw
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
Image Gallery
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:
📰 Exelon Stock Skyrockets After Massive Breakthrough in Energy Sector! You Wont Believe Its Growth! 📰 Is Exelon Stock About to Break $100? Analysts Reveal Shocking Numbers! acting fast! 📰 Experts Predict Exelon Stock Will Surge—Heres How Investors Can Capture the Gain Now! 📰 Cowboy Carter Set List 9944630 📰 Indiana Fight Song Lyrics 5918154 📰 City Of Evanston 9599715 📰 Global Reentry 4480553 📰 Cast Of The Way Home Tv Series 602629 📰 You Wont Believe What Lucy Van Delt Hidden In That Iconic Facenow Revealed 6026035 📰 Dewey Beach Beach 3727542 📰 Arkvx Stock Shock Investors Are Racing To Own This Revolutionary Breakthrough Company 2264907 📰 H 265 Codec Windows 4299519 📰 Japanese Aesthetic Philosophy 3731446 📰 Honolulu Airport Hotel 4899384 📰 What Is Holy Week 4341320 📰 Att Customers Have Until Thursday To File Claims 4925180 📰 The Revolutionary Luna Controller Take Your Gaming To The Next Level Now 6198747 📰 Heidi Broussard 4736562Final 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.
