Question

14. Percentage change Aa Aa An often-used percentage application in finance is the percentage change. Percentage changes are calculated as the change in value divided by the base value: Percentage Change (%A) New Value Base Value Base Value x100% Suppose a stock traded for $40 a share last year, but today the price has risen to $44. In this case, the percentage change is: Percentage Change, 96 ($44 _ $40) / $40-10% If a stock price falls from $20 to $18.50, the percentage change in stock price is Similarly, suppose a bike company produced 2,000 bikes this year, but it expects sales growth of 12% for next year. Next year's expected bike sales are bikes Percentages and Percentage Points Students often get confused when talking about percentage changes, especially when it is a percentage measure being changed. Suppose the inflation rate in 2000 was 596 and in 2001 the inflation rate was 6%. How much did inflation change by between 2000 and 2001? The inflation rate has increased by 1 percentage point, from 5% to 6%. It is also correct to say that the inflation rate increased by 20% ((696-5%) / 5%-(0.06-0.05) / 0.05-20%) When you talk about percentages and changes, be sure that you are asking and answering the right question Percentage change and absolute change Suppose that in Year 1, Bob's Burritos' daily sales were $1,000 and Betty's Burgers' daily sales were $2,000. In Year 2, Bob's daily sales increased to $1,400 and Betty's daily sales increased to 2,600, who experienced the greatest change in daily sales? Betty's daily sales increased by $2,600 $2,000 $600, while Bob's sales increased by $1,400 So, Betty's Burgers experienced the larger "absolute" change in sales $1,000 $400 However, Bob's Burritos started with much smaller sales, so its "percentage" change was greater. A $400 increase on $1,000 of sales is greater than a $600 increase on $2,000 sales Bob's Burritos' % in sales- Betty's Burgers' %Δ in sales