Everyday Math Demystified, 2nd edition

Stan Gibilisco

Explanations for Quiz Answers in Chapter 8

1. If you use a $5.00 bill to buy $2.50 worth of goods, you should receive $5.00 - $2.50, or $2.50, back in change. The correct choice is D.

2. The correct and proper way to count change involves starting out at the purchase price, and then counting up to the amount that the customer hands over. In this case, the correct choice is A. The salesperson starts at $2.50 and hands you 50 cents' worth of dimes to total $3.00, and then two $1.00 bills to total $5.00, the amount you originally handed over. Choice D is correct in a certain mathematical sense because it correctly counts out the amount of change, but it's not proper because it starts out at zero, not at the purchase price. Again, the answer is A.

3. When interest compounds more often than once a year (which it should, if you get a good deal on a savings account or CD), the APR is larger than the base or net rate (the rate that you'd get if interest were paid only once a year). That's because during the course of the year, each new interest payment is calculated on the original deposit amount plus the interest accumulated up to that time. The correct choice is B.

4. Whenever you invest money in a bank account, you want to get the best possible deal, in terms of the amount of interest that you earn, by putting in as much money as you can, by getting the highest interest rate that you can, and by never making any withdrawals before the end of the term. The correct choice is D, "All of the above."

5. You'll want to minimize the total interest whenever you take out a loan from any person or entity whatsoever. That's because you pay the interest out of your own pocket; you don't earn anything! The answer is C.

6. If the flat-tax exemption is $25,000 and you earn $40,000 in a given year, then you pay tax only on the difference, that is, on $15,000. If the tax rate is 20%, then your tax for that year is 0.20 x $15,000 = $3000. When you divide $3,000 in tax by your total salary of $40,000, you get 0.0750, which works out to 7.50%. The answer is B.

7. If you earn $80,000 in the same tax scenario as the one described in Question 6, then you pay the 20% flat tax on $80,000 - $25,000, or $55,000. The tax works out as 0.20 x $55,000 = $11,000. When you divide $11,000 in tax by your salary of $80,000, you get 0.1375 or 13.75%. The correct choice is D.

8. The distributor doesn't lose anything because of the VAT, compared with the situation if no tax existed. The distributor must pay a tax on the value added, but he passes that tax on to the retail store. The correct choice is A.

9. The consumer bears the full burden of the VAT accumulated though all phases of the transaction. That's 0.10 x $5.00, or 50 cents, in this case. The answer is D.

10. You sell your eggs to the wholesale distributor for $1.50 a dozen. You must therefore collect 0.10 x $1.50, or 15 cents, in VAT and remit it to the government. The correct choice is C.