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Friday, January 16, 2015
To get back to where we started, it will need to go from $1/share to $2/share which equals a percentage gain of (2-1)/1 =100%! Yikes! It has to go up twice as much! Really? Actually, as you can see, it just needs to rise by the same $1 it dropped.
To look at this another way, check to see if you are really ahead if you buy a stock that round trips from $1 to $2 and then back to $1.
As an FYI, this is one area where economists are not lazy. In dealing with elasticities, it is necessary to calculate percentages; and the approach economists use is to take the average of the prices for the divisor. This would make a move from $1 to $2 a percentage change of 1/1.5, or .67%. If it goes back to $1, the change would be -.67%.
Posted by Robert Wasilewski at 8:36 AM