A vendor offers a chain discount of 8/5/3. What is the net price equivalent discount rate? Question 5 options: a) 120 b) 0.00024 c) 16% d) 0.8478
The Correct Answer and Explanation is:
Correct answer: d) 0.8478
Explanation
A chain discount is a series of successive percentage discounts applied one after another on a list price. The vendor in this question offers a chain discount of 8/5/3, which means:
- First, apply an 8 percent discount.
- Then, apply a 5 percent discount to the new reduced price.
- Finally, apply a 3 percent discount to the second reduced price.
To calculate the net price equivalent and then the net price equivalent discount rate, follow these steps:
Step 1: Convert each discount to a decimal form of the price retained
- 8 percent discount → Retain 92 percent → 0.92
- 5 percent discount → Retain 95 percent → 0.95
- 3 percent discount → Retain 97 percent → 0.97
Step 2: Multiply the retained percentages
Net price factor =
0.92 × 0.95 × 0.97 =
= 0.84778 (rounded to 0.8478)
This net price factor tells you that the final price after all three discounts is 84.78 percent of the original list price.
Step 3: Calculate the net price equivalent discount rate
Net price equivalent discount rate =
1 – Net price factor =
1 – 0.8478 = 0.1522 or 15.22 percent
This means the total discount amount is 15.22 percent, but the net price equivalent itself is 0.8478.
Therefore, the correct answer to the question is:
d) 0.8478
This value represents the fraction of the original price that the customer actually pays after applying the chain discount of 8 percent, 5 percent, and 3 percent successively.
