This is the second post in the “Why Do We Learn …?” series. The main purpose of this series is to show the real life application of different Mathematics concepts. In this post, we continue with the topic of buying a commodity.
Below is table showing the price of the commodity with different weights:
|
Weight |
Sell Out Price (S$) |
Buy Back Price (S$) |
Difference between SOP and BBP (S$) |
Difference in Percentage (%) |
| 1 g | 56.50 | 56.10 | 0.40 | 0.71 |
| 1 kg | 56300 | 56100 | 200 | 0.36 |
| 1 ounce | 1820 | 1750 | 70 | 3.85 |
| 10 ounce | 17900 | 17600 | 300 | 1.68 |
Concept 1: Money
The sell out price is the money that you pay to the bank when you buy the commodity.
The buy back price is the money that the bank pays you when you sell the commodity back to the bank.
From the table above, we can see that there is difference between the sell out price and buy back price and the buy back price is always lower than the sell out price.
Concept 2: Percentage
If we invest in a commodity, we would like to earn money, that’s common sense.
With the assumption that the price is the same as the above table when you buy and sell the commodity, which weight would you choose to make maximum profit?
The difference in price does not make a good indicator because the weight difference is big and thus the difference in price is big too. Thus, we should choose the difference in percentage as a better indicator.
We choose the smallest difference in percentage to make maximum profit. To calculate the difference in percentage for 1 g:
The price difference = 56.50 – 56.10
= 0.40
The percentage = (0.40/56.50) x 100%
= 0.71%
From the table, we know that the smallest difference in percentage is for 1 kg, 0.36% and the biggest difference in percentage is for 1 ounce, 3.85%.
If the price of the commodity has increased by 2%, investment in 1 kg has positive return while investment in 1 ounce has negative return.
In a nutshell, we can decide which weight will give you a good return by using the difference in percentage, i.e. 1 kg gives the best return among the four weights while 1 ounce gives the least return.
Disclaimer: This post is not encouraging children and / or adults to invest blindly. This is only a simple example where you can use the knowledge learnt in real life. Investment in real life is more complicated and involves more risks.
