At the start of trading on a particular . . .

Hi Vincen,

We're told that at the start of trading on a particular day, the price of Stock X is $5 and that during the day the price falls to $4. We're asked by what percent does the price of the stock decrease. This question requires the use of the Percent Change Formula:

Percent Change = (New - Old)/(Old) = (Difference)/(Original)

The New number is 4 and the Old/Original number is 5, so we have (4 - 5)/5 = -1/5 = 20% decrease

Final Answer: E

GMAT assassins aren't born, they're made,
Rich

Vincen wrote:At the start of trading on a particular day, the price of stock x is $5. If during the day the price falls to $4 by what percent does the price of the stock decrease?

A. 8%
B. 12.5%
C. 14%
D. 16%
E. 20%

The OA is option E.

How can I calculate the percent decrease?

We can create the following equation in which n = the percentage decrease:

5(1 - n/100) = 4

5(100 - n)/100 = 4

500 - 5n = 400

5n = 100

n = 100/5 = 20

Alternate Solution:

Let’s use the percent change formula, which states: % change = [(Final Value – Original Value) / Original Value] x 100%. For this problem, the original value is 5 and the final value is 4.

% change = [(4 – 5) / 5] x 100%

% change = -1/5 x 100%

% change = -0.2 x 100%

% change = -20%

The negative value indicates a percentage decrease, so we have a 20% decrease in the price of the stock.

Answer: E