How much should a trader mark up his goods to achieve a 20% profit after offering a 25% discount on the selling price?
Answer Choices
Correct answer marked belowSee the full step-by-step explanation
You can see the correct answer above. Sign in for free to unlock the complete worked solution.
Track your performance and improve
Get detailed analytics, unlock full explanations, and move up difficulty tiers as you practice.
Unlock the full explanation
Create a free account to reveal the correct answer, see the step-by-step explanation, and start tracking your GMAT progress.
Can someone explain why the answer isn't just 20% + 25% = 45%? I got C but the correct answer is different. What am I missing?
Because the discount is on the marked price, not the cost. You can't just add percentages.
Think of it this way: Let cost = 100. Want profit 20% so selling price = 120. Discount 25% means selling price is 75% of marked price. So marked price = 120 / 0.75 = 160. So markup = 60%.
This one took me a while. I kept confusing markup on cost vs markup on selling price. Finally got it.
I used the formula: Markup% = (Profit% + Discount%) / (1 - Discount%). Plugging in: (20 + 25) / (1 - 0.25) = 45 / 0.75 = 60%. Answer is A.
That's a neat shortcut, but I'd rather do it step by step to avoid mistakes.
What it tests
Your ability to compute percentage change, percentage of a whole, and to work backwards from a final value.
Common trap
Treating successive percentage changes as additive — a 10% rise then a 10% fall is not back to the start.