CSEC MATHEMATICS

2. CONSUMER ARITHMETIC
Objectives
Students will be able to:
▶ 2.1 Calculate discount, sales tax, profit and, loss;
▶ 2.2 Calculate percentage profit, and percentage loss;
▶ 2.3 Express a profit, loss, discount, markup and purchase tax, as a
percentage of some value;
▶ 2.4 Solve problems involving marked price, selling price, cost price, profit,
loss or discount;
▶ 2.5 Solve problems involving payments by instalments as in the case of hire
purchase and mortgages;
▶ 2.6 Solve problems involving simple interest;
▶ 2.7 Solve problems involving compound interest;
▶ 2.8 Solve problems involving appreciation and depreciation;
▶ 2.9 Solve problems involving measure and money; and,
▶ 2.10 Solve problems involving rates and taxes, utilities, invoices and
shopping bills, salaries and wages, and insurance and investments.
DISCOUNT

A discount is money taken off good or services.

Sometimes discounts are offered if you
purchase a large quantity of goods or as an
incentive for customers who pay cash for the
items.
DISCOUNT
A shirt marked at $300.00 was sold at a discount of 5%. What was the
selling price?

Step 1: Convert percentage discount to a fraction

Step 2: Multiply original price by fraction

Discount = $15.00

Step 3: Subtract discount from original price

∴ selling price of shirt is $285.00 for the article.

SALES TAX

In many countries a tax is added to goods and

services at the point of purchase. This is called
sales tax or value-added-tax. Many times the
sales tax is included in the marked price of the
article, however sometimes it is added after
when you pay the cashier for the item.
SALES TAX
How much does a customer pay for an article marked at $50.00 if a
tax of 10% is charged.

Step 1: Convert percentage discount to a fraction

Step 2: Multiply original price by fraction

Tax = $5.00

Step 3: Add tax to original price

∴ customer pays $55.00 for the article.

PROFIT AND LOSS

When a dealer buys goods, the price he pays for

the article is the buying price or cost price. The
price that he sells the item is the selling price.

If the selling price is greater than the cost price

then the dealer makes a profit.

If the selling price is less than the cost price

then a loss is made.
PROFIT
An article bought for $150 was sold for $300. What was the profit?

Cost price of article = $150

Selling price of article = $300
Profit = Selling Price – Cost Price
= $300 - $150
= $150
∴ Profit = $150.00
LOSS
An dress was bought for $300 and sold for $280. What was the loss?

Cost price of article = $300

Selling price of article = $280
Loss = Cost Price – Selling Price
= $300 - $280
= $20
∴ Loss = $20.00
PERCENTAGE PROFIT
An article bought for $150 was sold for $300. What was the percentage
profit?
Cost price of article = $150
Selling price of article = $300
Profit = Selling Price – Cost Price
= $300 - $150
= $150
Percentage profit = Profit x 100
Cost Price
∴ Percentage profit = 100%
PERCENTAGE LOSS
An dress was bought for $300 and sold for $280. What was the loss
percentage?
Cost price of article = $300
Selling price of article = $280
Loss = Cost Price – Selling Price
= $300 - $280
= $20
Loss percentage = Loss x 100
Cost Price
∴ Loss percentage = 6.67%
Example 1
By selling an article for $95.00, a profit of 15% was made on the cost
price. What did the dealer pay for the article?

Let cost price of article be represented by 100%

Profit = 15%
Selling Price = 100% + 15% = 115%
Selling price of 115% = $95.00
Cost price of 100% =

∴ dealer paid $82.61 for the article

Example 2
When the price of a dress is reduced by 12%, it is sold for $144.00.
What was the original price?

Let original price of article be represented by 100%

Discount = 12%
Selling Price = 100% - 12% = 88%
Selling price of 88% = $144.00
Cost price of 100% =

∴ original price of dress was $163.64.

HIRE PURCHASE
Let’s say you wanted to buy a new washing machine that cost
$2999.00 but you did not have this amount of money. At some
stores you can buy the washing machine in 2 ways – 1. pay the
$2999.00 or 2. pay a deposit and then a certain amount every
month for two years.

If you did not have the money you would choose option 2. The
method of purchasing goods is called Hire Purchase. You get to
take home the article however it remains the property of the
store until you have completed all payments.

Hire Purchase involves additional charges or interest so the

customer pays more for the article than if it was bought using
method 1.
A solar water heater can be bought upfront for $2500 or by hire
purchase with a deposit of $250 and paying $150 per month for 18
months. How much money is paid for the water heater using the hire
purchase method? How much money is saved by paying upfront for
the water heater.

Hire purchase deposit = $250

Hire purchase monthly payment = $150 for 18 months
Total hire purchase payment = $250 + ($150 x 18)
= $250 + $2700
= $2950
Savings is bought upfront = $2950 - $2500
= $450
MORTGAGE

This is an amount of money borrowed to buy

houses, land etc. in which payments are made
over a long period of time. A deposit is required
on the loan and the balance is repaid by equal
payments over a fixed period. The payments
usually include interest and principal
repayments.
Mr. David wants to by a house costing $150,000.00. The bank will lend him 90% of this amount to be repaid
over 20 years with an interest of 10%. Calculate the amount of the loan that was repaid toward the principal
at the end of the 1st year. How much is owed after the 1st year? The yearly mortgage payments are
$20,000.00. Calculate the amount of the loan repaid for the 2nd year.

Since the bank only lent him 90% of the value of the house Mr. David borrowed 90% of
$150,000 = $135,000

For year 1
Amount owed = $135,000
Interest on loan = 10% of $135,000 = $13,500
Payment made = $20,000

(NB. To find the amount paid to the loan first you must subtract the interest from the
payment.)
∴ Amount paid to loan = $20,000 - $13,500 = $6500.00
Payment outstanding = $135,000 - $6500= $128,500

At the end of the 1st year $6,500 has been paid towards the loan. The remaining money paid
has been paid as interest. The remaining balance on the loan is $128,500.
Mr. David wants to by a house costing $150,000.00. The bank will lend him 90% of this amount to be repaid
over 20 years with an interest of 10%. Calculate the amount of the loan that was repaid toward the principal
at the end of the 1st year. How much is owed after the 1st year? The yearly mortgage payments are
$20,000.00. Calculate the amount of the loan repaid for the 2nd year.

For year 2
Amount owed = $128,500
Interest on loan = 10% of $128,500 = $12,850
Payment made = $20,000
∴ Amount paid to loan = $20,000 - $12,850 = $7150.00
Payment outstanding = $128,500 – $7150 = $121,350

At the end of the 2nd year $7150 has been paid towards the loan.. The remaining balance on
the loan is $121,350.
SIMPLE and COMPOUND INTEREST

When an investor lends money, the borrower must pay

back the original money borrowed plus an additional
fee. This additional fee is called interest. The money
originally borrowed is referred to as the principal. The
rate of interest tells you for a given amount and a
given time how much the investor will receive in
additional payments. For example an interest rate of
12.5% means than in a given time, for every $100, the
borrower will pay an additional $12.50. The total
amount paid back is the interest plus the principal.
SIMPLE INTEREST
How much interest is paid on a loan of $5000.00 to be paid over a
period of 4 years at an interest rate of 9%.

Principal, P = $5000
Rate percent, R = 9/100
Time, T = 4
Simple Interest, SI= P X R X T
= 5000 X (9/100) x 4
= $1800
∴ $1800 in interest is paid on the loan
At what rate of interest will a loan of $1200 accumulate interest of
$144.00 in 2 years.

Principal, P = $1200
Time, T = 2
Simple Interest, SI = $144
Simple Interest, SI= P X R X T
144= 1200 X R x 2
144=2400R

R = 6/100 = 6%
∴ rate of interest on the loan is 6%
COMPOUND INTEREST

If the interest due is added to the principal at the end

of each interest period and this is then used to
calculate new interest, the interest is said to be
compounded.
How much interest is earned on $1200 at 6% compound interest for 3 years?

Year 1: Interest, I = P X R
= 1200 X (6/100)
=$72.00

(for year 2 the interest is calculated on the principal borrowed plus the interest earn
after year 1)

Year 2: Principal = $1200 + $72 = $1272

I = $1272 X (6/100)
I = $76.32

Year 3: Principal = $1272 + $76.32 = $1348.32

I = $1348.32 X (6/100)
I = $80.90

After year 3 the amount of interest earned is $72 + $76.32 + $80.90 = $229.22

Alternatively, you can calculate interest earned by subtracting the initial principal
from the accumulated principal.

I = (1348.32 + 80.90) – 1200 = $229.22

APPRECIATION AND DEPRECIATION

Appreciation is when something increases in value over

time for example property.

Depreciation is when something decreases in value

over time for example cars.
A sewing machine which cost $1789.00 when new depreciated at a rate of
15%. What is the value of the machine after two years?

At the end of the first year the machine is worth 85% of the
original value, since the value is reduced by 15%.

Value of sewing machine after 1st year = 85% X $1789.00

= $1520.65

At the end of the 2nd year the machine is once again worth 85%
of its value at the beginning of the 2nd year.
= 85% x $1520.65
= $1292.55
RATES AND TAXES

Property in a town or city is given a rateable value,

which is fixed by the valuation or tax department. This
value depends on the size of the property, the
condition and location. Beach front properties for
example have a higher rateable value than other
properties.

Rates are usually levied at so much in the dollar, for

example $0.90 in the $1.00.
The rateable value of a house is $450.00. Rates are calculated at 75c in
the dollar. How much taxes is paid on the property.

Tax payable = Rateable value x Rate

= $450.00 x $0.75 = $337.50

A house owner pays $275.95 in taxes on a property, which has a rateable

value of $325.00. What is the rate of taxes.

Tax payable = Rateable value x Rate

$275.95 = $325.00 x Rate
Rate = $275.95/$325.00 = $0.85 in the dollar
INCOME TAX

Taxes are levied by the Inland Revenue Department in

order to pay for certain services like education,
health, road works, and other capital expenditure.
The largest source of government revenue is income
tax. In most countries, every person who has an
income above a certain amount is required to pay
income tax to the government. However, tax is not
calculated on the entire salary. Persons are allowed
certain tax free allowances.
Use the following information to calculate deduction in the following
income tax questions.

Personal allowance $15,000

Spouse (with no income) $3,000
Child (under 18 years) $1,000 (maximum 2 children)
Subscription to Trade Union $240.00 (maximum)
Retirement Savings plan $4,000 or 15% of assessable income,
which ever is less
Home improvement $3,5000 (maximum) (owner occupied)

For a taxable income of $24,000 or less pay 25% tax. For a taxable income
in excess of $24,000, pay 25% on the first $24,000 and 40% on the
remainder
A man’s annual assessable income is $38,450. His wife is employed and he
has two children ages 8 and 12. His retirement Savings plan is $1200.
Calculate his total deductions, his taxable income and the amount of
taxes he must pay

His total deductions are: Personal allowance $15,000

Children $2,000
Retirement Savings plan $1,200
Total deductions = $15,000 + $2,000 + $1,200 = $18,200
His taxable income = $38,450 - $18,200 = $20,250
Tax payable = 25% x $20,250 = $5062.50
UTILITIES

Electricity is charged for according to the number of kilowatt-hours

(kWh) used. In some countries an additional charge for fuel
consumption. This is based on the total fuel used by the entire
country and is charged according to the number of kilowatt-hours
used.

A typical tariff may be as follows:

Fixed charge/demand $3.00
Energy charge first 50 kWh 11c per kWh
next 250 kWh 9c per kWh
over 300 kWh 7c per kWh
Fuel consumption for the month 10.8402c per kWh
Discount on the energy charge 10% if paid within 15 days of billing
VAT 15%
A householder used 532 kWh of electricity for a given month. What is his total electric bill for
the month.

Fixed charge/demand - $3.00

Energy 50kWh @ 11c - $5.50
250kWh @ 9c - $22.50
232kWh @ 7c - $16.24
Fuel 532kWh @ 10.8402c - $57.67
Sub-total = $104.91
VAT (15%) = $15.74
Total = $120.65

If paid within 15 days: Discount 15% x $44.24 (energy bill) = $6.36

Sub-total = $98.55
VAT (15%) = $14.78
Total = $113.33
INVOICES AND SHOPPING BILLS

A grocery list came up to $600. What is the amount payable after VAT is
added. VAT is 12.5%

Grocery bill - $600

VAT – 12.5%
VAT = 600 x (12.5/100) = $75.00
Total due = $600 + $75 = $675
WAGES AND SALARIES
Many people who work are paid by the hour, Often there is a base salary
for a certain number of hours per week called a basic week.

Overtime rates occur when an employee works any number of hours

beyond the basic week. Overtime is paid at a different rate than the basic
rate.

Commission- in sales a person is paid a commission in addition to their

basic wage. A commission is a percentage of their total value of the goods
they have sold, or the total sales of the company. Sometimes, this
commission is paid in intervals, and is called a bonus.
A man’s basic wage for a 40 hour work week is $225.00. Calculate his total
wages for a week that he works 5 hours overtime at a time and a half
(time and a half mean 1.5 times the basic rate).

Basic wage = $225

Basic week = 40 hours
Basic hourly rate = 225/40 = $5.63
Overtime rate = 1.5 x 5.63 = $8.45
5 hours overtime = $8.45 x 5 = $42.23
∴ Total wages for the week = $225 + $42.23 = $267.23
A salesman at D & E Computer store is paid a basic wage of $250 per week
plus 1.5% of the total sales of computers that he made during the week. If
his total sales for last week were $16,550, what was his gross wages?

Basic wage = $250

Commission = 1.5% of $16,550 = $248.25
∴ Total wages for the week = $250 + $248.25
= $498.25
INSURANCE

Insurance is a form of risk management in which a person receives

financial protection or reimbursement against losses from an
insurance company.
Some common types of insurance are health insurance, vehicle
insurance, home owners insurance and life insurance.
INVESTMENT

Money can be invested in a variety of ways. You can invest money

in a business for example, or mutual funds. However it is invested
you may receive interest ever year until you withdraw your
investment. It can be calculated using simple or compound interest.
The simple interest on a sum of money invested at 4.5% per annum for 8
years was $540. What was the amount invested.

SI = $540
R = 4.5% = (4.5/100)
T =8
SI = P x R x T
$540 = P x (4.5/100) x 8
$540 = 0.36P
P = $540/0.36 = $1500
∴ Amount of money invested = $1500