# An Ambiguous Question

1. Alice weighed 130 pounds. After going on a diet her weight is reduced by 10 pounds. What does she weigh?
2. Barbara weighed 130 pounds. After going on a diet her weight is reduced by 10%. What does she weigh?
3. Charles has a mortgage at an interest rate of 8%. A mortgage broker offers to reduce this rate by 2%. What rate is the broker offering him?
4. Donald has a mortgage at an interest rate of 8%. A mortgage broker offers to reduce this rate by 10%. What rate is the broker offering him?
5. Suppose that the discount rate is 15% and that, as a result of reducing the federal funds interest rate to 2.5%, the discount rate is reduced by 0.25%. What is the new discount rate?

The fifth question must be answered to do problem 45 on page 830 of the text. The first four questions are meant to illustrate the fact that fifth question is ambiguous. I took one interpretation when I did the problem in the lecture. To get the answer in the back of the book you should take the other.