Understanding Percentage Increase and Decrease for Banking Exams

Study Notes

Understanding Percentage Increase and Decrease for Banking Exams

When prepping for banking exams, it's essential to familiarize yourself with percentage changes, particularly percentage increase and decrease. These concepts form the foundation of calculations that can crop up in various scenarios like loans, investments, and inflation.

Definitions

A percentage increase indicates a rise in a quantity, while a percentage decrease indicates a fall in a quantity. These changes are calculated relative to a starting value (the base) and expressed as a proportion of that base.

Percentage Increase

A percentage increase (also called a percentage growth) represents the proportion by which a value rises relative to its base value. Mathematically, it can be calculated using this formula:

[ \text{Percentage Increase} = \frac{\text{New Value - Base Value}}{\text{Base Value}} \times 100 ]

For example, if you start with $100 and it increases by 10%, the new value would be:

[ \text{New Value} = 100 + (100 \times 0.1) = 110 ]

So the percentage increase would be:

[ \text{Percentage Increase} = \frac{110 - 100}{100} \times 100 = 10% ]

Percentage Decrease

A percentage decrease (also called a percentage reduction) represents the proportion by which a value falls relative to its base value. Mathematically, it can be calculated using this formula:

[ \text{Percentage Decrease} = \frac{\text{Base Value - New Value}}{\text{Base Value}} \times 100 ]

For example, if the initial value of $100 decreases by 10%, the new value would be:

[ \text{New Value} = 100 - (100 \times 0.1) = 90 ]

So the percentage decrease would be:

[ \text{Percentage Decrease} = \frac{100 - 90}{100} \times 100 = 10% ]

Real-World Applications

Percentage increases and decreases are relevant in various banking scenarios:

Loans: Interest rates and repayments are often expressed as a percentage increase or decrease.
Investments: Gains and losses are often expressed as a percentage increase or decrease.
Inflation: The rate at which the general level of prices for goods and services is rising is typically expressed as a percentage increase.

A Note on Rounding

Percentage increases and decreases are often rounded to the nearest whole number or significant figure. However, it's crucial to retain the initial precision of the calculation to prevent errors and ensure the correctness of your answers.

Description

Learn about percentage increase and decrease, essential concepts for banking exams. Discover how to calculate these changes relative to a starting value, and explore real-world applications in loans, investments, and inflation.