The formula for percentage increase I (given as a decimal) of an investment is I=S−P/P, where P is the purchase price and S is the sale price. You sell a stock at a price of $75, earning a percentage increase of 25%. What was the purchase price of the stock? and solve for P
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We are given the formula in the questions, so all we need to do is solve.
0.25 = 75-p/p
0.25 = 75 - p
0.25p + p = 75
1.25p = 75
1.25p/1.25 = 75/1.25
p = 60
Therefore, the purchase price was $60.
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An overvalued stock has a current price that is not justified by its earnings outlook, known as profit projections, or its price-earnings (P/E) ratio. Consequently, analysts and other economic experts expect the price to drop eventually.
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