The salary of an employee is increased by 5% in the first year and again by 5% in the second year. What is the overall percentage increase in the salary after two years?
- AOption (a)
10%
- BOption (b)
10.5%
- COption (c)
10.25%
- DOption (d)
11%
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Correct answer
10.25%
Why this answer is correct

Shortcut Trick
Use the Successive Percentage formula: Net % Change = a + b + (a × b) ÷ 100
Here, both first and second year increases are 5%, so a = 5 and b = 5.
Net Increase = 5 + 5 + (5 × 5) ÷ 100
Net Increase = 10 + 0.25 = 10.25%
∴ The correct answer is 10.25%.

Alternate Method
Assume the Initial Salary of the employee is 100 units.

⇒ Let initial salary = 100
⇒ Salary after 1st year = 100 + (5% of 100) = 100 + 5 = 105
⇒ Salary after 2nd year = 105 + (5% of 105) = 105 + 5.25 = 110.25
⇒ Total Percentage Increase = ((110.25 − 100) ÷ 100) × 100 = 10.25%
∴ The correct answer is 10.25%.

Additional Information
Successive Percentage Increase/Decrease
When a value changes by x% and then y%, the net change is given by [x + y + (xy/100)]%. Use positive signs for increase and negative signs for decrease.
Multiplying Factor Method
For a 5% increase, the multiplying factor is 1.05. For two successive 5% increases, the final value is Initial × 1.05 × 1.05 = Initial × 1.1025.
Successive Discounts
If two successive discounts of d1% and d2% are given, the single equivalent discount is [d1 + d2 − (d1d2/100)]%.














