The Student Room Group

Simple commission calculation, explanation

Hi all, I am having a bit of a hard time getting my head around this simple calculation:

The question expresses, if a individual withdrew $780 in cash from an ATM, how much has he spent in total, expressed in Pounds Sterling?

Cash withdrawal (ATM) Commision 2.50% with a fee of 9GBP. Exchange rate of 1.7USD=1GBP.

There are two ways I thought I could calculate the total charge, however they seem to come with different answers which I found very difficult to understand why they are different.

x=Total Pounds Sterling.

(x-9)*1.7*0.975=780
x=479.59

((780*1.025)/1.7)+9=x
x=479.29

These calculations are pretty much the same, at least in logic, the first being working out x (total spent), the second working backwards....

So why is there are ±0.3 difference?
Original post by hailavonda
Hi all, I am having a bit of a hard time getting my head around this simple calculation:

The question expresses, if a individual withdrew $780 in cash from an ATM, how much has he spent in total, expressed in Pounds Sterling?

Cash withdrawal (ATM) Commision 2.50% with a fee of 9GBP. Exchange rate of 1.7USD=1GBP.

There are two ways I thought I could calculate the total charge, however they seem to come with different answers which I found very difficult to understand why they are different.

x=Total Pounds Sterling.

(x-9)*1.7*0.975=780
x=479.59

((780*1.025)/1.7)+9=x
x=479.29

These calculations are pretty much the same, at least in logic, the first being working out x (total spent), the second working backwards....

So why is there are ±0.3 difference?


Because 780*1.025 is not the same as 780/.975
Reply 2
Original post by brianeverit
Because 780*1.025 is not the same as 780/.975


I understood that, I am asking, why in pure logic thinking, does it not workout the other way around?

(x-9)*1.7*0.975=780
x=479.59

In the first case I deducted the fee for transaction, then exchange rate and commision was taken from total value. Though the answer is not the same as the one below

((780*1.025)/1.7)+9=x
x=479.29

First taken the total amount in GBP with commision and plus the fee for transaction.

Logic seems fine in both, but answer does not equate.
(edited 10 years ago)
Original post by hailavonda
I understood that, I am asking, why in pure logic thinking, does it not workout the other way around?

(x-9)*1.7*0.975=780
x=479.59

In the first case I deducted the fee for transaction, then exchange rate and commision was taken from total value. Though the answer is not the same as the one below

((780*1.025)/1.7)+9=x
x=479.29

First taken the total amount in GBP with commision and plus the fee for transaction.

Logic seems fine in both, but answer does not equate.


The logic in both is not fine. The correct answer is 479.29 GBP. The "undoing" action of multiplying by 1.025 is not to multiply by 0.975, but to divide by 1.025, which when you make that correction into your first equation, gives the same answer as the second.

For instance if x*1.025=y then y/1.025=x NOT y*0.975=x (try with any two numbers x,y).
(edited 10 years ago)
Its easier to follow the "pure logic" if you use phrases rather than arbitrary numbers to follow what you are doing.

Equation 2 (correct) was constructed as follows:

(take price in USD)--->multiply by 1.025 commission fee---> divide by 1.7 to get in GBP --->add flat 9 GBP fee.

In reverse (Equation 1):

(The value x which we wish to seek): take x in GBP---->undo the flat GBP fee (x-9)---->convert into USD (*1.7) ---->undo commission fee (/1.025) ----> set equal to 780 and solve.
Original post by hailavonda
I understood that, I am asking, why in pure logic thinking, does it not workout the other way around?

(x-9)*1.7*0.975=780
x=479.59

In the first case I deducted the fee for transaction, then exchange rate and commision was taken from total value. Though the answer is not the same as the one below

((780*1.025)/1.7)+9=x
x=479.29

First taken the total amount in GBP with commision and plus the fee for transaction.

Logic seems fine in both, but answer does not equate.


Consider an example with easier numbers.
If you increase 100 by 50% the answer is 150 but in order to finish up with 100 after decreasing by 50% we must start with 200. or if you increase something by x% and then decrease the answer by x% you do not return to your original value.
So in your first case you must divide by 1.025 rather than multiplying by 0.975

Quick Reply

Latest