Mary's contract stipulated a 5% bonus for each year of employment at

Actual: 5% every year for 4 years, \(0.05*4=0.2\)
Anticipated: 5% every year for 5 years, \(0.05*5=0.25\)

\(Percentage.Of=\frac{Actual}{Anticipated}=\frac{0.2}{0.25}=80\)%

(A) is the answer.

Let Base amount be 100

Stipulated bonus for 5 years is \(5*5 = 25\)
Anticipated bonus earned is \(5*4 = 20\)

So, her anticipated bonus is \(\frac{20}{25}*100\) = 80% of Actual bonus, answer will be (A)

How do we know the bonus isnt compounded?


Sent from my iPhone using GMAT Club Forum

mohdtaha13 , because the question stem does not mention compounding at all.

"5% for each year of employment" does not say that the stipulated bonus comes in the form of a yearly raise, for example.

It does not say that the 5 percent rate changes.

It does not say that the base, from which the 5 percent is calculated, changes.

True, the bonus is probably based on salary or commissions or a combination of both.
But a "bonus" is usually a one-off event "over and above" regular compensation.

Almost without exception, compounding questions use some form of the word "compound."
There is no "compound" here. Try not to read anything extra into question stems.
No mention of compounding? No compounding.

(And just think: we would have to calculate \((1.05)^4\) and \((1.05)^5\). Actual/Anticipated in that case is about 95%. No answer choices match.)

Hope that helps.