Financial Arithmetic – Money Maths Made Clear
Financial arithmetic applies the four operations to real-life money situations. It is one of the most practically important areas of mathematics.
Profit and Loss
Profit = Selling price − Cost price
Profit % = (Profit ÷ Cost price) × 100
Example
Buy for £80, sell for £110. Profit = £30. Profit % = 30/80 × 100 = 37.5%
Simple Interest
I = PRT ÷ 100 where P = principal, R = rate (%), T = time (years)
Example
£500 at 4% for 3 years: I = 500 × 4 × 3 ÷ 100 = £60
VAT
Price with 20% VAT = original price × 1.20
Price before VAT = price including VAT ÷ 1.20
Discounts and Sale Prices
Sale price = original × (1 − discount %/100)
Example
25% off £120: 120 × 0.75 = £90
Budget Planning
Total income − total expenses = savings. Divide savings by total income and multiply by 100 to find the savings percentage.
Key Takeaways
- Profit = selling price − cost; express as % of cost price.
- Simple interest = PRT/100.
- VAT adds to the price; reverse VAT divides by the multiplier.
- Discounts reduce the price: multiply by (1 − rate).
Practice Questions
- Buy a bicycle for £240, sell for £300. Find the profit and profit percentage.
- £1,500 invested at 3% simple interest for 4 years. How much interest is earned?
- A laptop costs £850 before VAT at 20%. What is the price with VAT?
- A jacket priced £160 is reduced by 30%. What is the sale price?
- You earn £2,400 per month and spend £1,750. What percentage do you save?