GMAT Focus EditionQuantitative ReasoningEasy
A financial analyst is evaluating an investment. The investment's value increased by 20% in the first year and then decreased by 10% in the second year. What was the net percentage change in the investment's value over the two-year period?
- A8% increase
- B10% increase
- C10% decrease
- D12% increase
Show answer & explanationAnswer & explanation
Correct answer: A. 8% increase
To find the net percentage change, we apply the changes sequentially. An initial 20% increase means multiplying by 1.20. A subsequent 10% decrease means multiplying by 0.90. The combined effect is 1.20 * 0.90 = 1.08, which represents an 8% increase.
Why the other options are wrong
- B. This assumes a simple subtraction of percentages (20% - 10% = 10%), which is incorrect for successive changes.
- C. This suggests a net decrease, which is incorrect given the initial increase was larger than the subsequent decrease.
- D. This option is a plausible distractor based on miscalculation.
Successive Percentage Change
Successive percentage changes involve applying one percentage change after another to an initial value. The changes are multiplicative, not additive.
- To increase by X%, multiply by (1 + X/100).
- To decrease by Y%, multiply by (1 - Y/100).
- The net change is found by multiplying the individual multipliers.
Memory trick: Multiply the multipliers, don't just add the percents!