Ganit Learning Guides

Basic Commercial
Mathematics
Percentage, Profit & Loss, Simple Interest,
Compound Interest, Growth & Depreciation

Author: Raghu M.D.

 ARITHMETIC

COMMERCIAL MATHEMATICS

Percentage, Profit and Loss

A percentage is the fraction with its denominator as 100. However it is expressed as the value
of its numerator followed by a percentage % sign and the denominator 100 is omitted.
7
For example 7% = and read as seven percent
100
Percent means per hundred.

All fractions, quotients and decimals can be expressed as percentages.

3
a) can be expressed as a percentage by converting the denominator to 100.
4

This is done by multiplying and dividing by 25, so that the value of the fraction remains
unchanged, but the denominator becomes 100.

3 25 75
   75%
4 25 100

35
b) 0.35 can be expressed as  35%
100

12.5
c) 0.125 can be expressed as  12.5%
100

210
d) 2.1 can be expressed as  210%
100

Percentage need not be a whole number, it can be positive or negative, and can exceed 100.

A percent can also be converted to a fraction or decimal or quotient.

32
a) 32% =  0.32
100

46 23
b) 46% = 
100 50

Percentages are often used to compare ratios of different denominators. For example, profit
margins of different brands of refrigerators priced differently are compared. For convenience,
sales tax and other types of duties are expressed as a percent of cost price of goods and
services.

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Profit is the additional sum of money charged by a shopkeeper to the customer. Occasionally,
a shopkeeper may have to sell a product below the cost price. In the latter case, the profit will
be negative, or termed as a loss.

Example 1:

Population of a village increases from 18,000 to 18,900. Calculate the percent increase in
population.

Working:

Increase in population

18900 - 18000 = 900

900
Therefore percent increase =  100  5%
18000
Answer: 5%

Example 2:

Company A makes a profit of Rs 500/- on a refrigerator of cost price Rs 5000/-, company B

makes a profit of Rs 600/- on a refrigerator of cost price Rs 8000/-. Find which company is
making a better percentage profit.

Working:
Note: Selling Price = S.P., Cost Price = C.P.

Profit of A = S.P. C.P. = 500

% Profit of A =

500
=  100  10%
5000

Profit of B = S.P. C.P. = 600

% Profit of B =

600
=  100  7.5%
8000
10% Profit of A is more than 7.5% profit of B

Answer: Company A is making a better percentage profit.

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Example 3:

Mukund scores 75% or 60 marks in the Mathematics test. Find the maximum marks for this
test.

Working:

Let x be the maximum marks

60 75

x 100

60  100
x=  80marks
75

Answer: 80 marks maximum

Example 4:

Amitab used to buy potatoes at Rs 20/- per kg spending Rs 100/- per week. Price of potatoes
was subsequently increased by 25%. Amitab does not wish to spend more than Rs100/- per
week. How many kgs of potatoes can he buy?

Working:

No of kgs of potatoes Amitab can buy at Rs 20/- per kg

100
=  5kgs
20

New price of potatoes = Original price + increase in price

25
= 20 +  20
100

= 20 + 5 = 25 Rs per kg

Hence, number of kgs of potatoes Amitab can buy at Rs25/- per kg

100
=  4kgs
25

Answer: 4 kgs of potatoes

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Example 5:

Vivek buys 2 kgs of oil sold at Rs 52/- per kg plus 4% sales tax. Find the amount paid by
Vivek.

Working:

Price paid by Vivek = list price + sales tax

= (2 × 52) + sales tax

104  4
= 104 +
100

416
= 104 +  104  4.16
100

= 108 Rs and 16ps

Answer: Amount paid by Vivek = Rs 108.16

EXERCISES

1. Convert the following to percentages.

3 1
a) 0.77 b) c) 1.2 d) 0.05 5)
15 8

2. A dealer buys a radio for Rs 240/- He spends Rs 10/- on repairs, he sells the radio for
Rs 300/-. Find the percentage profit.

3. A vendor buys 24 watches, but recovers the cost price by selling 20 of them. Find the
percentage profit.

4. A dealer buys 2 cars for Rs 30,000/- each. He sells one at 19% profit and the other at
a loss of 16%. Find the overall profit made by the dealer.

5. List price (Cost price + Profit + Expenses) of a scooter is Rs 45,000/-. If the sales tax
is 12.5%, find the total price at which the scooter is sold to the customer including
tax.

6. Manu purchases the following items

a) Books for Rs 50/-
b) Textiles for Rs 300/-
c) Food items for Rs 100/-
d) Jewellery for Rs 700/-,

Sales tax is calculated at 2% for books, 10% for textiles, 3% for food items and 15%
for jewellery. Find the total amount paid.

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7. The following items were on discount sales. Find the selling price, inclusive of taxes,
for each one of them.

Item List price Discount

(including taxes) Rs
a) Alarm Clock 375/- 15%
b) Towels 175/- 10%
c) C.D player 1750/- 20%

8. Abhiram buys a T.V. at 10% discount over the list price of Rs 10,500/-. He pays sales
tax at 12.5% on the price after discount. Find the amount of tax paid.

9. A dealer buys an old car at Rs 35,000/- and spends Rs 15,000/- on its repair. He sells
the car at Rs 62,000/-. Find the percentage profit made by the dealer.

10. Calculate the increase in cost of items in percentage for the year 2005 taking the base
year as 2000.

Commodity Quantity Rate per kg Year 2005

(in kgs) Base year 2000 Rs Rs
a) Apple 5 20/- 30/-
b) Rice 40 14/- 19/-
c) Coffee 2 78/- 102/-
d) Vegetable 15 25/- 30/-
e) Milk powder 5 90/- 120/-
f) Butter 5 180/- 210/-

Answers

1. a) 77% b) 20% c) 120% d) 5% e) 12.5%

2. 20%

3. 20%

4. Rs 900 /-

5. Rs 50,625 /-

6. Rs 1289 /- ( Rs 51.00 + Rs 330.00 + Rs 103.00 + Rs 805.00 )

7. a) Rs 318.50 b) Rs 157.50 c) Rs 1400/-

8. Rs 1181.25

9. 24%

10. a) 30% b) 36% c) 31% d) 20% e) 33.3% f) 16.7%

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SIMPLE INTEREST (S.I.)

Interest is the extra money paid by a borrower. Simplest form of interest or Simple Interest is
the additional sum of money paid by the borrower at the end of a term or period.

Let ‘P’ be Principal or the amount borrowed

R is the rate of interest expressed as R% per year

T is the term or number of years borrower keeps the money
Principal plus interest is the amount due
Then the simple interest

P  R T
S.I. =
100

Simple interest does not include any interest or interest already due.

COMPOUND INTEREST (C.I.)

Compound interest is defined as the interest which is every time added to the principal
whenever it is due. Further interest will be based on this added amount plus the principal.
Thus the difference between the original principal amount and the final amount is called
compound interest.

Compound interest is calculated as below

T
 R 
C.I. = P  1   P
 100 

where C.I. = Compound Interest = Amount – Principal

T
 R 
A = final amount = 1  
 100 
P = Principal
R = Rate of interest expressed as a percentage for a period
T = Total period or time as a multiple or factor of the period used to denote the rate of
interest.

Final Amount is the money received by an investor or payable by a borrower. This

amount is the sum of principal and compound interest.

A = P + C.I.

For example, if the rate of compound interest is 10% per year and principal is held for 1
year, the compound interest payable will be as follows.
1
 R 
C.I. for 1 year = P  1  P
 100 

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 =1.1 P – P
=0.1 P

If the period is 2 years, then

2
 R 
C.I. for 2 years = p  1  P
 100 
= 1.12 P – P
= 1.21P – P
= 0.21P

Please note that the compund interest calculated above will be slightly more than the simple
interest on the same principal for 2 years at 10% per annum.

GROWTH AND DEPRECIATION

Growth of population in a country is compounded. Hence we can estimate the population or the
increase in population using a formula similar to that used for calculating compound interest.
This concept is applicable for many real life situations.

For example the population growth in a country is estimated to be 1% compounded annually. The
percentage increase in the population P can be estimated as follows.

R = Growth percentage of P = (P in the current year – P in the previous year) × 100

P in the previous year

In case the population growth is to be calculated for a period of more than 1 year, then the
following formula is used.

Let Pe be the population in the estimated year, Pb be the population in the base year, R be the
percentage growth of population per year, N be the number of years which is the difference of
estimated year and base year. Then

N
 R 
Pe = Pb × 1 
 100 

Depreciation is negative growth. For example, the value of used cars depreciate annually in a
compounded manner.
N
 D 
Vpresent = Vbase year 1  100 

where Vpresent is the present value of the car

Vbase year is the value of the car in the base year which may be the previous year or years
D is the Depreciation rate per year
N is the number of years

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The above formula is based on the rate of growth or depreciation calculated per year.

However, if it is required to be calculated on a quarterly, monthly ot any other set period, then
the rate of Growth R or Depreciation D becomes the corresponding rate for the set period and N
will be the number of periods.

Example 1:

Find the amount payable by a borrower who has taken a loan of Rs 1000/- at 8% per year
compound interest after a period of two years.

Working:
N
 R 
A = P  1  
 100 
2
 8 
A = 1000  1  
 100 

A = 1000 × (1.08)2 = 1166.40

Answer: Rs.1166.40

Example 2:

The number of years a loan is held is N = 3 years. Find the amount payable A and compound
interest, if the rate R is 4% per year and the principal P is Rs 2000/- .

Working:
N
 R 
A = P  1  
 100 
3
 4 
A = 2000  1  
 100 

A = 2000 × = 2249.73

C.I. = A – P
= 2249.73 – 2000 = 249.73

Answer: A = Rs 2249.73 and C.I. = Rs 249.73

Example 3:

Rs 12,000/- was invested in a bank giving a compound interest of 8% p.a. compounded

quarterly. Find the amount payable by the Bank after 2 years.

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Working:
Rate R = 8 % p.a. = ⁄ = 2 % per quarter

T = 2 years  four quarters per year = 8

T
 R 
A = P  1  
 100 

8 8
 R   2 
A = P  1   12000  1 
 100   100 

A = 12000 × = 14059.92

Answer: Rs 14,059.92

Example 4:

Ram invests Rs 12,000/- in the shares of a company. After 3 years the shares are worth Rs
15,972/- . Find the rate of growth if compounded annually.

Working:
T
 R 
A = P  1  
 100 

where A = 15972, P = 12000, R= Rate of compound interest, T = 3

3
 R 
 15972 = 12000  1  
 100 
3
15972  R 
or  1 
12000  100 

3
15972 R
or  1
3
12000 100
R
1.1 = 1+
100
R
= 0.1
100

Answer: R = 10%

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EXERCISES

1. If the principal is Rs 5000, find the compound interest after 2 years at the rate of 7%
per year.

2. Calculate the simple interest and the compound interest on the capital investment of
Rs 8000 for the period of 2 years. The period for calculating the interest is 1 year and
the rate is 10%. Find the excess amount the investor gets if compound interest is used.

3. In how many years a sum of Rs 12,000 compounded quarterly will yield an interest of
Rs 1254 at 5% per annum.

4. Find the amount of compound interest when Rs 1000 is compounded quarterly for 9
months at the rate of 4% p.a.

5. Find the difference in compound interest compounded yearly and half-yearly at 10%
p.a., if the amount is Rs 7000 and period is 2 years.

6. An investor gets Rs 26,460 after 2 years. Find the amount invested if the rate of
compound interest is 5%.

7. The shares of a company were valued at Rs 100 each in the year 2000. They
appreciated at 5% compounded every year. What was the price of 100 shares in the
year 2003.

8. A factory increases the production of scooters from 8000 to 9261 in 3 years. Find the
yearly rate of growth if the increase was compounded.

9. A country had an army of 1,00,000 people. After the war its strength was reduced at
10% per year compounded annually. Find the strength of the army after 3 years.

10. A building worth Rs 50,000 was constructed on a land worth Rs 40,000. The building
depreciated at 10% annually but the land value appreciated at 20%. Find the loss or
gain in the value of land and building together after 3 years.

Answers

1. C.I. = Rs 725

2. S.I. = Rs 1600, C.I. = Rs 1880, Excess = Rs 280

3 2 years

4. C.I. = Rs 30

5. Rs 38.50

6. Rs 24,000

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7. Rs 11,576.25

8. 5%

9. 75,131

10. Gain = Rs 15,570

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