Question 1: “We have to cut costs in city government, and I am committed to distributing the pain of these cuts equally,” the mayor says during his weekly press conference. “To demonstrate this commitment, I am today announcing that I and every member of my office staff will immediately take a $5,000 reduction in our annual pay.” Consulting the latest city budget, you learn that the mayor is paid $95,832 a year. The annual salaries of his three office staffers are as follows: Executive Assistant Paula Pennington earns $44,664 a year, Personnel Manager Jorge Sanchez earns $33,202 a year, and receptionist James Lassiter earns $21,703 per year. A $5,000 cut will represent an approximately 5 percent cut in the mayor’s pay. Which of the following figures represents the next smallest pay cut in the mayor’s office:

Answer: 11 percent

Next highest salary is $44,664. Percentage of reduction of $5,000 =

$5,000/$44,664 = 11.19 percent

Question 2: The county school system is shockingly wasteful,” a campaign flyer being circulated by County Board of Education candidate Fred Horton reads. “My painstaking analysis of the school system’s expenditures during this most recent fiscal year has identified half a million dollars in spending that is questionable or outright pointless. When I’m elected, my first official act will be to put an end to these pork-barrel expenditures and put the money into the classrooms, where it belongs.” The county school system’s expenditures during the last fiscal year totaled $21 million. Which of the figures below represents the proportion of these expenditures Horton’s analysis identified as wasteful?

Answer: About 2 percent

Percentage of alleged wasteful spending equals alleged waste divided by total budget.

$500,000/$21,000,000 = 2.38 percent

Question 3: “I’d like to congratulate Philip Covington, our new finance director, on his management of the city police department’s pension fund investments. A year ago, when Phil joined us, the pension fund’s principal balance stood at $5,450,354. Through careful, wise stock investments during the past 12 months, Phil has grown that balance by a whopping $250,000. Every officer in the city owes Phil a big “thanks” for doing so much to ensure the pension fund’s profitability.” After calling half a dozen local banks, you learn that several would have given the city 6 percent interest, compounded monthly, had the pension fund’s principal balance been deposited with them during the past year. Which of the following figures represents the amount of interest that such a deposit would have earned?

Answer: $336,166

Compound interest:

Balance = $5,450,354 (1 + [.06/12])12

Balance = $5,450,354 (1 + .005)12

Balance = $5,450,354 (1.005)12

Balance = $5,450,354 (1.06168)

Balance = $5,786,519

Interest = Balance – Principal

$336,166 = $578,519 – $5,450,354