A company’s stock price increased by 15% in the first year and then decreased by 10% in the second year. If the initial price was $100, what is the final price? - Parker Core Knowledge

Understanding the Context

Starting at $100, a 15% increase in Year 1 boosted the share price to:

$100 + (15% of $100) = $100 + $15 = $115

However, in Year 2, despite a nominal 10% drop:

10% of $115 = $11.50, so the price fell to:
$115 – $11.50 = $103.50

Key Insights

Wait — interestingly, the final price is $103.50, not $90 as originally stated. But let’s explore both scenarios to clarify:

• If exactly 10% drop on $115: Final price = $103.50
  
• If the 10% reduction applies to the original $100, the drop would be $10, ending stock price at $90 — but this reflects a compound effect impacting the original value, not a simple sequential decrease.

In most realistic cases, the 10% loss is calculated on the new elevated price — so the correct final value is:

Final Stock Price: $103.50

Why This Fluctuation Matters

Final Thoughts

The dramatic 15% rise reflects strong early investor confidence—perhaps driven by revenue growth, strategic wins, or favorable market conditions. However, the 10% decline underscores market volatility, often triggered by macroeconomic shifts, profit downward revisions, sector-wide corrections, or profit-taking by investors after rapid gains.

What Investors Should Take Away

• Percent changes don’t tell the whole story — absolute dollar gains or losses matter.
  
• Volatility is common in growth stocks; swings of 10–15% aren’t unusual in dynamic sectors.
  
• Always evaluate fundamental indicators—like revenue, profit margins, and cash flow—alongside stock price movements.

Conclusion

While the share price technically rose 15% in Year 1 to $115 and dropped 10% in Year 2 to $103.50, the real narrative lies in understanding market reactions to short-term performance versus long-term potential. For investors, consistency and stability often signal sustainable growth, even amid temporary fluctuations.

Final Takeaway: A $100 stock peaking at $115 amid optimism, then settling at $103.50 after a manageable pullback, demonstrates both the promise and unpredictability of equity markets.