Contemporary Business Mathematics

with Canadian Applications

Thirteenth Edition

Chapter 3
Ratio, Proportion, and Percent

Copyright © 2025 Pearson Canada Inc. 3-1

Objectives
3.1 Use ratios and proportions to solve allocation and
equivalence problems.
3.2 Calculate percent to solve business problems.
3.3 Calculate rates and original quantities for increase and
decrease problems.
3.4 Use proportions and currency cross-rate tables to
convert currency.
3.5 Use index numbers and the Consumer Price Index to
compute the purchasing power of the Canadian dollar.
3.6 Use federal income tax brackets and tax rates to
calculate federal income taxes.

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Ratios
• Business information is often based on a comparison of
related quantities stated in the form of a ratio.
• When two or more ratios are equivalent, a proportion
equating the ratios can be set up.
• The fractional form of a ratio is frequently replaced by the
percent form because relative amounts are more easily
understood as percents. This is routinely done in business
reports and articles.

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Ratios
• Can be written in the following ways:

a) by using the word “to”, such as in “5 to 2”;

b) by using a colon, such as in “5 : 2”;

c) as a common fraction, such as “5/2”;

d) as a decimal, such as “2.50”; or

e) as a percent, such as “250%”.

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Ratios
• When comparing more than two numbers or quantities,
using the colon is preferred

5 kg : 3 kg : 2 kg ← we usually drop the units of measure

5:3:2

– The numbers appearing in a ratio are called the terms

of the ratio.

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Reducing Ratios to Lowest Terms

• The procedure used to reduce ratios to lowest terms is the

same as that used to reduce fractions to lowest terms.

80 : 35 = (16 × 5) : (7 × 5) = 16 : 7 (5 is a common factor)

81 : 54 : 27 = (3 × 27) : (2 × 27) : (1 × 27) = 3 : 2 : 1

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Equivalent Ratios in Higher Terms
• Multiply each term of a ratio by the same number.
• Higher-term ratios are used to eliminate decimals from the
terms of a ratio.
• 1.25 : 3.75 : 7.5
= 125 : 375 : 750
= (1 × 125) : (3 × 125) : (6 × 125)
=1:3:6

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Allocation According to a Ratio
• Dividing a whole into a number of parts according to a
ratio.
• The number of parts into which the whole is to be divided
is the sum of the terms of the ratio.
– Allocate 660 in the ratio 3 : 2
Method A Method B

Total number of parts is 3 + 2 = 5 Total number of parts is 3 + 2 = 5

Value of each part is 660 ÷ 5 = 132 3
× 660 = 396
5
3 × 132 = 396 2
2 × 132 = 264 × 660 = 264
5

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Allocation According to a Ratio
• A business suffered a fire loss of $224,640. It was covered by
an insurance policy that stated that any claim was to be paid
1 3 5
by three insurance companies in the ratio : : .
3 8 12

• What is the amount that each of the three companies will pay?
1 3 5 𝟖 𝟗 𝟏𝟎
: : ➔ LCD = 24 ➔ equivalent ratio is : :
3 8 12 𝟐𝟒 𝟐𝟒 𝟐𝟒
Allocate 8 : 9 : 10

Allocation computation Each company

Total number of parts is 8 + 9 + 10 = 27 Company #1: $66,560
Value of each part is 224,640 ÷ 27 = $8320 Company #2: $74,880
8 × 8320 = $66,560
9 × 8320 = $74,880
Company #3: $83,200
10 × 8320 = $83,200
Total = $224,640

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Proportions
• When two ratios are equal, they form a proportion
• 2:3=4:6
• x : 5 = 7 : 35
2 8 are proportions
• ∶
3 𝑥
𝑎 𝑐
• ∶
𝑏 𝑑

If one of the four terms is unknown, the proportions form a

linear equation in one variable.

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Proportions
• Solve the proportion 2 : 5 = 8 : x

Method 1 Method 2
Blank

2 8 Original Form Simplified technique called

∶
5 𝑥 cross multiplication
2 8 Change to fractional form 2 8
5𝑥 = 5𝑥 ∶
5 𝑥 and multiply by the L C D 5 𝑥
5x
2 𝑥 =5 8
2𝑥 = 40 2𝑥 = 40
𝑥 = 20 𝑥 = 20

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Proportions
• If your car can travel 385 km on 35 L of gasoline, how far
can it travel on 24 L?
– Let the distance travelled on 24 L be n km.
Blank
385 km nkm
=
35 L 24 L
385 n
=
35 24
385 × 24
n=
35
n = 264

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The Basic Percentage Problem
Percentages are used widely in business for determining
pay raises, interest amounts, and discounts on sale items.
• Determine a percentage of a given number by changing the percent
to a decimal fraction or a common fraction and then multiply by the
given number.
For example: 15% of $20 = 0.15 × 20 = $3

15% is called the rate

20 is called the base or original number
3 is called the new number (the percentage)

Percentage = rate × base

Alternatively, you can say:

New number = rate × original number

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Computation with Commonly Used
Percentages

Commonly Used Percents and Their Fractional Equivalents

(i) (ii) (iii) (iv) (v)

1 2 1 1 1 1 1 1
25% = 16 % = 12 % = 20% = 8 %=
4 3 6 2 8 5 3 12
1 1 1 1 3 2 2 1
50% = 33 % = 37 % = 40% = 6 %=
2 3 3 2 8 5 3 15
3 2 2 1 5 3 1 1
75% = 66 % = 62 % = 60% = 6 %=
4
Blank
3 3 2 8 5 4 16
Blank

1 5 1 7 4
83 % = 87 % = 80% =
3 6 2 8 5

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1% Method
• Determine 1% of the • Use the 1% method to determine
given number and then
figure the value of the I. 3% of $700
given percent. 1% of $700 = 0.01 × 700 = $7
3% of $700 = 3 × $7 = $21
II. 1/2 % of $9500
1% of $9500 = 0.01 × 9500 = $95
1
2
% of $9500 = 1Τ2 × $95 = $47.50

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Calculating the Base
• Determining the original • 60% of what number (x) is 42?
number
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 • Set up an equation:
𝐵𝑎𝑠𝑒 = 0.60x = 42
𝑅𝑎𝑡𝑒
x = 70

Alternatively, rearrange the

rate formula:
42
𝐵𝑎𝑠𝑒 𝑥 = = 70
0.60

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Calculating a Percentage Rate
• When setting up the ratio, the base (or original number) is always the
denominator of the fraction, and the percentage (or new number) is
always the numerator.

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑁𝑒𝑤 𝑁𝑢𝑚𝑏𝑒𝑟

𝑅𝑎𝑡𝑒 = =
𝐵𝑎𝑠𝑒 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟

• What percent of $150 is $65?

65
𝑅𝑎𝑡𝑒 = = 0.43ሶ = 43. 3%
ሶ
150

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Problems Involving Increase or
Decrease
• The amount of change is to be added for an increase to or
subtracted for a decrease from the original number (base)
and is usually stated as a percent of the original number.

+ 𝐼𝑁𝐶𝑅𝐸𝐴𝑆𝐸
𝑁𝑒𝑤 𝑁𝑢𝑚𝑏𝑒𝑟 = 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟
− 𝐷𝐸𝐶𝑅𝐸𝐴𝑆𝐸
– where the change (the increase or decrease) is
understood to be a percent of the original number

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Percent Problems Involving Increase

• 36 increased by 25% is what number?

– The original number is 36.
– The change (increase) is 25% of 36.
– The original number is known.
– Let x represent the new number.

36 + 25% of 36 = x
36 + 0.25 × 36 = x
36 + 9 = x
x = 45

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Percent Problems Involving Decrease

• What number is 40% less than 75?

– The change (decrease) is 40% of 75.
– The original number is 75.
– Let x represent the new number
75 − 40% of 75 = x
75 − 0.40 × 75 = x
75 − 30 = x
x = 45

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Calculating Rate of Increase

• Amount of change in percent.

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐶ℎ𝑎𝑛𝑔𝑒
𝑅𝑎𝑡𝑒 𝑜𝑓 𝐶ℎ𝑎𝑛𝑔𝑒 =
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟

• $325 is what percent more than $200?

– Amount of Change =
325 – 200 = $125.
125
– 𝑅𝑎𝑡𝑒 𝑜𝑓 𝐶ℎ𝑎𝑛𝑔𝑒 = 200
= 0.625 = 62.5%.
– An increase of 62.5%.

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Calculating Rate of Decrease

• Amount of change in percent

𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐶ℎ𝑎𝑛𝑔𝑒
𝑅𝑎𝑡𝑒 𝑜𝑓 𝐶ℎ𝑎𝑛𝑔𝑒 =
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟

• $180 is what percent less than $200?

– Amount of Change =
180 − 200 = −20
−20
– 𝑅𝑎𝑡𝑒 𝑜𝑓 𝐶ℎ𝑎𝑛𝑔𝑒 = 200
= −0.10 = −10%
– A decrease of 10%

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Using your Calculator
POINTERS AND PITFALLS

You can calculate the percent of increase over a base with your business
calculator. The function is labelled ∆%.
Press 2nd ∆%.
OLD is shown on the display. Enter the original value and press Enter ↓.
NEW is shown on the display. Enter the next number and press Enter ↓.
%C H is shown on the display. Press C P T.
Example: OLD = 150; NEW = 180; %CH = 20.0.
Press 2nd QUIT to close the worksheet.
Note: Any two of the three values can be entered into the calculator.

• If the NEW number is greater than the OLD number, the %C H is positive.
• If the OLD number is greater than the NEW number, the %C H is negative.
• The fourth input required by the calculator is #P D, indicating how many
periods the number changes by the percent indicated. The default for this is 1.

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Determining the Original Amount
• Ravi wants to pay off his student loan within the next three
years, so he has increased his original weekly payment by
60%. His new payment is now $88 per week. How much
was his original payment?

– Let the original amount be x

x + 60% of x = 88
x + 0.60(x) = 88 Alternatively, Press 2nd ∆%
% CH = 60
1.60x = 88 NEW = 88
x = $55 (the original payment) OLD =
CPT = 55

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Currency Conversions
• To perform currency conversions, we use exchange rates.
An exchange rate is the value of one nation’s currency
expressed in terms of another nation’s currency.
• The exchange rate tells us how much of one currency we
need to buy one unit of another currency.
• Currency exchange rates usually carry 4 decimals

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 Currency Conversions
• Suppose we were told that the U.S. dollar is worth
$1.2473 Canadian today. How would we calculate the
exchange rates between the Canadian dollar and the
U.S. dollar?
𝐶𝑎𝑛𝑎𝑑𝑖𝑎𝑛 𝐷𝑜𝑙𝑙𝑎𝑟 1.2473 𝑈. 𝑆. 𝐷𝑜𝑙𝑙𝑎𝑟 1.00
= = 1.2473 = = 0.8017
𝑈. 𝑆. 𝐷𝑜𝑙𝑙𝑎𝑟 1.00 𝐶𝑎𝑛𝑎𝑑𝑖𝑎𝑛 𝐷𝑜𝑙𝑙𝑎𝑟 1.2473

$1.2473 is the exchange rate for $0.8017 is the exchange rate for
converting U.S. Dollars to Canadian converting Canadian Dollars to U.S.
Dollars. Dollars.

Example – Convert $10 U.S. Dollars Example – Convert $10 Canadian

to Canadian. Dollars to U.S.
$10 × 1.2473 = $12.47 (CDN) $10 × 0.8017 = $8.02 (U.S.)

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Currency Conversions
The Ratio – U.S. to Canadian The Ratio – Canadian to U.S.
𝐶𝑎𝑛𝑎𝑑𝑖𝑎𝑛 𝐷𝑜𝑙𝑙𝑎𝑟 1.2473 𝑈.𝑆. 𝐷𝑜𝑙𝑙𝑎𝑟 1.00
• = = 1.2473 • 𝐶𝑎𝑛𝑎𝑑𝑖𝑎𝑛 𝐷𝑜𝑙𝑙𝑎𝑟
= 1.2473 = 0.8017
𝑈.𝑆. 𝐷𝑜𝑙𝑙𝑎𝑟 1.00

• $1.2473 is the exchange rate for • $0.8017 is the exchange rate

converting U.S. Dollars to for converting Canadian Dollars
Canadian Dollars. to U.S. Dollars.

• Example – Convert $10 U.S. • Example – Convert $10

Dollars to Canadian. Canadian Dollars to U.S.

$10 × 1.2473 = $12.47 (CDN) $10 × 0.8017 = $8.02 (U.S.)

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Currency Conversions
• Convert $55 Canadian into Swiss Francs.
• Locate Canadian dollar column, find Swiss Franc Exchange rate = 0.7604

• Conversion: 55.00 x 0.7604 = 41.82 Swiss Francs

If we know the exchange rate from currency A to B (ratio B/A), then the
reciprocal is the exchange rate from B to A (A/B)
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Application of Proportions: Index Numbers
• Indexes provide an easy way of expressing changes that
occur in daily business. (Example: How does a product’s
price change during a certain time frame?)
• An index is helpful when you wish to compare two values
of the same thing measured at different points in time.
The price of a textbook was $115 in 2017 and $125.35 in 2019.
Compare the two prices to create an index number
𝑝𝑟𝑖𝑐𝑒 2019 125.35
The change in price is 𝑝𝑟𝑖𝑐𝑒 2017 = 115
= 1.09

The price index in 2019 is 109.

The price index in 2017 was 100 (base period).
The index number 109 indicates that the price of the book in 2019
was 9% higher than in 2017.

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Consumer Price Index (CPI)
• The most widely accepted indicator of changes in the
overall price level of goods and services.
• In Canada, a fixed “basket” or collection of goods and
services is used to represent all Canadian goods and
services.
• The prices of the items in this collection are monitored and
are used to represent the price change of all goods and
services.
• The CPI is currently based on 2002 price levels and is
published monthly by Statistics Canada.

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Consumer Price Index (CPI)
For example, the 2017 CPI of 130.4 indicated that the
price level increased 30.4% from 2002 (the base year) to
2017.
• Purchasing power of the dollar is the reciprocal of the CPI.

𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑖𝑛𝑔 𝑃𝑜𝑤𝑒𝑟 $1
= 100
𝑜𝑓 𝑡ℎ𝑒 𝐷𝑜𝑙𝑙𝑎𝑟 𝐶𝑜𝑛𝑠𝑢𝑚𝑒𝑟 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥

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Purchasing Power of the Dollar
• The CPI was 137.0 for 2020 and 141.6 for 2021.
Determine the purchasing power of the Canadian dollar for
the two years and interpret the meaning of the results.
Purchasing Power Blank

2020 2021

$1 $1
100 = 0.729927 = 72.99%% 100 = 0.706215 = 70.62%
137.0
141.6

The dollar in 2020 could purchase only 72.99% of what it could buy
in 2002 (the base year).

In 2021, the dollar could purchase even less (about 70.62% of what
it could buy in 2002).
Blank
Bl
Bla
ank
nk

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 Consumer Price Index (CPI)
• Can be used to eliminate the effect of inflation on income
by adjusting nominal income (income stated in current
dollars) to real income (income stated in base-period
dollars or inflation-adjusted income).

𝐼𝑛𝑐𝑜𝑚𝑒 𝑖𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑑𝑜𝑙𝑙𝑎𝑟𝑠

𝑅𝑒𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 = 100
𝐶𝑜𝑛𝑠𝑢𝑚𝑒𝑟 𝑝𝑟𝑖𝑐𝑒 𝑖𝑛𝑑𝑒𝑥

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 Consumer Price Index (CPI)
James’ income was $65,000 in 2002, $79,500 in 2015, and $84,000 in
2017. The Canadian CPI was 126.6 in 2015 and 130.4 in 2017. The
CPI base year is 2002. Determine James’ real income in 2015 and
2017.
REAL INCOME

2015 2017
$79,500 $84,000
100 = $62,796.21 100 = $64,471.18
126.6 130.4

Nominal income CPI

CPI
Nominal
income

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 Consumer Price Index (CPI)
• James’ income in 2015 increased 22.3% over his 2002 income, his
purchasing power (2015 real income) decreased by 3.39% over the
thirteen-year period.
• From 2002 to 2017, his nominal income increased by 29.2% over his
2002 income.
• His real income decreased by 0.90% during the period 2002 to 2017.
Year 2002 2015 2017
Nominal income $65,000 $79,500 $84,000
Simple price index 65,000 79,500 84,000
(100) = 100.00 (100) = 122.3 (100) = 129.2
65,000 65,000 65,000
Absolute ($) increase Blank $14,500 $19,000
Relative (%) increase Blank 22.3% 29.2%
Real income $65,000 $62,796.21 (part i) $64,417.18 (part i)
Simple price index 65,000 62,796.21 64,417.18
(100) = 100.00 (100) = 96.61 (100) = 99.10
65,000 65,000 65,000
Absolute ($) increase Blank ($2203.79) ($582.82)
(decrease)
Relative (%) Blank (3.39%) (0.90%)
increase (decrease)

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Personal Income Taxes
Personal income taxes are taxes imposed by the federal and
provincial governments on the earned income of residents of
Canada.
The federal government collects and refunds income taxes
based on the income you calculate on your income tax return
each year.

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 Personal Income Taxes
• Provincial tax brackets vary by province, and federal tax
rates currently range from 15% to 33% of taxable income.
• The tax rates increase as your income increases.
2022 Federal Income Tax Brackets and Tax Rates
Taxable Income
(income tax brackets) Tax Rates
$50,197 or less 15% of taxable income less than or equal to
$50,197; plus
Over $50,197 up to $100,392 20.5% of taxable income greater than $50,197
and less than or equal to $100,392; plus
Over $100,392 up to $155,625 26% of taxable income greater than $100,392
and less than or equal to $155,625; plus
Over $155,625 up to $221,708 29% of taxable income greater than $155,625
and less than or equal to $221,708; plus
Over $221,708 33% of taxable income greater than $221,708

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Personal Income Taxes
• Income tax brackets are adjusted annually for changes
in the Consumer Price Index (CPI) in excess of 3%. If
the CPI increases by less than 3% during a year, there is
no increase in the tax brackets.
• The marginal tax rate is the rate at which your next dollar
of earned income is taxed.
• Your marginal tax rate increases when your earnings
increase and you move from a lower tax bracket to a
higher tax bracket.
• It decreases if your earnings decline and you move into
a lower tax bracket.

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 Personal Income Taxes
• Use the tax brackets and rates in Table 3.3 to compute the federal tax
for Jim, Kulvir, and Lee, whose taxable income is:
i. Jim : $55,000 Kulvir : $110,000 Lee: $165,000

Federal Taxes Blank

Jim 15% × $50,197 + 20.5% × (55,000 − 50,197)
= 7,529.55 + 984.62
= $8,514.17
Kulvir 15% × $50,197 + 20.5% × (100,392 – 50,197) + 26% ×
(110,000 – 100,392)
= 7,529.55 + 10,289.98 + 2,498.08
= $20,317.61
Lee 15% × $50,197 + 20.5% × (100,392 – 50,197) + 26% ×
(155,625 – 100,392) + 29% × (165,000 – 155,625)
= 7,529.55 + 10,289.98 + 14,360.58 + 2,718.75
= $34,898.86
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Summary

Ratios, proportions, and percents are tools used in

applications dealing with
• percent increase or decrease,
• index numbers,
• purchasing power and personal income taxes.

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