A trader marks his goods 40% above cost price and then allows two successive discounts of 10% and 5%.

Take cost price = 100. Marked price = 140.

After a 10% discount: 140 × 0.9 = 126. After a further 5% discount: 126 × 0.95 = 119.7.

Profit = 119.7 − 100 = 19.7 on a cost of 100, i.e. 19.7%.

The trap answer 25% comes from 40 − 10 − 5; successive discounts compound, so they cannot be added. Net discount = 1 − 0.9 × 0.95 = 14.5%, and 140 × 0.855 = 119.7.