Stupid Question

BehindTheScenes

I have a lecturer and she's deducting 8% from 125,000

She got 125,000 / 1.08 = 115740.7407

I think it should be 125,000 * .92 = 115,000

(my logic is 125,000 / 100 = 1,250 then 1,250 * .92 = 115,000)

Can anyone tell me which is correct?

Thanks.

Kavrocks

Both answers could be correct or they could be both wrong.

If the value of 125,000 contains the 8% added to 100% then you can think of it as 108% so to return to the original 100% (i.e. subtracting the additional 8%) you need to calculate 125,000 / 1.08, which is your lecturer's answer. (Sorry this could probably clearer).

However if you want to subtract 8% of 125,000 from itself then you need to calculate 125,000 * 0.92, which is your answer.

There is also a third possibility and that is both of you are wrong. You haven't told us what the 8% you are subtracting is of. For example, if you are subtracting 8% of 10,000 from 125,000, 125,000 - (10,000 * 0.08), then the answer is 124,200 and you are both wrong.

This probably is not the answer you were looking for but I hope it helps you to see the reasoning behind where both of your answers come from. Hopefully you will now be able to decide for yourself which is the correct answer (although unlikely that could still be left up to interpretation).

Pherekydes

BehindTheScenes wrote: »

I have a lecturer and she's deducting 8% from 125,000

She got 125,000 / 1.08 = 115740.7407

She must be an Economics lecturer?

I think it should be 125,000 * .92 = 115,000

Correct. Obviously.

Kavrocks wrote: »

There is also a third possibility and that is both of you are wrong. You haven't told us what the 8% you are subtracting is of. For example, if you are subtracting 8% of 10,000 from 125,000, 125,000 - (10,000 * 0.08), then the answer is 124,200 and you are both wrong.

I must remember this the next time I'm in Woodies or buying a car.

"20% off!"

Yes, but 20% of what? A million quid?

BehindTheScenes

Thanks for clearing that up and yeah she's a Construction Economics lecturer.

The 8% is being retained from the 125,000, with 125,000 being 100%. It's a cash flow forecast for a construction contractor, so the 8% is retained to make sure the job is done correctly first time around, if the job is all good then they gets the 8% at the end of the agreed period.

I appreciated the answers. Thanks

GreeBo

Pherekydes wrote: »

She must be an Economics lecturer?



Correct. Obviously.

It depends on exactly how the question is posed. Its not "obviously" correct imo.


Based on the follow up info X .92 is correct.

locum-motion

Pherekydes wrote: »

...Correct. Obviously....

GreeBo wrote: »

It depends on exactly how the question is posed. Its not "obviously" correct imo...

The question was posed (to us) as "deducting 8% from 125,000".

There is no other possible way of interpreting this than as "multiplying by 0.92".

The OP & Pheredykes are very definitely correct.

Anyone who (like the lecturer) interprets this as "dividing by 1.08" is just plain wrong.

Anyone who thinks it's ambiguous or not obvious just simply doesn't understand the English language!

Yakuza

The first line in the OP is completely unambiguous. To deduct "8% from 125000" in the absence of any other information or phrasing conventionally means remove 8% of 125000 from it, leaving 115000.

The only way you'd divide by 1.08 would be in the case of if, say, the VAT rate in a country for a certain item was 8%, and the consumer price was 125000, what would the pre-vat price be (i.e. the price to which 8% of itself was added to make 125000). As the OP was phrased, there is no way in my mind to come to the conclusion that anything but the answer posted several times above (115000) is the "correct" one.

MathsManiac

But to be fair to the other posters, it is often the case here that people in an initial post give incomplete or somewhat inaccurate information about what their lecturer / book /notes said, as they didn't quite understand or appreciate all the subtleties of what was going on. Of course lecturers sometimes do things incorrectly, but it's not unusual for us here to find that, when we ask people to give us the full and precise text of the question, it's not quite the same as their initial description. It's easy to say "you're lecturer is wrong; you're right", but sometimes things are a bit more complicated. Sometimes a student thinks a lecturer was taking off 8% and conveys it as this here, but when you probe for details, that wasn't what the lecturer was doing at all.

If all is as portrayed in the second post from the OP, then this confirms that the lecturer was incorrect. Given how basic the question is, it doesn't surprise me that other posters would have been trying to find an explanation for what the lecturer may have been doing.

For example, a different question in a similar context (builder cashflow projections) might arise as follows:
There's a 10% retention for one year agreed in a contract for €2.5 million. The builder is funding the project through borrowings at 8% APR. At the date of project completion, there's a future inward cashflow of €250,000 in one year's time. The present value of that future cashflow is 250,000/1.08.

So, from the OP's second post, this clearly wasn't the question. But I could see how a student who wasn't quite clued in, would think the lecturer in this latter case was taking the 8% interest off the 250K, and could write a post like the first one.