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The ZICA Technician Manual for Business Mathematics and Statistics

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12K Aufrufe

The ZICA Technician Manual for Business Mathematics and Statistics

Attribution Non-Commercial (BY-NC)

Als PDF, TXT **herunterladen** oder online auf Scribd lesen

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ARITHMETIC

This Chapter provides the students with general awareness and understanding of basic

arithmetic used in the daily transactions.

• Proportions

• Foreign currency conversion

• Weights and measures.

Pre – reading

1.0 Introduction

Most of the algebra that we will study in this text is referred to as the

algebra of real numbers. This simply means that the variables represent

real numbers. A set is a collection of objects and the objects are its

members or elements. Hence a set of real numbers consists of rational

numbers and irrational numbers.

a

A rational number is a number which can be written in the form , where

b

a and b are integers and b is not zero.

Example 1

−2 3 1

The numbers , , − 5, .4, 6 , 0, 8 are rational numbers. This is

5 4 4

because they can be written in the form

−5 4 0 1 25 8

−5 = , .4 = , 0 = , 6 = , 8= .

1 10 1 4 4 1

1

Example 2

3

= .3

10

5

= 2 .5 ter min ating decimals

2

3

= .75

4

1

= .333 . . .

3

1

= 0.166 . . . repeating decimals

6

1

= 0.0454545. . .

22

a

A number which cannot be represented in the form as above is called an irrational

b

number where a and b are integers and b is not zero. Furthermore, an irrational number

has a nonrepeating decimal representation.

Example 3

1

= 0.142857142. . .

7

1

= 0.076923076 . . . non repeating decimals

13

1

= 0.058823529 . . .

17

2, 3, π.

2

The entire set of real numbers is composed of the rational numbers along with the

irrational numbers. It is necessary for us to be familiar with the various terminology used

to classify different types of real numbers.

{. . . , − 3, − 2, − 1} Negative integers

{. . . − 2, − 1, 0, 1, 2, . . .} Integers

Some Definitions

The result obtained by adding numbers is called the sum. The sum of 10, 7 and 15 is 10

+ 7 + 15 = 32. The order in which numbers are added is not important.

10 + 7 + 15 = 7 + 15 + 10 = 15 + 10 + 7 = 32.

The difference of two numbers is the larger number minus the smaller number. The

difference of 23 and 5 is 23 – 5 = 18. The order of subtraction is very important. 23 – 5

is not the same as 5 – 23.

The result obtained by multiplying numbers is called the product. The product of 5 and 6

is 5 x 6 = 30. The order in which multiplication is performed is not important. 5 x 6 =

6 x 5 = 30.

The result obtained by division is called quotient. The quotient of 15 ÷ 3 is 5. The order

of division is important. 15 ÷ 3 ≠ 3 ÷ 15.

Numbers are often combined in a series of arithmetical operations. When this happens a

definite sequence must be observed.

3

1) Brackets are used if there is any danger of ambiguity. The contents of the

bracket must be evaluated before performing any other operation. Thus

8 × (5 + 3) = 8 × 8 = 64

25 − (14 − 5) = 25 − 9 = 16

Thus

6 × 12 + 11 = 72 + 11 = 83.

25 ÷ 5 − 2 = 5 − 2 = 3.

14 × 3 − 6 ÷ 2 + 5 = 42 − 3 + 5 = 39 + 5 = 44.

Exercise 1

1) 6 + 8×3 2) 2 × 10 − 3

3) 3× 6 − 2 + 3× 2 4) 6÷3+ 4

5) 35 × 3 − 18 ÷ 3 + 6 6) 6 × (3 + 5)

7) 25 − 3 × (6 − 4) 8) 14 − 3 × (8 + 3)

9) 20 − 14 ÷ 2 × (8 − 5) 10) 25 − 10 ÷ 2 + 5

6×8 ÷ 4 − 5

13) 6 + 8(2(3 + 5) 14)

3× 2 − 5× 2

15) (2 × 3 + 5 × 2)(7 × 3 − 2 × 3)

1.2 Proportions

road is 34km and a model of it is 1 centimeter long, then the length of the model

1

is of the length of the road. This can also be written as 1 to 34 and usually

34

represented as 1:34. The ratio has no units, it is dimensionless.

4

Example 1

K4 000 × 100n = 400 000n

50 1

50 : 400 000 = = .

400 000 8 000

Example 2

1

Express the ratio 25 :

in its lowest terms

5

1 1 5 125

25 : = 25 ÷ = 25 × =

5 5 1 1

Example 3

The lengths are in the ratio 4:3. If the first length is 34km, what is the second length?

3

The second length = of the first length

4

3 102

= × 34 = km.

4 4

Example 4

Two amounts of money are in the ratio of 5:2. If the second amount is K189 000, what is

the first amount?

5

First amount = × 189 000 = K 472 500.

2

Example 5

Total number of parts = 3 + 7 = 10

5 500 000

Amount of each part = = K 550 000

10

5

Exercise 2

2 1

a) 16:8 b) : c) 16:24 d) 27:9

5 3

2) Express the ratio of K500 to K250 000 as a fraction in its lowest terms.

3) Two lengths are in the ratio 5:8. If the first length is 260 metres, what is the

second length?

4) Two amounts of money are in the ratio 7:5. If the second amount is K240 000,

what is the first amount?

5) At a sale, prices of children’s wear were reduced in the ratio 5:4. Find the sale

price of a girls suit picked at K108 000.

Direct Proportion

Two quantities are said to be in direct proportion if they increase or decrease at the same

rate. If we buy 2kg packets of sugar at K7 000 then we suggest to pay K10 500 for 3kg

sugar and K3 500 for 1 kilogram packet. That is if we double the amount bought, we

double the costs; if we halve the amount bought, we halve the cost.

In solving problem on direct proportion we can use either the unitary method or the

fractional method.

Example 6

If 5 litres of semi-sweet wine cost K75 000 , how much does 50 litres cost?

5 litres cost K75 000 or 7 500 000 ngwee

75 000

1 litre costs = K15 000

5

50 litres cost 50 × 15 000 = K750 000.

6

2) Using the fractional method:

50 50 × 75 000

Cost of 50 litres = × 75 000 =

5 5

= K750 000

Example 7

15 litres of water have a mass of 30 000grams. Find the mass of 5 litres of water.

Here the number of litres of water decreases, so the mass must decrease also. The mass

and the volume of water are in direct proportion.

30 000

1 litre weighs = 2 000 grams

15

5 litres cost 5 × 2000 grams = 10 000 grams

Example 8

A tourist changed $180 (180 United States dollars) for K810 000. How many Zambian

kwacha would she get for $50?

$ 50 is worth

50

× 810 000

180

50 × 810 000

=

180

= K 225 000.

7

Example 9

If 6 packets of salt cost K21 000, how much do 25 packets of salt cost?

21 000

1 packet of salt cost = K 3 500

6

25 packet of salt cost 25 × 3 500 = K 87 500.

Exercise 3

3) Eggs cost K550 per unit. How much will 15 eggs cost?

4) If 6 metres of chitenge material cost K75 000, how much will 108 metres cost?

7) If a tourist gets K9 500 for £1, how many Zambian kwacha could he get for £75?

8) K2 000 000 is exchanged for $364 (United States dollars). How much is

K500 000 worth in US dollars?

9) A train travels 250 kilometres in 5 hours. How long will it take to complete a

journey of 750 kilometres?

10) If 15 metres of carpet cost K1 800 000, how much will 50 metres cost?

Inverse Proportion

If 10 men can dig a trench in 8 hours, how long would 20 men take to dig the same

trench, working at the same rate? If we double the number of men then we should halve

the time taken. If we halve the number of men, then the job will probably take twice as

long. This is an example of inverse proportion.

20 2

The number of men is increased in the ratio = .

10 1

8

Since this is an example of inverse proportion, the number of hours required must be

1

decreased in the ratio .

2

1

Number of hours required = × 8 = 4 hours.

2

Example 10

A packet of sweets is shared among 15 children and each gets 6 sweets. How many

sweets will each child get if the same packet of sweets is shared among 10 children?

Here the number of children decreases, so the number of sweets each gets increases.

10 2

The number of children decreases in the ratio = . Since is an example of inverse

15 3

3

proportion, the number of sweets increases in the ratio .

2

3

Number of sweet each gets = × 6 = 9 sweets.

2

Example 11

A car takes 8 hours to cover a journey at an average speed of 100 kilometres per hour.

What average speed would be necessary to cover the same journey in 5 hours.

Here, the time has been reduced, so the speed must be increased; the time and speed are

5

inversely proportioned. The ratio of decrease is . The average speed will increase in

8

8

the ratio .

5

8

The average speed = × 100km / h

5

= 8 × 20km = 160km / h .

9

Exercise 4

1) If 20 men can dig in 5 hours, how long would it take 25 men to dig the

same trench?

2) A farmer employs 24 men to harvest her maize crop. They take 12 days to

do the job. If she had employed 9 men, how long would it have taken

them?

5 sweets. If the sweets were divided amongst 15 children, how many

sweets would each receive?

4) In how many days could 25 men do a piece of work which 15 men can do

in 40 days?

5) 8 men produce 350 articles in 4 working days. How long would it take 14

men to produce the same amount?

Every country has its own monetary system. If there is to be trade and travel

between any two countries, there must be a rate at which the money of one

country can be converted into money of the other country. This rate is called the

rate of exchange

United States Dollar K4,368 = $1

United Kingdom British Pound (Sterling) K7,900 = $1

South Africa Rand K686 = 1 SAR

European union Euro K5,414 = 1£

The methods used for direct proportion are applicable to problems in foreign

exchange.

10

Example 12

If K686 = 1 SAR, find the nearest SAR the value in South African money of 1 500 000

kwachas.

1

1 kwacha = SAR

686

1

1 500 00 kwachas = × 1500 000 SAR

686

= 2 187 SAR.

Example 13

A tourist changes traveller’s cheques for $500 into South African rands at 6.37 rands to

the dollars. How many rands does she get?

Exercise 5

3) The number of South African rands equivalent to $350 000 (United States

dollars).

4) A stereo system costs £350 in the United Kingdom. A Zambian visitor wants to

purchase a set but wishes to pay in Zambian kwachas. What is the equivalent

price in kwachas?

5) A tourist changes cheques for £150 into South African rands at 9.50 rands to the

pound (£1). She spends 250 rands and changes the remainder back into Sterling

at the same rate. How much did the tourist receive?

6) Calculate the rate of exchange if a bank exchanges 2 520 rands for K1 890 000.

11

7) A person on holiday in United states of America changed K5 000 000 into

dollar at a rate of K4 500 to the $1. Her hotel expenses were $55 per day

for 5 days and his expenses were $250. On returning home she changed

the dollars she had into kwacha at a rate of K4 000 to the dollar.

Calculate:

d) The amount in kwachas obtained from the dollars she had left.

(Give your answer to the nearest ngwee).

We shall consider four of the original basic units used in the metric system.

The litre (l) used to measure volume

The gram (g) used to measure *”weight”

The Celsius degree (oc) used to measure temperature (also called centigrade

degree)

The Meter

The basic unit for measuring length in the metric system is the meter (m). It

corresponds roughly to the yard in the English system of measurement.

1 yard = 36 inches

everyday, non scientific use, the gram is used for ‘weight’.

The Litre

The basic unit for measuring volume (capacity) in the metric system is the litre

(l). It corresponds roughly to the quart in the English system of measurement.

1 litre = 1.06 qt

12

The Gram

The original basic unit for measuring “weight” in the metric system is the gram (g). One

gram is a small quantity of weight.

The basic unit for measuring temperature in the metric system is the Celsius (often called

centigrade degree).

Normal body temperature 37 oC = 98.6 oF

Freezing point of water 0 oC = 32 oF

Basic units can be changed to larger or smaller units by means of prefixes. We consider

the three commonly used prefixes.

1 kilo liter (kl) = 1 000 litres (l)

1 kilogram (kg) = 1 000 grams (g)

1 1

2) Centi means . (remember, 1 ngwee = kwacha)

100 100

1

Therefore, 1 centimeter (cm) = meter or 100 cm = 1m

100

1

1 centilitre (cl) = litre or 100 cl = 1l

100

1

1 centigram (cg) = gram or 100cg = 1g

100

13

1

3) Milli means .

1000

1

Therefore, 1 millimeter (mm) = meter or 1 000mm = 1m

1000

1

1 millilitre (ml) = .litre or 1 000ml = 1l

1000

1

1 milligram (mg) = gram or 1 000mg = 1g

1000

Changing Units

Multiplying or dividing a number by a power of ten can be carried out just by moving the

decimal point. Therefore, to change to larger or smaller units in the metric system, it is

only necessary to move the decimal point. This is one of the main advantages to using

the metric system.

Example 14

a) 0.84km = 0 8 4 0 . m = 840m

+3

b) 7.125kl = 7 1 2 5l = 7 125l

+3

c) 10.5kg = 10 5 0 0 .g = 10 500g

+3

14

Example 15

a) 3 020m = 3 . 0 2 0m = 3 . 0 2 0 km = 3.02km

-3

b) 550l = . 5 5 0 kl = 0.550kl

-3

-3

Move decimal three places to the left. Note that the –3 means a movement of 3 places to

the left.

Example 16

a) 245cm = 2 . 4 5 m = 2.45m

-2

b) 25cl = . 2 5 l = 0.25l

-2

c) 5.4cg = .0 5 4 g = 0.054g

-2

15

Example 17

a) 7.5m = 7 5 0 . cm = 750cm

b) 0.45l = 0 4 5 . cl = 45cl

c) 8.532g = 8 5 3 2 cg = 8.53.2cg

Example 18

a) 75mm = . 7 5 m = 0.075m

-3

b) 5 400 ml = 5 . 4 0 0 l = 5.4l

-3

c) 530g = . 5 3 0 g = 0.53g

-3

16

Example 19

a) 1.5m = 1 5 0 0. mm = 1 500mm

b) 0.78l = 0 7 8 0. ml = 780ml

c) 0.359g = 0 3 5 9 . mg = 359m

Note that another commonly used metric unit is the cubic centimeter.

Exercise 6

7) A dairy produce board houses 135 litres of milk per day. How many kilo litres is

this per day?

8) A rectangular football ground measures 0.95km by 0.25km. Find the area of this

field in square meters (m2).

10) Chola’s gift weighed 2 520 grams. Express the weight of the gift in kilograms

11) Find the volume in cubic centimeters of a container that holds 3.735 litres of

water. (1cm3 = 1ml).

17

Temperature

When planning what clothing to wear, or what activity to engage in, we usually check the

temperature first.

Changing Celsius to Fahrenheit. This can be done by using the following formula.

9

F = C + 32

5

Example 20

25 oC = ………... oF

9

F= (25) + 32

5

= 45 + 32 = 77

Therefore 25 oC = 77oF

Example 21

9C

75 = + 32

5

= 375 = 9c + 160

215 = 9C

215

C= = 23.89

9

Therefore, 75 oF = 23.89 oC

18

Perimeter

Example 22

10cm

3cm

8cm

5cm 6cm

4cm

= 36cm

Example 23

A rectangular piece of land is 50m by 30m. A farmer intends to cultivate this land and

fence it at the cost of K10.50 per meter of fence wire. How much does it cost her?

50m

30m

160m.

= K1680.00

19

CHAPTER 2

ALGEBRA

2.0 ALGEBRA

2.1 Numbers

rules which are important in the manipulation of equations.

Rule 1.

To add two numbers having like signs, add the numerical values and prefix their

common sign.

Example 1

b) –5 + (−25) = −(25 + 5) = −30

Rule 2

To add two numbers having unlike signs, subtract the smaller numerical value from the

larger, and prefix the sign of the number having the larger numerical value.

Example 2

a) + 16 + (−7) = + (16 − 7) = + 9

b) + 5 = (−23) = −(23 − 5) = −18

Rule 3

Example 3

20 − (−5) = 20 + 5 = 25

− 3 − (−10) = −3 + 10 = 7

− 5 − (6) = −5 + (−6) = −11

20

Note that + + = +, − − = +, + − = −,−+ = −. Therefore, the product of the two

numbers can be stated in the following rule.

Rule 4

To multiply two numbers or to divide one number by another (note that division

by zero is not allowed), multiply or divide the numerical values and prefix a +

sign if the two numbers have like signs and a - sign if the two numbers have

unlike signs.

Exercise 1

a) 6 + ( − 2) b) 16 − (−15)

c) − 5 + (−4) d) − 15 − (−3)

e) 3(−4) f) (−3)(−5)

g) − 10 ÷ (−2) h) − 90 ÷ (6)

2.2 Exponents

a is called the base and 5 is called the exponent. An exponent is then a positive

integer, written to the right and slightly above the base, which indicates the

number of times the base is to appear as a factor.

Example 4

a) a 3 = a . a. . a b) 16 = 2 . 2 . 2 . 2 = 2 4

c) 216 = 23. 33

Laws of Exponents

a m .a n = a m + n (1)

21

Thus

a 3 .a 5 = a 3 + 5 = a 8

b 4 .b 2 = b 4 + 2 = b 6

am

n

= am−n (2)

a

where m > n

Thus:

a5

3

= a5−3 = a 2

a

1

If m < n, n−m

(3)

a

(a m ) n = a mn (4)

Thus

(a 3 ) 2 = a 3× 2 = a 6

(ab) n = a nb n (5)

Thus:

(ab)3 = a 3b 3

n

a an (6)

= n

b b

Thus

3

a a3

= 3.

b b

The extension of notion of an exponent to include any rational number (i.e, zero, positive

and negative integers and common fractions) is made by the additional definitions.

a 0 = 1, a ≠ 0 (7)

22

1

a−n = , a ≠ 0 and n a positive (8)

an

1

The exponent in a n , for example, has nothing to do with the number of time the base is

to appear as a factor. This is the nth root of the number "a"

Example 5

36 a6

a) 1 = 6 = 36 − 6 = 30 e) −4

= a 6 .a 4 = a10

3 a

−3

−3 1 1 a3 a −9 b12

b) 2 = 3 = f) 4 = −12 = 9

2 8 b b a

1 1

c) −5

= 25 = 32 g) (81) 4 = 4 34 = 3

2

3

1 3a 3 33 a 9

d) (16) = 16 = 4

2

h) 2 = 6

d d

Note that the above rules apply to products and quotients only. The rules are not for

simplifying sums or differences of numbers. These rules cannot be used to simplify or

reduce 3x + 3 y. For example

34 + 35 ≠ 39

81 + 243 ≠ 19683

Logarithms

The logarithm, base b, of a positive number N (written logb N ) is the exponent x such

that b x = N .

Example 6

a) log 2 16 = 4 b) log3 81 = 4

Since 2 = 16 4

Since 34 = 81

23

Logs to Base 10 and logs to Base e

If logs of all numbers were tabulated for every possible base, there would be endless sets

of tables, therefore for convenience, two sets of tables are available, one for logs to base

10, and one for logs to base e. On your calculator, these may be found on the log key (for

logs to base 10) and on the In key (for logs to base e).

Rule 1

For logarithm of the product of two or more positive numbers is the sum of the

logarithms of the numbers.

Rule 2

The logarithm of the quotient of two positive numbers is the logarithm of the numerator

minus the logarithm of the denominator.

M

logb M − logb N ⇔ log b

N

Rule 3

The logarithm of a power of a positive number is the exponent of the power times the

logarithm of the power.

logb ( M r ) = r logb ( M )

Example 7

= log 3 + log 2 2

= log 3 + 2 log 2

= 0.477121 + 2(0.3010)

= 1.079121

24

b) log120 = log(3 × 4 × 10) = log(3 × 2 2 × 10)

= log 3 + 2 log 2 + log10

= 0.477121 + 2(0.3010) + 1.00000

= 2.079121

12

c) log 0.12 = log = log12 − log100

100

= 1.079181 − 2

= −0.920819

1

= log 0.81

3

1

[

= log 34 − log10 2

3

]

= [4 log 3 − 2 log10] = [4(0.477121) − 2]

1 1

3 3

= −0.03051

Example 8

a) log( x + 3) = 3.5

to isolate x it is necessary to go from log form to index form 103.5 = x + 3 .

3162.27766 = x + 3

x = 3162.27766 − 3

x = 3159.27766

25

b) 2 ln x = ln( x + 2) = 0

ln x 2 − ln( x + 2) = 0, rule 3 bring the 2 in as a power

x2

ln = 0, rule 2, log of a quotient

x + 2

x2

= e0 = 1, going from log form to index form

x + 2

x2 − x − 2 = 0 is a quadratic equation.

x = 2 or − 1.

c) e1.86 = x + 3 going from log form to index form using a calculator, we find

e1.86 = 6.42374 ( 5 decimal places) then

6.42374 = x = 3

x = 6.42374 − 3

= 3.4237 check the solution !

d) 3x.3 x +1 = 8

3 2 x +1 = 8

(2 x + 1) log 3 = log 8

log 8

2x + 1 =

log 3

log 8

2x = −1

log 3

1 log 8

x= − 1

2 log 3

1 0.9031

= −1

2 0.4771

= 0.4464

26

Check the solution!

Exercise 2

1) Simplify

a) a 5 .a 6 b) a 8 .a 7 c) a.. a 3 .a

6

a8 a6 1

d) e) f) 3

a5 a3 9

12 4

93 a 3.a 6

g) 4 h) 2 3

9 b .b

2) Solve for n

a) (1.06) n = 5

b) (1.01) n = 2.8536

c) (1.0325) − n = 0.67585

(1.05) n − 1

d) = 35.36

0.05

3. Solve for x

1 −1

d) ln x − 2 = e) ln x = 2.5 f) ln(3 + x) = 5

2 2

27

2.3 Equations

between two expression. These statements may be either true (for example 5 + 2

= 7) or false for (for example 13 – 6 = 9).

The equations of interest in algebra are those that involve at least one variable or

unknown on either (or both) sides of the equal sign. There are two types:

variable. For example,

y

x + 5 = x + 5, 2 x + 8 = 8 + 2 x, and

= 0.25 y are identities because

4

regardless of which real number replaces the variable, each equation is

true.

real value replacement of the variable. For example,

is, to find the value of the variable that satisfies the equation (makes it

true). A value of the variable that makes the equation true is called a

solution and the collection of all solutions is called the solution set.

1) Any real number can be added to (or subtracted from) both sides of

an equation. In symbols this rule says; a = b if and only if a + c =

b + c.

non-zero real number. In symbols, this rule says: if c ≠ 0, a = b if

and only if ac = bc.

Not all equations have solutions. In fact equations may have no solution

at all or may have infinitely many solutions.

28

Example 9

a) x + 5 = 14 .

b) ( x − 3)( x + 4) = 0

c) x + 4 = 3x − 8 + 6 x

a) x + 5 = 14 .

x = 14 − 5 subtracting 5 on both sides

x=9

b) ( x − 3)( x + 4) = 0

This equation has the product of two terms (x-3) and (x+4) on the left-hand side

(LHS). A product is equal to 0, if either terms in the product is 0.

x−3 = 0 or x+4=0

x=3 or x = −4

Here there are two solutions. x = 3 and x = −4 . Each solution can be confirmed

by checking that they satisfy the original equation.

x − 3 x − 6 x = −8 − 4

− 8 x = −12

3

x= .

2

Quadratic Equations

(constants). Note that a ≠ 0. If a quadratic equation can be written as the product of

two factors, then the solution can be written down immediately as in Example 9(b)

29

If the factors are not obvious or there are no easy factors the following method may be

used.

− b ± b 2 − 4ac

x= (2.1)

2a

Example 10

− 13 ± (13) 2 − 4(3)(−10)

x=

2(3)

− 13 ± 169120

x=

b

− 13 ± 17

=

6

− 13 − 17 − 13 + 17

x= or

6 6

2

x = −5 or

3

Simultaneous Equations

In many applications, both practical and theoretical, there will be several equations with

several variables or unknowns. These are referred to generally as Simultaneous

equations. The solution of a set of simultaneous equations is a set of values for the

variable, which satisfy all the equations.

30

Two Equations in Two Unknowns

A standard method for solving two linear equations in two unknowns is outlined in the

following example.

Example 11

x + 5 y = 16

x + 2y = 7

equation (1) and (2). The two equations reduce to a single equation in

which the only unknown is y . Solve for y , then substitute the value of y

into either the original equation and solve for x .

Step 1: x + 5 y = 16 (1)

( x + 2 y = 7) ( 2)

0 + 3y = 9 subtracting

y = 3 solving for y .

equation (2).

x=1

into equations (1) and (2) and confirm that both equations

balance.

x + 5 y = 16

(1) + 5(3) = 16 Substituting x = 1, y =3

31

1 + 15 = 16

16 = 16

• Substitute x = 1 and y =3 into equation (2).

x + 2y = 7

(1) + 2(3) = 7 substituting in x = 1 and y =3

1+6=7

7=7

Since the point (1, 3) satisfies equations (1) and (2), then this point is at the point

of intersection of the lines represented by equations (9)1 and (2) as shown in (b).

3.5 x + 2y = 7

3.2 •

3 • (1, 3)

•

-6 -4 -2 0 2 4 6 7 8 10 16 x

-1

x = 5 y = 16

Figure 2.1 Unique Solution

32

b) The two lines are plotted in Figure 2.1. The point of intersect is the solution. The

coordinates of this point are x = 1 and y = 3 . In this case, it is a unique solution,

that is, the lines intersect at only one point. This point is on the first line so it

satisfies equation (1) and also on the second line, so it satisfies equation (2).

A set of simultaneous equations may have

• A unique solution as in the above example where a set of equations has one set of

values which satisfy all equations.

• No solution. This occurs when a set of equations has no set of values, which

satisfy all equations.

Example 12

y = 3+ x (1)

y = 5+ x ( 2)

a) y = 3+ x

y = 5+ x

subtracting the two equations

0 = −2

practical point of view, you can see that there is no way that both of these

equations can both be true. How can y be equal to 3 + x and 5 + x at the

same time?

solution.

b) The two equations are plotted in Figure 2.2. The lines will never meet

since they are parallel and thus will never have a point (solution) in

common.

33

y y +5+ x

y = 3+ x

-5 -3 0 3 x

Infinitely many solutions; a set of equations has infinitely many solutions when there is

an infinite number of sets of values that satisfy all equations.

Example 13

y = 3− x (1)

2 y = 6 − 2x ( 2)

34

a) When equation (2) is divided by 2, the result is exactly the same as

2 y 6 2x

equation (1), since = − ⇒ y = 3 − x.

2 2 2

So, equations (1) and (2) are the same! There is only one equation in two

unknowns. If x is given any value, the corresponding y – value can be calculated.

For example, when

x =1 , y=2

x=2 , y =1

x=3 , y = 0 etc

There is an infinite number of (x, y) pairs which satisfy equation s (1) and (2).

y = 3 − x and 2 y = 6 − 2 x

0 3 x

b) Equations (1) and (2) are plotted in Figure 2.3. Note that these equations are

coincident lines, therefore every point on one line is also a point on the other line.

Since a line has infinitely many points, there is infinitely many solutions or points

in common.

35

Three Simultaneous equations in Three Unknowns

The methods used above to solve two equations in two unknowns may be extended to

three equations in three unknowns, four equations in four unknowns, etc. The strategy is

to eliminate one of the variables first by adding multiples of equations to other equations

in two unknowns. See the following Example 14.

Example 14

3x + y − z = 2 (1)

x + 2y − z = 2 ( 2)

5 x + 3 y + z = 14 (3)

The simplest approach is to add equation (3) to equation (1), and hence eliminate z,

giving an equation in x and y . Then add equation (3) to equation (2), eliminating z

again, giving another equation in x and y .

3x + y − z = 2 (1)

5 x + 3 y + z = 14 (3)

8 x + 4 y + 0 = 16 (4) = (1) + (3)

x + 2y − z = 2 ( 2)

5 x + 3 y + z = 14 (3)

6 x + 5 y = 16 (5) = (2) + (3)

Equation (4) and (5) are the usual two equations in two unknowns, so solve for x and y .

Then solve for z later.

8 x + 4 y = 16 ( 4)

6 x + 5 y = 16 (5)

Dividing equation (4) by 4, we have 2 x + y = 4 as our new equation (4) then subtract (6)

and (5). Equation (6) is obtained by multiplying equation (4) by 5.

36

10 x + 5 y = 20 ( 6)

6 x + 5 y = 16 (5)

4x = 4

x = 1 solving for x

So, x = 1, substitute x = 1 into equation (5), (6) or (4) to solve for y . Substituting x = 1

into equation (4) gives 2(1) + y = 4 → y = 2. Finally find z by substituting x = 1 , y = 2

into any of the equation (1), (2) or (3). For example substituting into (2),

1 + 2(2) − z = 2 → z = 3 , therefore, the values which satisfy all three equations (1), (2)

and (3) are x = 1, y = 2 and z = 3.

Exercise 3

1. y=x 6. x− y+z = 2

y = 4− x x + 2 y − 2 z = −1

− x + 2 y + 2z = 9

2. x + y = 13 7. 4 p − 3q = −3

x− y =3 2q + 2.5 p = 17.5

3. 3 x + 2 y = 16 8. p1 + 3 p2 = −14

4x − y = 3 5 p2 − p3 = 19

p1 + p2 + p3 = 12

4. 5x − 2 y = 7 9. 3 x + y = 185

3 x + 3 y = 21 2 x − 0.5 y = 65

5. 38 + 2 p = 6q 10. 2 x − 5 y = −4

5 p + 8q = 89 8 = 3 x − 3 .5 y

The method of simultaneous equations and Quadratic equations are now applied to

determine equilibrium conditions in various markets; for example the goods, labour and

money market.

Example 15

37

The demand and supply function for a good are given as

Supply function : P = 20 + 0.75q ( 2)

Market equilibrium occurs when Qd = Qs and Pd = Ps . Since the functions are written in

the form P = f (q ) with P as the only variable on the LHS of each equation, it is easier to

equate prices, reducing the system to an equation in q only, hence, solve for q :

Pd = Ps

200 − 0.75q = 20 + 0.75q

1.5q = 180

q = 120 equilibrium quantity

Now solve for the equilibrium price by substituting q =120 into either equation (1) or (2).

P = 110 equilibrium price

Figure 2.4 illustrates Market Equilibrium at point Eo with equilibrium quantity, 120, and

equilibrium price K110. The consumer pays K110 for the good which is also the price

that the producer receives for the good. There are no taxes!

200 p = 20 + 0.75q

20 p = 200 – 0.75q

38

Figure 2.4 Goods Market Equilibrium

Example 16

Chipwende made twice Musonda’s salary last month. If their total earnings were

K3 172 500, how much did each make?

Notice that we asked for two things here, Musonda’s salary and Chipwende’s salary. Let

x represent Musonda’s salary. Since Chipwende’s salary is twice Musonda’s we have

2 x representing Chipwende’s salary.

x + 2x = K3 172 500

x + 2 x = 3 172 500

3 x = 3 172 500

x = K1 057 500

Musonda’s salary is K1 057 500; Chipwende’s salary is twice that or K2 115 000.

Example 17

c) Estimate the value of q at which total revenue is a maximum and estimate the

value of maximum total revenue.

then TR = (50 − 0.5q )q = 50q − 0.5q 2

39

b) Calculate a table of values for 0 ≤ q ≤ 30 such as those in Table 2.0 the

graph is plotted in Figure 2.5.

Q TR

0 0

10 450

20 800

30 1050

40 1200

50 1250

60 1200

70 1050

80 800

90 450

100 0

110 -550

TR

500

TR = 50q − 0.5q 2

450

0 50 100 q

40

c) A property of quadratic functions is that the turning point (in this case a

maximum) lies halfway between the roots (solutions) of the quadratic function.

TR = 50q − 0.5q 2

1

0 = 50q − q 2

2

0 = 100q − q 2

0 = q (100 − q )

q = 0 or q = 100

The roots are illustrated graphically as the points where the TR function intersect

the x-axis. The turning point occurs halfway between these points, that is, at

p = 50. Substituting q = 50 into the function and calculate maximum total

revenue as

TR = 50q − 0.5q 2

= 50(50) − 0.5(50) 2

= 2500 − 1250

= 1250

41

EXAMINATION QUESTIONS WITH ANSWERS

1) Mulenga made twice Chitalu’s salary last month. If there total earnings were

K1,903,500, how much did Mulenga make?

c) K634 500

2) What is the point of intersection, if any, of the lines represented by the following

pair of equations?

y − 3x − 2 = 0

y − x−6 = 0

d) none

(Natech, 1.2 Mathematics & Statistics, December 1999 (rescheduled)).

27 3

a) b) c) 0.465

125 5

d) 0.216

(Natech, 1.2 Mathematics & Statistics, June 2001)

4

3

4) The expression y 4 equals

19

3 4

a) y b) y c) y

3

16

d) y

(Natech, 1.2 Mathematics & Statistics, December 2001)

42

5) The price of a product including local sales tax at 19% is K900.68. The price is

reduced by 20%. The new price before sales tax is added, is

e) K760.20

(Natech, 1.2 Mathematics & Statistics, June 2005)

2 −3 −3 4 −2 3

a) or b) or c) or

3 4 3 3 3 4

3 −4

d) or

2 3

(Natech, 1.2 Mathematics & Statistics, June 2005)

7) If 2 x = 64 then x is equal to

a) 6 b) 64 c) 32

1

d)

6

8) If x 2 + 5 x + 8 = 0 then x is equal to

− 5 ± 13 5 ± 13 − 5 ± 37

a) b) c)

2 2 2

5 ± 37

d)

2

x2 − x

9) is equal to

x −1

a) x b) x2 − 1 c) 1 − x2

d) x2

a) −3 b) −8 c) 3

d) 16

43

SECTION B

3 2 + 3q

Q1. a) Given the equation + = 5. Find the value of q.

2q − 5 q

b) The demand and supply functions for golf lessons at Chinama Golf club

are:

Supply function : P = 92 + 4Q

3x − y + z = 5

2 x + 2 y + 3z = 4

x + 3 y − z = 11

(Natech, 1.2 Mathematics & Statistics, December 2003)

Zambia is as follows:

C = x2 + 2 x + 6

tones in (hundreds), of fertilizer produced.

inclusive.

ii) Using the result in (i) above, plot the cost on output to produce a

scatter graph and interpret it.

total of K25 million rounded to the nearest hundred tones.

44

CHAPTER 3

STATISTICS

3.1 Introduction

This Chapter provides the students with a general awareness and understanding of the

collection and presentation of numerical information, including frequency

distributions. At the end of the Chapter the student will have a basic ability in the

analysis and interpretation of statistical data.

In many applications of statistics, businesses use internal data – that is data arising

from bookkeeping practices, standard operating business procedures, or planned

experiments by research divisions with the company. Examples are profit and

loss statements, employee salary information, production data and economic

forecasts. The data sourced from outside the firm is called external data. Internal

data may be of two types. Primary data and Secondary data. By primary data, we

obtain data from the organization that originally collected them. An example is

the population data collected by and made available from the Central Statistical

Office (CSO) Zambia. Secondary data come from a source other than the one that

originally collected them. Users of secondary data cannot have a clear

understanding of the background as the original investigator, and so may be

unaware of the limitations of the data at hand.

There are many excellent sources of published (Primary and secondary) data

compiled by the state, by business and economic associations, and by commercial

sources (periodicals). Some examples are:

When a survey or an experiment has produced a body of data, the original state of

data will not generally convey much information about the characteristics of

interest. Typically, they will be too many reservations to give on insight into the

nature of data. It is necessary to organize and reduce the data into such

meaningful forms as graphs and charts or such numerical quantities as averages,

totals and percentages. The resulting statistical summaries of the data can be used

as a framework for data analysis and interpretation.

There are basically two methods of describing data. The graphical method and

numerical method. This Chapter focuses on both of these methods.

45

Population

We use the word population to describe possible measurements of the particular

characteristic under consideration. A population can be finite (small or large) or

infinite (in the sense that it is particularly impossible to count its size). For

example, the number of students in a class (small), the yearly output of a certain

type of soft drinks (large), the number of particles of sand in the world (infinite).

Sample

A sample is a part of a population in which the population characteristic is studied

so that inference may be made from the sample to study about the entire

population.

Frequency

In any population two or more members may have the same value. For example,

the height (to the nearest cm) of several members of a school may be the same.

The number of members with the same value is known as the frequency and is

generally denoted by f.

Any data not arranged in a given order is called raw data otherwise it is an array of data.

Example 1

The following data record the number of children under the age working in a

certain company

1 1 3 2 0 8 8 6 7 7 8

6 8 8 1 1 0 0 2 9 4 4

0 0 0 1 1 1 1 2 2 3 4 4 6 6 7 7 8 8 8 8 8 9

46

Tally Chart

0 III 3

1 IIII 4

2 II 2

3 I 1

4 II 2

6 II 2

7 II 2

8 IIII 5

9 I 1

Under Age working (f)

0 3

1 4

2 2

3 1

4 2

6 2

7 2

8 5

9 1

47

When the number of distinct data values in a set of raw data is large (20 or more,

say), a simple frequency distribution is not appropriate, since there will be too

much information, not easily assimilated. In this type of situation, a grouped

frequency distribution is used. An example of a grouped distribution is given

below.

5 and < 10 5

10 and < 15 6

15 and < 20 8

20 and < 25 3

values either above or below a particular level. Cumulative frequency

distributions come in two different forms:

ii) “more than” distributions.

Example 2

ii) “more than” distribution

i)

Salary scale No. of Salary scale No. of workers

‘K’000,000’ workers

5 and < 10 5 < 10 5

10 and < 15 6 < 15 11

15 and < 20 8 < 20 19

20 and < 25 3 < 25 22

boundaries”), with each one showing the number of items in the distribution

having values less than this item value.

48

ii) Here, a set of item values is listed (normally the class “lower boundaries”)

with each one showing the number of items in the distribution having values

greater than this item value. See the table below.

‘K’000,000’ workers

5 and < 10 5 > 10 22

10 and < 15 6 > 15 17

15 and < 20 8 > 20 11

20 and < 25 3 > 25 3

information, is to construct a chart or a graph. The choice depends on the type of

data. A set of data is discrete if we only need to make a count, like the number of

customers entering a shop. A set of data is continuous if measurement is made on

a continuous scale, such as time, weight etc.

For discrete data, we use bar charts, and pie charts while for continuous data, we

use a histogram.

accurately. But graphs are not meant to show up quantitative details as tables do,

graphs are meant to show effects.

Example 3

The following information shows the total turnover of Mukulumpe plc, analyzed

by geographical segment.

20 x 3 20 x 4 20 x 5

West Africa 82 78 65

East Africa 41 31.2 22

Southern Africa 20.5 18 17

Central Africa 61.5 4.2 4.5

205 131.4 108.5

49

In a simple bar chart, the number observed (counts) whether by ‘geographical

segment”, or ‘years” or some other category can be represented as vertical bars.

The height of each bar is drawn in proportion to the number (amounts) by a

vertical ruler scale. Figure 3.1 shows the sales of each geographical segment.

Sales 200

(K’billion)

150

100

50

There are used to show the breakdown of a total into components. The bars of the

simple bar chart are subdivided to show component parts. They are two kinds of

component bar charts.

In these charts the overall heights of the bars and the individual components

heights represent actual figures.

each component forms of the overall bar total. Note that the series of such bars

will all be the same total height, i.,e. 100 per cent.

50

Example 4

Construct

Sales 200

(K’billion)

150

100

50

West Africa

East Africa

Southern Africa

Central Africa

51

ii)

100

80

Sales (%)

40

20

year

West Africa

East Africa

Southern Africa

Central Africa

These are similar to component bar charts but here the components are shown side by

side. As this does not give an immediate impression of the change in totals, they should

be used where we want to demonstrate the change in size of the components.

52

Example 5

150

Sales

(K’billion)

100

50

years

West Africa

East Africa

Southern Africa

Central Africa

Histogram

This is a bar chart. It is appropriate where there is need to show grouped data which is

continuous. There are no gaps between the bars. The total area of each bar represents the

frequency of the event.

53

Example 6

25 – 29 10

30 – 34 15

35 – 39 12

40 – 44 20

45 - 49 3

20

No of students

16

12

0

25 - 29 30 – 34 35 – 39 40 - 44 45 - 49

Marks

Pie Charts

A pie chart is a circle or ‘pie’, divided radically into sectors which represent component

parts of the total. The 360o at the center of the circle are divided in proportion to the data

thus giving sectors with areas proportional to the values of the components parts.

Pie charts can be used to show changes in components where the number of components

is too great for a bar chart, though a pie chart with more than seven or eight components

would become too clouded for ready interpretation.

54

Example 7

For the data in Example 3, for the 20x3, construct a pie chart.

Central West

Africa Africa

Southern East

Africa Africa

Calculations

82

West Africa × 360o = 144o

82 + 41 + 20.5 + 61.5

41

East Africa × 360o = 72o

82 + 41 + 20.5 + 61.5

20.5

Southern Africa × 360o = 36o

82 + 41 + 20.5 + 61.5

61.5

Central Africa × 360o = 108o

82 + 41 + 20.5 + 61.5

55

Exercise 1

This is the data produced by ordinal, interval or ratio scales. Sources include, for

example, newspaper cuttings, magazines or textbooks. Classify each as being

discrete or continuous data and state reasons why you consider them to be

informative or misleading.

2. The data below give the scores obtained in an aptitude test by a group of

40 applicants for a particular post in a company

8 9 9 10 11 9 10 8 9 11

12 9 12 6 8 9 8 10 9 8

12 8 9 11 9 12 7 11 9 8

9 8 10 9 8 10 9 8 9 10

distribution of mango prices.

(Kwach

a/g)

Number 2 2 7 23 15 6

of

stores

4. From sales ledger of a small company, the age of a sample of 100 debts

are shown in the distribution below. Construct a histogram of this distribution.

No. of accounts 24 28 22 16 6 4

below. Construct a histogram from this table.

Number of people 98 107 170 75 50

56

6. Draw:

ii) ‘greater than’ distribution

shown below.

No. of employees 6 44 36 30 8 6

number of advertising methods.

Advertising a spap etition t

d er s h

i e

o r

s

Expenditure during 3 50 20 1

2003 (X ‘K1 000 000) 0 0

factories as tabulated below.

Factory A B C D

No. of employees 130 310 260 160

9. Draw a component bar chart of the data given below, for factories, X, Y, Z

and W.

No. of Employees

57

X Y Z W

Unskilled 30 40 50 40

Semi-skilled 50 110 100 110

Skilled 70 180 130 30

companies over a four year period.

2000 2001 2002 2003

Company X 400 380 365 350

Company Y 285 340 355 340

Company Z 180 200 220 230

This Section describes the most commonly used averages, the arithmetic mean,

median and mode.

The mean is the most used measure of location, with the median and the mode

being used for specific (special case) applications. The arithmetic mean is the

name given to the ‘simple average’ that most people calculate.

Total number of items

does not apply to categorical data and its interpretation can be difficult when used

with ordinal data, but it is often justified for practical reasons. Mathematically it

is very useful for further calculations. All the data is included in its calculation.

Its disadvantage is that it is easily affected by very high or very low value and

cannot be measured or checked graphically. Further more, it may not correspond

to any actual value in the distribution itself.

58

Example 8

Consider the following prices of a packet of milk from 12 different retail outlets.

K185 K195 K200 K225

K175 K200 K190 K195

The mean of a set of values is their total divided by the number of items. In our example,

the mean is

280 + 275 + 290 + 310 + 185 + 195 + 200 + 225 + 175 + 200 + 190 + 185 /12

2710

=

12

= 225.833

sample. A general formula for the mean of a sample of n items is therefore

x1 + x2 + x3 + . . . xn

x=

n

∑x where ∑ is the Greek symbol for capital “S” for sum

n

and ∑ x is simply translated as “add up all the values of x under consideration”.

The mode is the number which appears more times than any number in a given set. It is

quoted as a typical value of the variable. The mode can be of great assistance in

manufacturing and production. For example production of shoes, clothes, cars, etc. It is

not affected by very low or very high values and it is an actual value of the distribution.

However, it is not clearly defined when no two items have the same value, or two or

more items have the same highest frequency.

59

Example 9

The mode by definition, is the most ‘common’ number – the value which occurs most

often in the data set. There are two numbers which appear more times than any other

numbers hence, there are two modes K200 and K195.

Note that a distribution can have one mode, two modes (bimodal), three modes etc. The

mode is used to describe the size of shoes, clothes or the most popular make of a car,

television etc.

The median

The median is not as widely used as the mean or mode, but has particular applications.

For example the use of the IQ scale with the average figure of 100. Also in the real world

we must often deal with data, like salary distribution where relatively small numbers of

extreme values can distort the arithmetic mean, the median makes it a typical value. It is

easily obtained and not affected by high or low values. However, if the number of items

is small or the items are not evenly spread, the median loses a lot of its significance.

Example 10

310, 290, 280, 275, 225, 195, 200, 200, 190, 185, 175.

Recall that there are n items of data in our sample. The position of median is therefore

(n + 1)

the th from smallest (or largest) when n is odd. Placing out data in increasing

2

order, we have

310, 290, 280, 275, 225, 200, 200, 195, 190, 185, 175.

(11 + 1)

The position of the median is = 6 , hence the median is 200.

2

60

Example 11

In Example 10, suppose the number 280 is dropped. Find the median of the new

data set. Arranging the data, in increasing order, we have 175, 185, 190, 200,

200, 225, 275, 280, 290, 310

n +1

n = 10 is an even number. Hence then position is not a whole number and

2

so the median is taken as the average of the two middle values. So the median is

(10 + 1)

the = 5.5 from the largest item which is the average of the 5th and 6th

2

from largest values.

200 + 200

Median is = = 200.

2

For a grouped frequency distribution, the mean, mode, and median cannot be

determined exactly and so must be estimated. This will be illustrated in the

following example.

Example 12

Given the distribution of ages in a certain firm as shown in the table below:

calculate

i) mean

ii) median

iii) mode

15 to 19 3

20 to 24 15

25 to 29 30

30 to 34 45

35 to 39 8

∑ fx where x is the middle point of

∑f

the class interval.

61

We construct the following table for calculation of the mean

point (x)

15-19 3 17 51

20-24 15 22 330

25-29 30 27 810

30-34 45 32 1440

35-39 8 37 296

Totals 101 2927

x=

∑ fx

∑f

2927

=

101

= 28.98

0.5 N − Fm −1

Median = Lm + Cm

f m

62

In our on going example, we need a column of cumulative frequency (F)

Age (years) f F

15-19 3 3

20-24 15 18

25-29 30 48

30-34 45 93

35-39 8 101

Calculate .5N = .5(101) = 50.5. This gives us the position of the median.

Therefore the median class interval is 30 to 34. This interval contains the 50.5 th

observation. The median can now be estimated using the formula given below.

0.5 N − Fm −1

Thus, Median = Lm + Cm

fm

50.5 − 48

= 30 + ( 4)

45

= 30.2222

obtained using the formula

b−a

Mode = L+ G

2b − a − c

G = modal call interval width

a = frequency of class immediately below modal class

interval

b = frequency of modal class interval

c = frequency of class immediately above modal class.

63

The modal class interval is 30 to 34 it has the highest frequency of 45.

Therefore, L = 30, G = 4, a = 30, b = 45, c = 8.

b−c

Thus, Mode = L + G

2b − a − c

45 − 30

= 30 + ( 4)

2(45) − 30 − 8

= 31.1538

Example 13

i) the median

ii) the mode, graphically

i) The median

A percentage cumulative frequency curve is drawn and the value of the variable

that corresponds to the 50% point (i.e half way along the distribution) is read off

and gives the median estimate. The method is shown in the worked example.

Step 1

15-19 3

20-24 15

25-29 30

30-34 45

35-39 8

64

Step 2

Upper boundary F F%

19 3 3.0

24 18 17.8

29 48 47.5

34 93 92.1

39 101 100

Percentage •

Number of 100

Employees •

80

60

50% point

40 •

• Median estimate = 30

20

19 24 29 34 39

Age upper boundary

against cumulative percentage frequency and join the points with a smooth curve.

65

i) We construct three histogram bars, representing the class with the highest

frequency and the ones on either side of it, we then draw two lines as

shown in Figure 1.0. The mode is the value of x corresponding to the

intersection of the lines.

Figure 1.0

The histogram bars in Figure 2.0 represents the following three classes and

frequencies.

25 to 29 30

30 to 34 45

35 to 39 8

66

Number of

Employees

50

40

30

20

0

25 30 35 39

Age (years)

Mode estimate = 31

Figure 2.0

Weighted Averages

Another common problem arises where the means of a number of groups need to be

combined to form a grand mean. For example, suppose a company has three outlets and

their average sales as as follows, X, K 900 000 per sales from 25 sales, Y, K112 000 per

sales from 40 sales and Z, K100 000 per sale from 30 sales. Find the average value per

sale overall.

Weighted mean =

∑ w x where w is the weight assigned to each average,.

∑w

For the data given above

29980000

mean =

95

= 315578.95

Relationship Between Measures

67

The relative position of the mean, median and mode will tell us something about the

distribution of the data, as shown in the figure below.

Mode

median

mean

Negative skew

Mode

Median

Mean

Symmetrical

mode

median

mean

Positive skew

Skewed Distribution.

68

The three measures will now spread out:

distribution

Median - dividing the area under the curve in two, lies between the mean

and the mode.

Exercise 2

a)

x 20.5 12.5 35.5

f 8 10 14

b)

x 2 3 4 5 6

f 5 6 12 30 32

c)

x 35-40 -45 -50 -55

f 8 20 25 34

69

d)

x 0-9 10-19 20-29 30-39

f 2 5 20 25

e)

x 20-30 -40 -50 -60 -70 -80 -90

f 4 60 75 12 15 10 3

3. The mean salaries of 150, 200 and 250 men employed by three different

firms are K300 000, K250 000 and K450 000 per month respectively. Calculate

the mean salary per month of all the men.

4. The maize yields in a particular region over the past 10 years are (millions

of tons): 2.3, 1.5, 1.2, 1.6, 1.7, 2.8, 1.4, 1.2, 1.3, 1.8.

Estimate:

i) The average

ii) The median

iii) The mode.

i) The median

ii) The mode of the distribution given below.,

x 0 1 2 3 4

f 25 28 6 3 3

is shown in the distribution below.

0 and under 50 3

50 and under 100 8

100 and under 150 9

150 and under 200 17

200 and under 250 10

250 and under 300 9

i) the median

ii) the mode

70

7. Estimate:

b) The median, and

c) The mode for both of the following frequency distributions.

i)

x 0-2 2-4 4-6 6-8 8-10

f 0-2 2-4 4-6 6-8 8-10

ii)

x 10-15 15-20 20-30 30-50 50-60

f 5 12 14 4 2

Under K100 180

K100 but under K150 235

K150 but under K200 210

K200 but under K250 150

K250 and over 100

working days were recoded as follows:

4 0 2 1 2 3

5 3 1 1 4 5

5 6 3 2 6 4

4 0 4 3 3 2

5 3 2 4 5 6

71

10. Which measure of central tendency would most effectively describe?

b) The most popular make of television set?

c) Earnings of part time workers in Zambia?

d) Cost of typical food item at a market?

e) Holiday destinations?

f) Learning days lost through class boycotts?

know how the data is spread about that point. Information about the spread can

be given by one or more measures of dispersion.

The Range

only two extreme values. The range is defined as the difference between the

maximum and minimum values of a given data set.

Its advantage lies in its simplicity and its independence of the measure of position.

However, it is distorted by the extreme values and tells us nothing between the

maximum and minimum values.

Example 13

1, 3, 4, 10.

The range is 10 – 1 = 9

The median divides the area under the frequency curve in two. The quartiles

divide the area in four.

72

Frequency

QL Median QU

(n + 1)

The position of the lower quartile QL is given by . That of the upper quartile QU

4

3

is given by (n + 1).

4

The interquartile range is the distance between the quartiles = QU − QL i.e the range of

the middle 50% of the distribution.

1

QD = (QU − QL )

2

The advantages of the quartiles is that they are easy to understand and are not affected by

extreme values. However, they do not cover the whole of the distribution. They give no

indication of how many items are dispersed between QL and QU .

Example 14

Calculate the first and third quartiles for the following data set:

73

7 +1

Q1 is the value of the th = 2nd item, which is 48.

4

3

Q3 is the value of the (7 + 1)th = 6th item, which is 52.

4

Notice that if there had been, say, more items in the set, the values of (n+1)/4 and

3(n+1)/4 would not have been whole numbers, which would have necessitated some sort

of interpolation formula to obtain (untypical) values. This is beyond this manual.

Example 15

Compute the interquartile range and the quartile deviation in Example 14.

Interquartile range = Q3 − Q1 = 52 − 48 = 4

Q3 − Q1 4

The quartile Deviation = = = 2.

2 2

Example 16

Compute the median and quartile deviation for the following distribution.

x f

3200 – 4000 2

4 000 – 4800 3

4800 – 5600 4

5600 – 6400 8

6400 – 7200 3

x f F(Cumulative frequency)

3200 – 4000 2 2

4 000 – 4800 3 5

4800 – 5600 4 9

5600 – 6400 8 17

6400 – 7200 3 20

74

Using the formula

(.5 N − Fm −1 )

Median = Lm + Cm

fm

.5 N = .5(20) = 10

Lm = 5600, Fm −1 = 9, fm = 8

(10 − 8)

Median = 5600 + (800)

8

= 5700

For Q1;

1 1

Position of first quartile = N = (20) = 5

4 4

1

Lm by LQ1 , .5 N by N, Fm −1 by FQi −1 and f m by f Q1 . Therefore, we

4

have

(.25 N − FQ1 −1 )

Q1 = LQ1 + CQ1

f Q1

(5 − 2)

= 400 = (800)

4

Hence Q1 = 4600

75

For Q3 :

3N 3

Product of third quartile = = (20) = 15

4 4

(.75 N − FQ3 −1 )

Q3 = LQ3 + CQ3

f Q3

(15 − 9)

Q3 = 5600 + (800)

8

Hence, Q3 = 6000.

1

= (Q3 − Q1 )

2

1

= (6000 − 4600)

2

= 700

This measure is an average of the deviation of all items from the arithmetic mean.

To consider the deviation of an iten from the mean, only the size of the figure is

important, the sign is not taken into account i.,e. the modulus is taken. If this is

not done then the sum of the deviation i.e. ∑ ( x − x) will equal zero.

The following formulas are used depending on the kind of data set given.

x−x

Mean deviation = ∑ n

for ungrouped data

x−x

=∑f for grouped data.

∑f

76

Example 17

A greengrocer owns 10 shops in various parts of a certain town. The distances from the

wholesale fruit and vegetables market are 8, 13, 15, 20, 27, 33, 46, 59 , 65 and 72

kilometers.

a)

x x−x

8 27.8

13 22.8

15 20.8

20 15.8

27 8.8

33 2.8

46 10.2

59 23.2

65 29.2

72 36.2

∑ x = 358 ∑ x−x = 181.8

x = 35.8

x−x

mean deviation = ∑ n

181.8

=

10

= 18.18

b) Since n is even, the median is given by the average of the two middle

values.

27 + 33

Median = = 30

2

77

x x − median

8 +22

13 17

15 15

20 10

27 3

33 3

46 16

59 29

65 35

72 42

∑ x = 358 ∑ x − median = 192

192

Median deviation = = 19.2

10

Example 18

K’000 000

31 and under 36 7

36 and under 41 9

41 and under 46 13

46 and under 51 19

51 and under 56 26

x f xf x−x f x−x

33.5 7 234.5 -13.24 92.68

38.5 9 346.5 -8.24 74.16

43.5 13 565.5 -3.24 42.12

48.5 19 921.5 1.76 33.44

53.5 26 1391 6.76 175.76

74 3459 418.16

78

x=

∑ xf =

3459

= 46.74

∑f 74

Mean deviation =

∑ f x−x

∑f

418.16

=

74

≅ 5.65

since it is directly related to the mean. If you chose the mean as the most

appropriate measure of central location, then the standard deviation would be the

natural choice for a measure of dispersion.

The standard deviation measures the differences from the mean; a larger

value indicates large variation. The standard deviation is in the same units as the

actual observations. For example if the observations are in cm, even the standard

deviation will be in cm.

2) Calculate the differences from the mean ( x − x)

5) Take the average of the sum of the squared differences in (4) to find the

variance i.e.

S 2

=

∑ ( x − x) 2

=

∑ ( x − x) 2

for a population.

n −1 N

6) Square root of the variance gives the standard deviation

S=

∑ ( x − x) 2

∑ ( x − x) 2

for a population.

n −1 N

79

Example 19

x x−x ( x − x) 2

4 -4 16

5 -3 9

10 2 4

13 5 25

9 1 1

7 -1 1

8 0 0

Total 56 0 56

∑ x = 56, n = 7, therefore x=

∑ x = 56 = 8

n 7

S=

∑ ( x − x) 2

=

56

n −1 6

Its weakness lies in its calculation and understanding which is more difficult than for

other measures. Moreover by squaring, it gives more than proportional weight to

extreme values.

Other uses of the standard deviation considered in this manual is in the measure of

relative standing.

80

1. Coefficient of Variation

as a percentage of the arithmetic mean.

S

Cv = × 100

x

The higher the coefficient of variation, the more variability there is in the

set of observations.

2. Skewness

Skewness in a set of data relates to the shape of the histogram which could

be drawn from the data.

(median − median)

Pearson coefficient of Skewness = 3

σ

Positively skewed if sk > 0

Negatively skewed if sk < 0

Symmetric distribution sk = 0

Example 20

The distribution shown below is the output of the factories of Quality Clothing Plc, for

the month of July 2005.

25 and under 30 15

30 and under 35 30

35 and under 40 30

40 and under 45 20

45 and under 50 10

50 and under 55 15

81

Class Interval f x xf x2 f

25 – 30 15 27.5 412.5 11343.75

30 – 35 30 32.5 975 31687.50

35 – 40 30 37.5 1125 42187.50

40 – 45 30 42.5 850 36125.00

45 – 50 10 47.5 475 22562.50

45 – 50 15 52.5 787.5 41343.75

∑f = 120 ∑ xf = 4625, ∑x 2

f = 185250

mean =

∑ xf =

4625

= = 38.54(two decimal places )

∑f 120

( xf )

∑x f − ∑ f

2

2

Variance =

∑

∑f

( xf )

∑x f − ∑ f

2

2

∑

∑f

185250 −

(4625)2

= 120

119

82

Exercise 3

anything about statistics.

working days were recorded as follows

4 0 2 1 2 3

5 3 1 1 4 5

5 6 3 2 6 4

4 0 4 3 3 2

5 3 2 4 5 6

a) The mean

b) The standard deviation

c) The interquartile range

d) The coefficient of variation.

Mark 65 85 90 95 99 100

No. of students 5 10 20 45 40 18

Mark 104 108 115 120 125

No. of students 20 19 15 8 3

a) The range

b) The arithmetic mean

c) The median

d) The lower quartile

e) The upper quartile

f) The quartile deviation

g) Pearson’s coefficient of Skewness

h) The standard deviation

83

3 16 27 40 48 59

6 18 31 41 52 61

8 19 33 44 54 65

9 23 37 46 56 67

12

i) mean

ii) Mode

iv) Range

v) Standard deviation

x 3 4 5 6 7 8

f 1 3 4 8 5 6

6. The following data relates to the number of rooms per dwelling in Zambia

for two separate years.

Year 1 (%) 2 6 13 28 36 14 4 5

Year 2 (%) 3 5 10 24 31 24 6 5

For each year, calculate the mean, standard deviation and coefficient of variation.

Interpret the coefficient of variation based on the data at hand.

7. Explain the term ‘measure of dispersion’ and state briefly the advantages

of using the following measures of dispersion.

i) Range

ii) Quartile deviation

iii) Variance

iv) Standard Deviation

84

EXAMINATION QUESTIONS WITH ANSWERS

Interval 6.1 – 6.5 6.6 – 7.0 7.1 – 7.5 7.6 – 8.0 8.1 – 8.5

Frequency , f 3 16 32 20 9

A) 7.3 B) 7.4 C) 16 D) 32

3 6 8 9 10 12 16 18 19

23 27 20 32 35 40 42 44

A) 27 B) 22 C) 17 D) 11

(NATech, 1.2 Mathematics & Statistics, June 2001)

1.4 A group of people have the following ages, 21, 32, 19, 24, 31, 27, 17, 21, 26 and

42. The median age of the group is

(NATech, 1.2 Mathematics & Statistics, December 2004)

1.5 The number of books read by eleven members of the public last year were:

A) 3 B) 8 C) 7 D) 6

(NATech, 1.2 Mathematics & Statistics, December 2003)

85

1.6 The mean wages of 50, 25 and 75 mean employees by three 930 different firms

are K40,000, K70,000 and K120, 000 per week. Calculate the mean range per

week of all the men.

(NATech, 1.2 Mathematics & Statistics, Nov/Dec 2000)

1.7 What is the approximate mean value per order of the following distribution

No. of orders 165 190 105 92

(NATech, 1.2 Mathematics & Statistics, December 1999 (Rescheduled)

1.8 The number of books ready by twelve members of the public last year were: 15,

30, 19, 32, 10, 7, 12, 20, 12, 24, 4 and 28.

A) 3 B) 8 C) 7 D) 6

(NATech, 1.2 Mathematics & Statistics, June 2005)

1.9 A bar chart with three adjacent bars then a gap and three month and a further three

after a final gap is known as:

(NATech, 1.2 Mathematics & Statistics, June 2005)

1.10 The eight accountants in the Standard Chartered Bank have the following years of

experience 5, 8, 5, 19, 7 and 11. Find, for these years of experience the median.

A) 8 B) 19 C) 9.5 d) 12.4

86

SECTION B

QUESTION ONE

a) Find the first quartile Q1 , the second quartile Q2 and the third quartile Q3 and the

quartile deviation QD of the following data.

b) A company trades in five distinct geographical markets. In the last financial year,

its turnover was:

(K)

Congo DR 59.3

Congo Brazaville 61.6

Tanzania 15.8

Kenya 10.3

Zambia 9.9

Total 156.9

QUESTION TWO

investment. One of her assistants has compiled the following information on the

price earning ratios of the shares of the companies in the two categories over the

past year.

X Companies Y Companies

4.95 to under 8.95 3 4

8.95 to under 12.95 5 8

12.95 to under 16.95 7 8

16.95 to under 20.95 6 3

20.95 to under 24.95 3 3

24.95 to under 28.95 1 4

Required:

87

b) A College receives the following number of complaints per week.

Number of weeks 5 12 7 2 1

the disparity between higher and low paid workers in this company, the Personnel

manager of the company asks for information on the current salary structure.

under 100 3

100 to under 200 6

200 to under 300 11

300 to under 400 15

400 to under 500 12

500 to under 600 7

over 800 6

Required:

Calculate a statistical measure of mean deviation using the data given above.

(NATech, 1.2 Mathematics & Statistics, June 2005)

QUESTION THREE

An analysis of access time to a computer disc system was made during the running of a

particular computer program, which utilized disc file handling facilities. The results of

the 140 access time were as follows:

30 and less than 35 22

35 and less than 40 27

40 and less than 45 21

45 and less than 50 31

50 and less than 55 21

55 and less than 60 18

ii) Determine the standard deviation of the access time for this program

iii) Interpret for your superior, who is not familiar with grouped data, what the

results in parts (i) and (ii) mean.

(NATech, 1.2 Mathematics & Statistics, December 2001)

88

QUESTION FOUR

complete an algebraic problem are given below.

47 53 46 68 72

48 41 49 58 45

43 45 48 44 43

61 43 46 48 57

54 63 42 65 44

51 38 46 42 47

i) Group these times into a frequency table using eight equal class intervals,

the first of which contains measured times in the range 35 to 39 seconds.

(NATech, 1.2/B1 Mathematics & Statistics, December, 1999(Rescheduled))

QUESTION FIVE

44 were ‘English’, with a mean class size of 15. 2 and 26 were ‘History, with a

mean class size of 19.2. The frequency distribution of class size were as follows:

(No. of students( Classes classes

1-6 4 0

7-2 15 3

13-18 11 10

19-24 8 8

25-30 5 4

31-36.95 1 1

Suppose now that no class of 12 students or less had been allowed to run.

Calculate what the mean class size for the college would have been if the student

in such classes:

(NATech, 1.2 Mathematics & Statistics, Nov/Dec 2000)

89

QUESTION SIX

0 10 0

10 20 50

20 30 150

30 40 100

b) The Director of a large company has decided to analyse the annual salaries

that are paid to staff. The frequency distribution of salaries that are currently

being paid is as follows:

(million kwacha)

Under 10 16

10 to under 20 30

20 to under 30 34

30 to under 40 22

40 to under 50 10

50 to under 70 5

70 to under 90 3

Records from five years ago include the following statistics about salaries

that were paid.

Then:

Median Salary = K17.0m Quartile deviation K6.2m

90

QUESTION SEVEN

school.

IQ Number of Children

50 - 59 1

60 – 69 2

70 – 79 8

80 – 89 18

90 – 99 23

100 - 109 21

110 – 119 15

120 – 129 9

130 - 139 3

b) Compare and comment on the values obtained for the two measure of dispersion

in (i) and (ii) above.

(NATech, 1.2 Mathematics & Statistics, December 2002)

c) The data in the following Table relates to the number of successful sales made

by the salesmen employed by a large microcomputer firm in a particular quarter.

No. of salesmen 1 14 23 21 15 6

Calculate:

91

QUESTION EIGHT

100 000 165

150 000 190

200 000 105

250 000 92

ii) The modal value per order

b) The number of goals scored per game by a football player during 1997 –

1998 were as follows:

No. of games, f 23 14 3 2 0

Calculate

i) The mean

ii) Variance, and

iii) Standard deviation of the number of goals per game.

(NATech, 1.2 Mathematics & Statistics, June 2001)

92

c) A sample of estimate of weekly sales for Product A are represented in the

weekly sales distribution below.

4000 – 5000 3

5000 – 6000 7

6000 – 7000 2

7000 – 8000 4

8000 – 9000 6

9000 – 10000 10

1000 – 11000 8

11000 – 12000 4

12000 – 13000 0

above - 13000 8

Calculate:

i) Arithmetic mean

ii) Modal sales

iii) Standard Deviation

iv) Coefficient of Skewness and comment on the distribution

(NATech, 1.2 Mathematics & Statistics, December 2004)

93

CHAPTER 4

PROBABILITY

4.1 Introduction

Statistics is sometimes described as the art of making decisions in the face of

uncertainty. Consider the following business problems:

Economic demand

Train for NATech Exams workloads

Exam pass rate

probability.

Probability is then defined, including the addition and multiplication rules.

Counting

The simple process of counting still plays an important role in business and

economics. One still has to count 1, 2, 3, 4 . . . , for example, when taking

inventory, when determining the number of damaged cases in a shipment of beer

from Ndola, or when preparing a report showing how many times certain stock

market indexes went up during a month. The process of counting is simplified in

this section by means of special mathematical Techniques.

Multiplication of Choices

If a choice consists of two steps, the first of which can be made in m ways and

for each of these the second can be made in n ways, the whole choice can be

made in m.n ways.

94

Example 1

If a firm has 3 warehouses and 5 retail outlets, in how many different ways can it ship an

item from one of the warehouses to one of the stores?

Example 2

If a travel agency offers trips to 10 different countries, either by air, rail or bus, in how

many different ways can such a trip be arranged?

By means of appropriate use of tree diagrams, it is easy to generate the foregoing rule so

that it will apply to choices involving more than two steps.

Example 3

Retail Outlets

•

•

Warehouses

•

• •

1 •

•

2

• •

•

3 •

•

•

• •

•

•

Figure 1.0 Tree diagram for Example 1 •

95

Permutations and Combinations

The rule for multiplication of choices and its generalization is often applied when several

choices are made from one set and we are concerned with the order in which they are

made.

Example 4

In how many different ways can the judges choose the winner and the first runner-up

from among the 5 finalist in a student beauty contest?

Since the winner can be chosen in m = 5 ways and the first runner up must be one of the

other n = 4 finalist, there are 5(4) = 20 ways.

Example 5

In how many different ways can the 25 members of a church choose a president, a Vice

President, a Secretary, and a Treasurer?

Regardless of which position is elected first, second, third and fourth, there are

25(24)(23)(22) = 303 600 ways.

In general, if r objects are selected from a set of n objects, any particular arrangement

(order) of these objects is called a permutation.

Example 6

Determine the number of possible permutation of two of the three letters A, B and C and

list them all.

AB AC BC BA CA CB

The formula for the total number of permutations of r objects selected from n distinct

objectives is given by

n

Pr = n(n − 1)(n − 2). . . (n − r + 1) → (1)

96

Since products of consecutive integers occur in many problems relating to permutations

and other kinds of special arrangements or selections, it is convenient to introduce here

the factorial notation. In this notation, the product of all positive integer less than or

equal to the positive integer n is called “factorial” and is denoted by n !. Thus,

0! = 1 by definition, and

1! = 1

2 ! = 2 .1 = 2

3 ! = 3 .2 .1 = 6

4 ! = 4.3.2.1 = 24

5! = 5.4.3.2.1 = 120

In short form,

n!

n

Pr = → ( 2)

(n − r )!

Example 7

For n = 5 and r = 2

5

P2 = 5(4) = 20 from the formula (1)

5! 5! 5(4)(3)(2)(1)

and 5

P2 = = =

(5 − 2)! 3! (3)(2)(1)

= 20

There will be occasions when the items to be arranged will not all be different. If this is

the case then the number of permutations will be reduced.

97

Example 8

Find the number of distinct permutations that can be formed from all the letters of the

word SEE.

E1E2 S E2 E1S

If the labels are dropped you can’t tell the difference between the boxed permutations.

The version of formula is now

n!

n1! × n2! × n3! . . . nr !

Where n1 of the items are of one kind, and n2 of the items are of another type and so on

up to r types. In our example, n1 = 1, n2 = 2 and n1 + n2 = n = 3 giving

3! 3(2)(1)

= = 3 ways

1! × 2! (1)(2)(1)

Combination

There are many problems in which we want to know the number of ways in which r

objects can be selected from a set of n objects, but we do not want to include in our

count all the different orders in which the selection can be made. Note here order is not

important.

98

Example 9

orders (ABC, ACB, BAC, BCA, CAB and CBA), but there is only one committee,

not six.

The formula for a combination of r objects from the given n objects is given by

n! n n

n

Cr = . = Cr are called binomial coefficients are becoming useful in the

r!(n − r )! r

later section on binomial distribution.

Example 10

Find the number of ways in which a person can select 3 stocks from a list of 5 stocks (the

number of combinations of 5 things taken 3 at a time).

5! 5! 5(4)(3)(2)(1)

5

C3 = = =

3!(5 − 3)! 3!2! (3)(2)(1)(2)(1)

= 10

Example 11

In how many ways can a Principal choose 3 of 45 members to review a student grade

appeal?

45

C3 = = =

3!(45 − 3)! 3!42! 3(2)(1)

= 14190

99

Example 12

30 n!

Determine the value of using the formula nCr =

20 r!(n − r )!

30

= 30C28

28

30! 30!

= =

28!(30 − 28)! 28! 2!

30(29)

= = 15(29) = 435

(2)(1)

Risk

Risk is concerned with the events whose probability of happening and frequency of

occurrence can be calculated using statistics and past experience. In a situation of risk,

we cannot be sure which of several possible outcomes will occur, but we can at least

place values on the different possible outcomes. As an example, an insurance company

will be dealing with a situation of risk when issuing a policy on damage to property. The

insurer cannot be certain whether or not a certain office building will be destroyed by

lightening or fire etc, but at least he knows how much will have to be paid to settle the

insurance claim if this happens.

1) Risk seeker, one who takes risks to achieve the best outcome no matter how small

the chance of it occurring.

2) Risk neutral, one who only considers the most likely outcome.

3) Risk averse, one who makes a decision based on the worst possible outcomes, for

example an investor who, in spreading his investment over a portfolio of stocks

accepts a lower expected return in order to reduce the chances of a larger loss is

expressing an aversion to risk.

The main methods of dealing with risk is to estimate the probability and use statistics to

look at its overall incidence in order to

1) Ensure that the level of reward (in the long run) is commensurate with the risks

taken.

100

2) Reduce the overall incidences to a pre-set accept level (e.g the taking out

of insurance).

Probability

concept. It was developed originally in connection with games of chance, and it lends

itself most readily to bridging the gap between possibilities and probabilities. This

concept applies only when all possible outcomes are equally likely, in which case we can

say that.

If there are n equally likely possibilities, one of which must occur and s are regarded as

s

favourable, or as a “success”, then the probability of a “success” is given by the ratio .

n

Example 13

What is the probability of drawing a 5 from a well shuffled deck of 52 playing cards?

s 4 1

= = .

n 52 13

Example 14

s 1

Since s = 1 and n = 6, we have = .

n 6

The major shortcoming of the classical probability concept where possibilities must all be

equally likely is that there are many situation in which the possibilities that arise cannot

be regarded as equally likely. This might be the case, for example, if we are concerned

with the question whether there will be rain, or sunshine, to tell whether a person will

receive a promotion or to predict the success of a new business or the behaviour of the

stock market or the success of a new marriage.

This leads us to the relative frequency probability which is the probability of an event

(outcome) is the proportion of the time that events of the same kind will occur in the long

run.

101

If we say that the probability is 0.53 that a bus from Kitwe to Mufulira will arrive on

time, we mean that, buses arrive on time 53% of the time. Also, if the weather man

predicts that there is a 20% chance of rain (that is the probability that it will rain is 0.20).

It means that under the same whether conditions it will rain 20% of the time.

event by observing what fraction of the time similar events have occurred in the past.

Example 15

If the records show that (over a period of time) 25 of 125 buses from Lusaka to Kitwe

arrive on time, what is the probability that any bus from Lusaka to Kitwe will arrive on

time?

25

Since in the past = 0.20 of the arrivals are on time, we use this fraction as an

125

estimate of the probability.

Example 16

If 85 of 2000 first year student who enter School of Business dropped out before the end

of their first year, what is the probability that a freshman entering this college will drop

out before the end of his first year?

85

Since in the past = 0.0425 of the first year dropped out before the end of their first

2000

year, we use this figure as an estimate of the probability.

The last method of calculating probability is the personal or subjective evaluation.

Hence subjective probability. Such probabilities express the strength of one’s belief

with regard to the uncertainties that are involved, and they apply especially when there is

little or no direct evidence, so that there really is no choice but to consider information,

‘educated guesses,” and perhaps intuition and other subjective factors.

Event

example A = {1} or A = {2, 3} etc.

The event S itself is the sure or certain event since an element of S must occur, and the

empty set φ , which is called the impossible event because an element of φ cannot occur.

102

By using set operations on events in S, we can obtain other events in S. For example, if

A and B are events, the

A ∪ B is called the union of A and B.

A ∩ B is called the intersection of A and B.

A′ is called the complement of A

If the events A and B are disjoint, we write A ∩ B = φ and we say that the two events A

and B are mutually exclusive. This means that they cannot both occur.

Random Experiments

We are all familiar with the importance of experiments in Science and Engineering.

Experimentation is useful to us because we can assume that if we perform certain

experiments under very ready same conditions, we will arrive at the results that are

essentially the same. Here we discuss random experiments where we don’t have control.

Example 1

Suppose we roll a fair die. The collection of all the possible outcomes ‘S’ is called the

sample space and the individual outcome points the sample points. Here S = {1, 2, 3, 4,

5, 6}.

0 ≤ P ( A) ≤ 1

i.e, a probability is between 0 and 1 inclusive.

P (φ ) = 0

i.e. , the impossible event has probability zero.

103

4) If A and B are any two events, then P ( A ∪ B ) = P ( A) +P ( B ) − P ( A ∩ B ). This is

called the addition rule for any two events.

called addition rule for two mutually exclusive events.

7) Conditional Probability

of B given that A has taken place. Since A is known to have taken place, it

becomes the new sample space replacing the original S. From this we have the

definition:

P( A ∩ B)

P ( B / A) = → (1) or

P ( A)

P ( A ∩ B ) = P ( A) P ( B / A) → ( 2)

8) Independent Event

that A has occurred, then we say that A and B are independent events. This is

equivalent to P ( A ∩ B ) = P ( A) P ( B ) → (3)

Note that if this equation holds, then A and B are independent. Equation (3) is

called the multiplication rule.

Example 1

Suppose you are going to throw two fair dice. What is the probability of getting a 4 on

each die?

The first task is to write down the sample space, S. Each die has six equally likely

outcomes, and each outcome of the first die can be paired with each of the second die.

The sample space is shown in Figure 4.1. The total number of outcomes is 36, and only

one is favourables to a 4 on the first die and a 4 on the second. The 36 outcomes are

s

equally likely, so by , we have

n

1

P(4 on 1st and 4 on 2nd) =

36

104

1 2 3 4 5 6

1 (1, 1) (1. 2) (1, 3) (1, 4) (1, 5) (1, 6)

Figure 4.1

Alternatively, using the multiplication rule, since the two events are independent,

P( 4 on 1st die and 4 on 2nd die) = P(4 on 1st die) P(4 on 2nd die).

There are six faces on a die and on a fair die each is equally likely to come up when you

throw the die.

1

P (4 on die = .

6

1 1 1

Therefore P( 4 on 1st die and 4 on 2nd die) = . =

6 6 36

The two methods yield the same results.

Example 2

Fairwell Electronics, all 150 employees were asked about their political affiliations. The

employees were grouped by type of work, as executive or production workers. The

results with row and column total are shown in Table 4.1. Suppose an employee is

selected at random from the 150 Fairwell employees. Let us use the following notation to

represent different events of choosing: E = executives, PW = Production worker, M =

Movement for Multiparty Democracy (MMD) , U = United Party for National

Development, (UPND), I = Independent.

105

Table 4.1 Employee Type and Political Affiliation

Executive (E) 10 35 10 55

Production Worker (PW) 65 22 8 95

Column Total 75 57 18 150

number of MMD 75

P(M ) = = = 0 .5

number of employees 150

number of executive 55

P( E ) = = = 0.367

number of employees 150

For the conditional probability, we restrict our attention to the portion of the

sample space satisfying the condition of being an executive.

P(M / E ) = =

P( E ) number of executives

10

= ≅ 0.182

55

One way to determine if the events M and E are independent is to see if P(M) =

P(M/E) or equivalently, if P(E) = P(E/M). Since P(M) = 0.05 and P(M/E) =

0.182, we see that event P ( M ) ≠ P ( M / E ) . This means that the event M and E

are not independent. The probability of event M ‘depends on” whether or not

event E has occurred.

This probability is not conditional, so we must look at the entire sample space.

P ( M and E ) = P ( M ∩ E ).

106

Therefore.

P ( M and E ) =

total number of employees

10

= ≈ 0.067

150

Let’s recompute this probability using the rules of probability for dependent

events.

55 10 10

P ( M and E ) = P( E ) P ( M / E ) = . = ≈ 0.067

150 55 150

The results using the rules are consistent with those using the sample space.

e) Compute P(M or E)

From part (d) we know that the event MMD and executive are not mutually

exclusive, because P ( M ∩ E ) ≠ 0. Therefore:

P ( M or E ) = P ( M ∪ E ) = P ( M ) +P ( E ) − P ( M ∩ E )

75 55 10 120

= + − = = 0 .8

150 150 150 150

Example 3

A firm is independently working on two separate jobs. There is a probability of only 0.4

that either of the jobs will be finished on time. Find the probability that:

a) both

b) neither

c) Just one

107

Let A be the event that the job is finished on time and B the event that the job is

not finished on time.

= P ( A ∩ B ) = P ( A).P ( B )

= 0 .4 ( 0 .4 )

= 0.16

= P( A ∩ B) = P( A) P( B)

= 0.6(06)

= .0.36

= P( A ∩ B) +P( B ∩ A)

= 0 .4 ( 0 .6 ) + 0 .4 ( 0 .6 )

= 0.24 + 0.24 = 0.88

P( A ∩ B) +P( B ∩ A) + P( A ∩ B)

= 0.24 + 0.24 + 0.16 = 0.64, or

= 1 − 0.36 = 0.64

Example 4

30% of employees in a company earn over K150 000 per week and 60% earn between

K100 000 and K150 000 per week. Find the probability that an employee selected at

random earns:

108

30

P (over K150 000) = = 0.30

100

60

P ( K100 000 to K150 000) = = 0.60

100

= 1 − P (overK100 000)

= 1 − [P ( K100 000 to K150 000) + P (over K150 000)]

= 1 − [0.60 + 0.30]

= 1 − 0 .9

= 0.1(10%)

= 0.10 + 0.30

= 0.40

Exercise 1

1. Students have two independent tests. 20% of students pass test A and 70% pass

test B. Find the probability that a student selected at random passes:

a) Both tests

b) Only test A

c) Only one test.

2. A computer retailer conducts a survey of 250 computer purchasers and obtains the

information in the table below:

AGE

Less than 25 25 – 40 41 and over

Male 70 25 50

Female 45 40 20

109

a) the customer is female and aged 25 – 40?

c) If the selected customer is aged less than 25, what is the probability that

they are female?

3. I select two cards from a packet of cards. What is the probability that they are

both kings?

4. I toss a fair coin and the throw a dice. What is the probability that I obtain a tail

and a five?

5. A bag contains 6 red counters and 5 blue counters. If one counter is taken at

random, replace, then another is taken, what is the probability that

environmental regulations and 7 are randomly elected for inspection, what is the

probability that:

110

8. Two cards are drawn simultaneously from the same pack of 52 cards.

Find each of the following probabilities.

the same underlying features. These frequently occurring situations can be

investigated by a fairly limited number of probability models, a few of which will

be discussed in this section.

random variable is a variable which assumes different values depending on the

outcomes of an experiment.

random variable. A frequency distribution indicates the number of observations

of a random variable (i..e the frequency) at each value of the random variable (X).

Consider the following example:

Example 5

Consider the rolling of a fair die 150 times as shown in the following table.

Face (x) 1 2 3 4 5 6

Number of times (f) 10 15 40 25 45 15

What we have is a frequency distribution. This table can be converted into a probability

distribution. Hence, a probability distribution is a table or graph or formula comprising

the possible outcome with its associated probability. Thus

Face (x) 1 2 3 4 5 6

P(x) 10 15 40 25 45 15

150 150 150 150 150 150

111

The probabilities in a probability distribution has the following properties:

i) ∑ P( X ) = 1

ii) 0 ≤ P( X ) = ≤ 1

iii) E ( X ) = ∑ xP( x)

Properties (iii) and (iv) give us the expectation and variance of a random variable

respectively.

Example 6

What is our mathematical expectation if we win K75 000 if a balanced coin falls head

and lose K50 000 if it falls tails?

1

The amounts are x1 = K 750 000 and x2 = − K 50 000 , the probabilities are P ( x1 ) = and

2

1

P ( x2 ) = and the mathematical expectation is

2

E ( X ) = ∑ xP ( X )

= x1P1 + x2 P2

1 1

= 75 000 + (−50 000)

2 2

= 37 500 − 25 000 = 12 500

= K12 500.

Example 7

The probabilities are 0.25, 0.15, 0.22 and 0.38 that a speculator will be able to sell a

house within a year at a profit of K8 800 000, at a profit of K500 000, at a profit of K400

000, or at a loss of K600 000, respectively. What is the expected profit?

112

Substituting x1 = 800 000, x2 = 500 000, x3 = K 400 000, x4 = −600 000,

= 200 000 + 75 000 + 88 000 − 228 000

= K135 000

Example 8

If the probabilities are 0.25, 0.35, 0.06 and 0.30 that a certain office will receive 0, 1, 2, 3,

or 4 complaints about theft on any one day. How many such complaints can be expected

per day?

Example 9

On a particular day, a trader expects the sales of cabbages to follow the pattern.

Probability 0.01 0.28 0.37 .34

Calculate:

113

∑ x P( x) − (∑ xP( x) )

2

ii) The standard deviation = var iance = 2

∑x 2

p ( x) = 0 2 (0.01) + (50) 2 (0.28) + (100) 2 (0.37) + (150) 2 (0.34)

= 0 + 700 + +3 700 + 7 650

= 12050

The probabilities associated with values of the random variables can be computed

from a well-established equation.

Risk can be defined as the chance that an outcome other than expected will occur or it’s

the variability in the returns or outcomes from the investment. Standard deviation is used

to measure risk. This is because the amount of scatter or variability in the probability

distribution is measured by the standard deviation.

Another useful measure to risk is the coefficient of variation (CV), which is the standard

deviation divided by the expected return (mean value) that is

Risk

Coefficient of var iation = CV = × 100

return

σ

= × 100

µ

114

Example 10

0.03 10 15

0.20 20 25

0.50 12 18

0.27 35 30

0.10 5 4

b) Calculate the standard deviation of the returns for stock A and Stock B. Now

calculate the coefficient of variation for Stock A and Stock B. Which stock is

risky? Explain.

= 10(0.03) + 20(0.20) + 15(0.50) + 35(0.17) + 5 (0.10)

= 0.3 + 7.500 + 5..950 + 0.5 = 18.25

= K18 250

= 15(0.03) + 25(0.20) + 18(0.50) + 30 (0.17) + 4 (0.10)

= 0.45 + 5 + 9 + 5.100 + 0.4 = 19. 95

= K19 950

b) σ = ∑x 2

p( x) − [∑ ( xp( x))]

2

115

For A, we have

x P( x) x2 x 2 P( x)

10 0.03 100 3

20 0.20 400 80

15 0.50 225 112.5

35 0.17 1225 208.25

5 0.10 25 2.5

∑ x P( x) = 406.25

2

σ = 8.555

For B, we have

x P( x) x2 x 2 P( x)

15 0.03 225 6.75

25 0.20 625 125

18 0.50 324 162

30 0.17 900 153

4 0.10 16 1.6

∑ x P( x) = 448.35

2

σ = 7.0956

σ 8555 7095.6

CVA = × 100 = × 100; CVB = × 100

µ 18250 19950

The coefficient of variation of stock B is less compared to that of Stock A. Hence one

would conclude that Stock B is less risky than Stock A.

116

Binomial Distribution

the probability of x successes is given by the Binomial formula:

P ( x)= nC x P x (1 − P ) n − x

deviation = np(1 − p ) .

1) The number of trials are fixed. We denote this by the number n as in the formula

above.

3) Each trial has only two outcomes: success, denoted by S and failure denoted by F.

4) For each individual trial, the probability of success is the same. We denote the

probability of success by p and that of failure by q . Since each trial results in

either success or failure p + q = 1 and q = 1 − p.

success out of the n trials.

(a + b) n we say that we are expanding the term and the result is called a binomial

expansion.

(a + b)1 = a + b

(a + b) 2 = a 2 + 2ab+ b 2

(a + b)3 = a 3 + 3a 2b + 3ab 2 + b 3

(a + b) 4 = a 4 + 4a 3b + 6a 2b 2 + 4ab3 + b 4

(a + b)5 = a 5 + 5a 4b + 10a 3b 2 + 10a 2b3 + 5ab 4 + b 5

looking at the results, we see four things:

117

1. the “sum” of the powers is constant on each line for example (a + b) 4 total power

on each term is 4.

The triangle formed is know as Pascal’s Triangle, which can be used to obtain the

binomial coefficients. The numbers are arranged as follows:

n =0 l

n =1 1 1

n =2 1 2 l

n =3 l 3 3 l

n =4 1 4 6 4 1

n =5 1 5 10 10 5 1

n =6 1 6 15 20 15 6 1

n =7 1 7 21 35 35 21 7 1

n =8 1 8 28 56 70 56 28 8 1

etc.

Starting with this triangle and then using the rules given in (1), (2) and (3) above, we can

write down any expansion of (a + b) n .

118

Example 11

1 3 3 1

we get

= 27 a 3 + 108a 2b + 144ab 2 + 64b 3

Example 12

1 5 10 10 5 1

We get:

1(2a )5 + 5(2a ) 4 (−3b) + 10(2a )3 (−3b) 2 + 10(2a ) 2 (−3b)3 + 5(2a )(−3b) 4 + (−3b)5

= 32a 5 − 240a 4b + 720a 3b 2 −1080a 2b3 + 810ab 4 − 243b 5

( a + b) n = a n + + + + .. .

1! 2! 3!

119

Example 13

(3a + 4b)3 = (3a )3 + + +

1! 2! 3!

which agrees with the answer in Example 11. You will notice that in the last term

3(2)(1)

cancels out.

3!

Example 14

(2a − 3b)5 = (2a )5 + + +

1! 2! 3!

+ +

4! 5!

5(4)(3)(2)(1)

You will notice that this time cancels out.

5!

( a + b) n = nC o a n + C1a n −1b +

n

C2 a n − 2b 2 + nC3a n − 3b3 + . . .

n

120

Example 15

(3a + 4b)3 =3Co (3a )3 + 3C 1(3a )3 (4b)+ 3C2 (3a )(4b) 2 + 3C3 (4b)3

Example 16

(2a − 3b)5 =5Co (2a )5 + 53C 1(2a ) 4 (−3b)+ 5C2 (2a )3 (−3b) 2 + 5C3 (2a ) 2 + (−3b)3 + 5C4 (2a )(−3b) 4 + (−3b)5

Example 17

a) P(2),

b) P(0),

c) P(1)

3!

= (0.4) 2 (0.6)1

2!1!

Therefore P(2) = 0.288

121

b) P (0)=3C0 (0.4)0 (1 − 0.4)3

3!

= (0.4)0 (1 − 0.6)3

0! 3!

P (0) = 0.216

3!

= (0.4)(1 − 0.6)1

0! 2!

P (1) = 0.432

Alternatively

If n = 3, p = 0.4, q = 0.6

= 0.64 + 0.288 + 0.432 + 0.216

P (3) P ( 2) P (1) P ( 0)

Note: At this stage it is very advisable to check that the sum of the individual

probabilities (the whole probability) is 1.

Example 18

122

Example 19

From past experience it is known that approximately 70% of applicants pass an initial

assessment test. In a group of six applications find the probability that:

We have n = 6, p = 0.70.

6!

= (0.1176490)

6!0!

= 0.118 (11.8%)

6!

= (0.2401)(0.09)

04! 2!

= 15(0.2401)0.09)

= 0.324 (32.4%)

= 6(0.70)5 (0.30) = 0.303

Therefore P(more than four)

= 0.303 + 0.118

= 0.421 (42.1%)

123

Example 20

One fifth of all accounts are found to contain errors. In a batch of 6 accounts, find the

probability that the number of accounts containing errors is:

Find the mean and standard deviation of the accounts containing errors.

1

We have n = 6, P= = 0.20

5

= 1 – 0.983 = 0.017

124

Alternatively,

= 0.017.

1

Mean = np = 6 = 1.2

5

1 4

Standard deviation = np (1 − p ) = 6

5 5

= 0.96 = 0.9798

Poisson Distribution

To be able to use the binomial distribution, one must be able to count the number of

successes and the number of failures. In some situations however, it is not really sensible

to speak of successes and failures. For instance the number of telephone calls received at

a switch board in a unit interval, say may be of interest, but the number of time they are

‘received’ is almost meaningless. In such situations the binomial probability distribution

is no longer appropriate.

situation where there is an interest in the number of times and rate at which events occur.

If events occur at random at an average rate of λ per unit time then the probability of x

event is given by Poisson formula

e − λ λx

P( x) = where x = 0, 1, 2, . . . mean = λ and s tan dard deviation = λ .

x!

125

Example 21

λ = 3, find the Poisson probabilities P(0), P(1), P(2), P(3) and P(4).

e − λ λx

P( x) = , x = 0, 1, 2, 3, 4.

x!

e −3 30

P ( 0) = = e − 3 = 0.0498

0!

e −3 (3)1

P (1) = = 3e − 3 = 0.1494

1!

e −3 (3) 2 9 − 3

P ( 2) = = e = 0.2241

2! 2

e −3 (3)3 27 − 3

P (3) = = e = 0.2241

3! 6

e −3 (3) 4 81e −3

P ( 4) = = = 0.1681

4! 24

Example 22

Show that the Poisson formula give a good approximation of the Binomial probabilities

when n = 200 and p = 0.02.

126

Now using the Poisson formula, we have

4 0 e −4

P ( 0) = = 0.0183

0!

41 e −4

P (1) = = 0.0732

1!

4 2 e −4

P ( 2) = = 0.1465

2!

4 3 e −4

P (3) = = 0.1952

3!

Since n is large and p small, the Binomial and poisson probabilities are in close

agreements. They agree to two or three decimal places.

Example 23

find the probability of obtaining:

We have n = 150 and p = 0.03. Since n is large and p is small we can use Poisson

distribution to approximate these Binomial probabilities. Now λ = np = 150(0.03) = 4.5 .

e −4.5 (4.5) 2

a) P ( 2) = = 0.1125

2!

127

e −4.5 (4.5)

o

Now P (0) = = 0.0111

0!

e −4.5 (4.5)

And P (1) = = 0.04999

1!

= 1 − P(0 )

= 1 − 0.0111 = 0.9889

Example 24

i) The probability that, on a day selected at random, exactly 5 boys are absent.

ii) The expected number of days on which there will exactly be 5 boys absent if the

school is open for 400 days each day.

i) We have λ = 5

55 e −5

P (5 boys ) = = 0.1755

5!

ii) λ = np from (i) P(5 boys ) = 0.1755. Then expected number of boys is

400(0.1755) = 70.187

≅ 70

128

Exercise 2

iv) (25 − t )5 v) (2 x 3 − y 2 )6

4

3 c2

iv) (5a + 2b ) 3 5

v) +

c 2

probabilities:

d) P(more than 2)

seven items, find the probability of obtaining:

129

6) Based on information from the Post, it is estimated that 85% of cars on the dual

carriage highway are going faster than the speed limit. A random sample of five

cars is observed. What is the probability that:

b) at least one is speeding?

find the probability that out of four packages chosen at random:

8) A supermarket uses several cash registers to check out the orders of its customers

but has assigned one cash register to an express lane, which serves customers who

have purchased only less than or equal to ten articles. The probability that a

customer in this store will use the express lane is 0.25. Find the probability that

among six randomly selected customers there are zero, one, two, three, four, five

or six who will use the express lane.

9) If the probability is 0.45 that any one person will dislike the taste of a new

toothpaste, what is the probability that at least 3 of 20 randomly selected persons

will dislike it?

10) If a bank received on the average 5 bad cheques per day, what is the probability

that it will receive 3 bad cheques a given day?

11) The number of patients who are received per hour in the emergency room of a

hospital is a random variable having the poisson distribution with 2.5. Use the

poisson distribution to compute the following probabilities that in any given hour

the emergency room will receive:

12) Items produced from a machine are known to be 2% defective. If the items are

boxed into lots of 500, what is the probability of finding that a single box has 3 or

more defective?

130

Normal Distribution

continuous variables. It is a distribution of “natural phenomena”, such as:

• Weight measurements

• Time measurements

• Interest rates

• Financial ratios

• Income levels

• Exchange rates.

a) It is symmetrical, with mean, median and mode equal. Symmetry implies that

50% of the area under the curve is below this point and 50% is above this point.

c) It approaches the horizontal axis on either side of the mean. In other words, the

normal distribution is asymptotic to the x – axis.

below.

µ x

zσ

The area shaded can be obtained from tables of the Normal distribution by finding the

standardized unit.

x−µ

Z=

σ

131

Example 1

Given a Normal distribution with mean = 20 and standard deviation = 3.5, find the areas

under this Normal Curve.

d) between 15 and 28.

a) µ = 20, σ = 3 .5

µ = 20 x = 23

30 − 20 10

Z= = = 2.86

3 .5 3 .5

From the Normal tables, we are given the area between 0 and 2.86. That is

0.4979.

b)

µ = 20 x = 23

23 − 20 3

Z= = = 0.86

3 .5 3 .5

132

c)

12 µ = 20

12 − 20 − 8

Z= = = −2.29

3 .5 3 .5

The Normal tables give the area from 0 to 2.29. Because of the symmetric nature

of the distribution about o, this is the same as the area from 0 to –2.29. That is

0.4890.

d)

15 µ = 20 28

15 − 20 − 5 28 − 20 8

Z= = = −1.43 Z= = = 2.29

3 .5 3 .5 3 .5 3 .5

The Normal tables give the area from 0 to –1.43 and 0 to 2.29. The shaded area is

0.4296 + 0.4890 = 0.9186.

133

Example 2

The wages of blue-collar workers in a large company are Normally distributed with a

mean of K104, 500 per week and a standard deviation of K14, 250 per week. Find the

probability of a worker, selected at random, earning:

a)

Z= = 1.33

14 250

= 0.0938

134

b)

Z= Z= = 2 .0

14 250 14 250

= 0.67

= 0.2486 + 0.4772

= 0.7258

Example 3

The Bank has analyzed the number of transactions processed by each of its branches. A

typical branch will process 750 transactions a week. Experience has shown that there is a

standard deviation of 2.1. Transaction processing is approximately normally distributed.

process more than 775 transactions per week.

are between 705 and 795?

135

a)

µ = 750 775

775 − 750

Z= = 1.19

21

branches process more than 775 transactions per week.

b)

Z= = −2.14 Z= = 2.14

21 21

Example 4

In an assessment of job performance the marks awarded are Normally distributed with a

mean of 65 and a standard deviation of 13.

a) In a group of 500 employees, how many would you expect to obtain over 85

marks?

obtain unsatisfactory gradings. What is the minimum ‘satisfactory grade?

136

a)

µ = 65 85

85 − 65

Z= = 1.54

13

employees: 500 (0.0618) = 30.9. Hence approximately 31 employees obtain over

85 marks.

b)

25%

µ = 65

X − 65

= −0.66

13

X − 65 = −8.58

X = 56.42

137

Exercise 3

a) If one item is taken at random from this population, find the probability

that it is:

3. The lengths of the fish received by a certain cannery have a mean of 5.62cm and a

standard deviation of 0.28cm.

(ii) What percentage of the fish is between 5.36 and 5.86cm long?

4. A baker knows that the daily demand for brown bread is a random variable with a

distribution, which can be approximated closely by a normal distribution with the

mean µ = 54.5 and the standard deviation σ = 5.8 . What is the probability that

the demand for brown bread will exceed 60 on any given day?

5. A bank manager has determined from experience that the time required for a

security guard to make his rounds in a bank building is a random variable have an

approximately normal distribution with µ = 20.0 minutes and σ = 3.6 minutes.

What are the probabilities that a security guard will complete his rounds of the

bank building in:

b) 17 to 22 minutes

138

6. A department store sales clerk knows that the number of sales she will make on a

business day is a random variable having approximately a normal distribution

with µ = 30.9 and σ = 5.1 . Find the probability that during a business day the

sales clerk will make:

7. On the college soccer team, the mean weight of men is 65.6kg and a standard

deviation of 0.95kg.

The Normal distribution can also be used as an approximation to the Binomial when n is

large and when p is not too small or large. Using:

µ = mean of normal = np

σ = s tan dard deviation of normal

= np (1 − p )

Example 5

A fair coin is spun 15 times. Calculate the probability of the result giving exactly 8

heads.

whole numbers. The Normal Distribution is a continuous distribution. It is the

distribution of an infinite number of values.

139

When we use the Normal Distribution as an approximation to the Binomial Distribution,

we have to use a correction factor of 0.5. For example:

x = 4 is replaced by 3.5 < x < 4.5

1

Hence in our example, µ = np = 15 = 7.5

2

1 7

σ = np(1 − p ) = 15 = 1.936

2 2

7 .5 − 7 .5 8.5 − 7.5

= P <Z<

1.936 1.936

7.5 8.5

= 0.1985

140

Check: The binomial distribution would be:

8 7

1 1

P(8 heads ) = C8

15

2 2

( )(

= (6435) 3.90625 × 10− 3 7.8125 × 10 − 3 )

= 0.1964

141

EXAMINATION QUESTIONS

1.1 In the normal curve of a distribution, what is the approximate area enclosed by

one standard deviation either side of the mean?

1.2 Robot machines used in welding car bodies, in an automated car factory, carry out

1 000 operations per vehicle. It is expected that 1 operation in 40 will fail

inspection. If more than 35 corrective operations are required on a single car

body, it is removed from the production lines. What is the proportion of car

bodies likely to be removed?

1.3 A coin is spun eight times. What is the expression, which would give the

probability that the coin gives exactly two heads?

8× 7 8× 7× 6

A. (0.5)6 (0.5)2 B. (0.5)5 (0.5)3

1× 2 1× 2 × 3

8× 7× 6×5 8× 7× 6×5× 4

C. (0.5)4 (0.5)4 D. (0.5)3 (0.5)5

1× 2 × 3 × 4 1× 2 × 3 × 4 × 5

questions. How many different selections are possible?

81

A. 56 B. 5 C. 336 D.

31

(NATech, 1.2 Mathematics & Statistics, December 2002)

142

1.5 Each of four bags contains three coloured marbles, two red and one green. A

marble is drawn at random from each bag. What is the probability that four red

marbles are chosen?

1 4 1 2

A. B. C. D.

5 9 3 3

(NATech, 1.2 Mathematics & Statistics, December 2002)

1.6 A box contains 10 electric bulbs, two of which are defective and the remainder

sound. What is the probability of selecting a sound bulb first and a defective bulb

second?

1 4 8 4

A. B. C. D.

5 5 45 25

(NATech, 1.2 Mathematics & Statistics, December 2002)

revealed that, on average, an invoice was paid 20 days after it was received. The

standard deviation equated 5 days. What percentage of the invoice were paid

within 15 days of receipt?

1.8 A pair of dice is tossed together. What is the probability that the sum of points on

the two dice is more than 8?

5 5 2 5

A. B. C. D.

36 18 9 9

1.9 A local city council puts 10, 000 light bulbs on the streets in a city. If lives of

bulbs follow a normal distribution with a mean of 60 days and a standard

deviation of 20 days, how many bulbs will have to be replaced after 20 days?

1.10 Students take two independent tests. 30% of students pass test A and 60% pass

test B. What is the probability that a student selected at random passes only test

A?

143

(NATech, 1.2 Mathematics and Statistics, December 1999 Rescheduled)

Multiple Questions No. 2

5

1.1

5 5 5 5

A. B. C. D.

32 16 8 4

1.2 Statistics show that, on average, 5 boys are absent from Lusaka Boys’ High

School each day. Which of the following is the expression, which gives the

probability that, on a day selected at random, exactly 7 boys are absent?

57 57 75

A. 7 × 57 B. C. e−5 × D. e−5 ×

7 7! 5!

(NATech, 1.2/B1 Mathematics, December 1999 (Rescheduled))

cases. What is the approximate probability that the vaccine will be effective?

7 7 28 35

A. B. C. D.

35 42 35 42

(NATech, 1.2 Mathematics and Statistics, Nov/Dec 2000)

1.4 Find the probability that an item drawn at random from the normal distribution

with mean 5 and standard deviation 3 will be between –1.24 and 1.37.

(NATech, 1.2 Mathematics & Statistics, June 2002)

Expand (2 p + q )

3

1.5

A. 2 p 3 + 6 p 2 q + 6 pq 2 + q 3 B. p 3 + 3 p 2 q + 3 pq 2 + q 3

C. 8 p 3 + 12 p 2 q + 6 pq 2 + q 3 D. (2 p )3 + 3(2 p )2 q + 3 pq 2 + q 3

(NATech, 1.2 Mathematics and Statistics, June 2002)

144

1.6 A normal distribution has a mean of 65 and a variance of 144. The probability of

a score of 80 or less is approximately:

1.7 The number of accidents occurring on average each year in a factory is 36. They

occur completely randomly. Using the normal approximation to the poisson

distribution, what is the probability that in 2002, there were more than 40

accidents?

1.8 In a group of 100 NATech students 30 are male, 55 are studying for the

Foundation Stage and 6 of the male students are not studying for the Foundation

Stage. A student chosen at random is female. What is the probability that she is

not studying for the Foundation Stage?

(NATech, 1.2 Mathematics and Statistics, December 2003)

1.9 Four coins are tossed. What is the probability of getting precisely three heads?

2 3 1 1

A. B. C. D.

4 4 4 16

1.10 If IQ scores are normally distributed with a mean of 100 and a standard deviation

of 15, what proportions of people have IQs above 125?

145

1.11 A box contains 400 bulbs of which 50 are red and 80 are blue. What is the

probability of drawing a ball that is neither red nor blue?

1 1 13 27

A. B. C. D.

8 5 40 40

1.22 A manufacturer claims that his mass produced goods are no more than 2%

substandard. A potential buyer agrees to place an order if a random sample of

100 of the units gives no more than 2 defective items upon thorough testing.

What is the probability of the order being place if the manufacturer’s claim is

valid?

SECTION B (1)

QUESTION ONE

a) The distribution of the sales is normal with a mean of 150 items per week, and a

variance of 100 items.

Required:

Find the probability that sales are less than 170 items in any week.

b) The probability that an item is defective is 0.02. How many defectives would you

expect to find in a batch of 4, 000 items?

ii) In how many ways can number five question be selected out of a total number

of seven questions?

146

QUESTION TWO

a) The time required to completely move operations from Mongu to Lusaka will

vary with a mean of 300 days and a standard deviation of 9 days. Assuming that

the estimated durations are approximately normally distributed. Find the

probability that the project will take to relocate:

ii) More than 310 days

iii) Between 280 and 310 days.

b) In order to manage product quality, all material receipts from suppliers are

inspected by inspection and quality control department and returned to the

supplier once found to be defective. The number of orders randomly made in a

month varies.

i) Assume a monthly average rejection rate of four (4) orders, what is the

probability that exactly five (5) orders will be rejected in one particular

month? (To two decimal places)

that at least three (3) out of eight (8) orders in a specific month made will

be rejected. (To two decimal places).

c) Over a long period of time a drug has been effective on 55% of cases in which it

has been prescribed. If 6 patients are treated by this drug, find the probability that

it will be effective for:

i) At least 5 patients;

ii) None of the patients;

iv) 1 or 3 patients.

(NATech, 1.2 Mathematics and Statistics, December 2001)

QUESTION THREE

a) The weights of a certain item produced in large quantities over a long period of

time, is normally distributed with a mean of 8kg and a standard deviation of 0.02.

i) Any item whose weight lies outside the range 7.985 – 8.035 kg is taken to

be faulty. What is the probability of a faulty item?

ii) If it is required to reduce the weight 8.035kg by 2%, find the new mean

weight.

147

b) A firm produces 55 percent of items on production line A and 45 percent of the

items on production line B. In general, 3 percent of the products of line A and 5

percent of the products of line B are found to be defective. If an item is

subsequently returned as faulty, what is the probability that it was from line A?

c) In the manufacturing of clay pots, it was found that 8% were rejected. Calculate

the probability that a box of ten clay pots contained at most 2 rejects.

QUESTION FOUR

a) The probability that a NATech student will graduate is 0.4. Determine the

probability that out of 5 students chosen at random:

ii) At least 1 will graduate.

iii) At most 2 will graduate.

b) A company coach carries passengers by road regularly between two cities. The

average journey time between the two cities is 190 minutes; the standard

deviation for journey taken is 20 minutes. Assume that the journey taken follows

a normal distribution.

i) Find the probability that a coach journey between the two cities will take

less than 160 minutes.

ii) If 150 journeys were made, how many journeys would take longer than

210 minutes?

v) The coach company claims that 95% of all its journey take less than 3

hours 35 minutes. This claim is incorrect. Calculate the true percentage

figure.

(NATech, 1.2 Mathematics and Statistics, June 2002)

vi) The average number of errors on a page of a book is 1.2. Calculate the

probability that a page will have 0, 1, 2, 3, 4, 5, 6 or 7 errors. You may

assume that the probability of r successes in a possion distribution is given

by the formula:

λr e − λ

P (r ) =

r!

λ stands for the average. Check the answers from a table of poisson

probabilities e −1.2 = 0.3012 .

(NATech, 1.2 Mathematics and Statistics, November/December 2001)

148

QUESTION FIVE

a) Two (2) machines produce the same type of product. The older machine produces

45% of the total output but five (5) in every hundred are normally defective. The

newer machine produces 55% of the total output and three (3) in every hundred

are defective.

Determine the probability that a defective product picked at random was produced

by the older machine.

(NATech, 1.2 Mathematics and Statistics, Nov/Dec 2000)

b) A banker claims that the life of a regular saving account opened with his bank

averages 18 months with a standard deviation of 645 months.

account opened with the said bank by a depositor?

ii) The probability that the account will have been closed before two years?

c) One quarter of all accounts are found to contain errors. In a batch of 8 accounts

find the probability that the number of accounts containing errors is

i) more than 2;

ii) less than 2.

QUESTION SIX

a) An urn contains 10 red and 5 white balls. What is the probability of drawing 2

balls, one of each colour?

items, find the probability of obtaining:

ii) Less than two defective.

149

c) The number of errors made by a computer operator during 240 ten minute

intervals are given below.

No. of Errors 0 1 2 3 4 5 6 7 8 9 10 11

No.of

Intervals 4 18 35 47 47 38 25 14 7 3 1 1

interval.

ii) Given that this distribution is possonian, calculate the poisson distribution

with the mean found in (i), above.

QUESTION SEVEN

a) Four normal (that is, fair) 6-sided dice are thrown simultaneously. Calculate the

probabilities of the result being 4 sixes, 3 sixes, 2 sixes, 1 six, or 0 six.

b) The wages of workers in a large Lusaka Company are normally distributed with a

mean of K110, 000 per week and a standard deviation of K15, 000 per week.

Find the probability of a worker selected at random, earning

ii) Between K100, 000 and K140, 000 per week.

c) 45% of voters are known to be African Congress Party (ACP). What is the

probability that out of a sample of 8 voters exactly 5 vote ACP?

QUESTION EIGHT

a) During a recent African Cup final match, the number of footballers being attended

to by first-aiders during a 10-minute interval is known to have a mean of 3. What

is the probability that 2 or more footballers arrive for attention during a 5-minute

interval?

150

b) The number of patients admitted to a local hospital each day with TB has a mean

of 2. On a particular day, what is the probability that:

3

c) A man’s chance of winning a game is . If he plays five games, what are the

5

probabilities that he will win 0, 1, 2, 3, 4, 5 games respectively?

SECTION B (2)

QUESTION ONE

a) A company does not estimate gross sales for the coming year as a single value,

but forecasts, instead, the probabilities of various amounts of gross sales.

Suppose that this forecast shows the frequency distribution with a mean of K50,

000, 000 and a standard deviation of K3, 500, 000.

Calculate:

i) The probability that gross sales will be less than K40, 000, 000 according

to this forecast.

ii) The probability that gross sales will exceed K55 000 000.

iii) The expected value of gross sales for the coming year.

b) In a traffic study, observations were made on the number of mini buses passing a

particular point each minute over a period of five hours. It was found that, on the

average, one mini bus passed the point every minute. Calculate:

1, 2, 3 and 4.

ii) The probability that at least one minibus passes the point in anyone

minute.

151

c) A student, asked to answer three compulsory questions from an examination

containing eight questions, ignores these instructions and answers four questions

selected at random. Find the probability that he has answered:

(ii) Exactly two of the three compulsory questions set assuming that all

combinations were equally likely to be selected.

QUESTION TWO

1 3

a) A worker, on the average, spends of his/her time not working, and of his/her

4 4

time working. Five observations are made at random during a day at which time

it is noted whether the worker is working or not working. What is the probability

of making 0, 1, 2, 3, 4 and 5 observations when the worker is not working?

b) A quality product undergoes a strength test (S) and a reliability test (R). 100

products examined yield the following results.

Find:

test.

strength test and the reliability test.

of 15, translate the following interval into an interval of Z scores.

152

QUESTION THREE

a) Dr. Mulenga works on eight days each calendar month at Easy Go Batteries (z)

Limited. The probability that he turns up for his appointments at Easy Go on time

is 0.75.

Use the binomial distribution to find the probability that Dr. Mulenga will turn up

for his appointments on time on 0, 1, 2, 3, 4, 5, 6, 7, 8 days in the same month.

b) An average of 3 cars arrive at Chirundu Border Post every minute. If this rate is

approximated by a poisson process, what is the probability that exactly 5 cars will

arrive in a 1-minute period?

c) On average, a bank cashier in the People’s Bank serves 1.5 customers per minute.

Find the probability that during a minute chosen at random, the bank cashier

would serve:

i) No customers;

QUESTION FOUR

a) Three fair cubical dice are thrown. Find the probability that:

initial assessment test. In a group of five applicants, find the probability that:

153

c) The heights of 250 boys at Kabwata High School are normally distributed with

mean 150cm and standard deviation 16cm.

i) Estimate the number of boys whose heights are between 162.8cm and

170cm.

ii) Estimate the number of boys whose heights are between 140cm and

145cm.

(NATech, 1.2 Mathematics and Statistics, June 2001)

QUESTION FIVE

b) A small machine shop has three sets of welding equipment. On average, during

an hourly period, one set is in use. Find the probability that:

ii) All sets are in use and there is a demand for a fourth set.

c) If a large grass lawn contains on average 1 weed per 600cm2, what will be the

poisson distribution of the number of weeds in an area of 400cm2?

(NATech, 1.2 Mathematics and Statistics, June 2001)

QUESTION SIX

(MAMC) for males is a normally distributed random variable with a mean of

273mm and a standard deviation of 29.18mm. The MAMC for John Banda has

been measured at 341mm.

What is the probability that a male in the population will have a MAMC measure

greater than Banda’s 341 mm?

b) The mean number of babies born per day in Chambeshi Teaching Hospital is 5.5.

hospital on a day selected at random.

154

ii) Find the number of day in a period of six months (183 days) on which

there will be 0, 1, 2, 3, 4, 5, … babies born.

population of people who recently took an AIDS test, wishes to determine the

“power” of the test. To this end, it hires a Research Analyst to investigate the

frequency of “false positive” and “false negatives”. The analyst has observed that

there are four possible categories. These categories, and the corresponding

proportions are summarized in the table below.

Has HIV Has No HIV

HIV Positive 0.89 0.02

HIV Negative 0.05 0.04

One person from this population will be contacted today. Compute the

probability that the person contacted:

155

4.3 Methods of Sampling and Survey Design

things) out of the whole population or universe. The reason for sampling is to

gain an understanding about some feature or attribute of the whole population,

based on the measures of the sample.

To find a good sample is often not easy. For example, we sample the fruit at the

top of a basket we may have no idea if there is a bad fruit in the middle or at the

bottom of the basket. If we are studying college students’ attitudes and we

interview students on the steps of the School of technology, we may never

encounter a business student. A sample only provides an estimate of a population

measure and accuracy of the estimate will depend on:

a) The right size for a sample, the larger the sample size the greater is the

probability that the sample is representative of the population.

b) Selecting the right sampling method so that the sample represents the

population.

Why do we sample?

1) Time and cost are probably the two most important reasons for sampling.

If one wants to determine if customers in a given market will buy a

product, one doesn’t usually have the time or funds to interview all

potential customers. For example, try interviewing everyone who uses

protex in Zambia.

2) Testing may prove destructive. If you want to test the durability of your

product, stress tests on the entire output may leave you with no product to

sell.

3) Accuracy is another reason for sampling. One would think that a study of

the entire population would be more accurate than a study of a sample. If

one has a very large population and wishes to take a complete count, then

one must hire a large number of inventory takers who must work at a rapid

rate. As more personnel are hired, it is likely that they may be less

efficient than the original employees. Thus, a limited number of skilled

workers, studying a well defined sample, may provide more accurate

results than a survey of the entire population.

156

Sampling Designs

Probability Samples

Taking a sample to use for the study of a population means that one must make

sure that the sample really represents the population. The first problem is to

decide what is the population that should be sampled. We need a sampling

frame. A sampling frame is a list of every item or member of the population to

be sampled. Sampling of individual items should be done at random i.e random

sampling procedure yielding a representative sample requires that everyone in the

population has an equal chance of being chosen.

Choosing people from a list may be done using a table of random numbers. If we

were interested in sampling a group of 10 people, for example, we could number

10 pieces of paper from 0 through 9 and put them in a container. Then, we could

mix the pieces of paper and draw out a number. This is essentially what has been

done when a random number table is constructed. Such a table uses numbers of

one, two, three, four or more digits, and a computer picks a number at random.

These numbers are then recorded in a table such as Table 1 in the Appendix..

Table 1 shows a list of randomly selected numbers. Let us say that we wanted to

select a sample of 20 people from a list of 500. First we number everyone on the

list from 1 to 500. Now we might decide, which number to choose as the start of

our sample.

Assume we close our eyes and put our pencil down upon a number, say 62463,

the sixth number in third column. Now, assume that we continue reading down

this column from this point on and then start at the top of the next column. We

discard numbers that are too large for our list (that is, numbers with three digits

and less than or equal to 500 are retained). We could just as easily read across the

rows. Any procedure is acceptable as long as we follow it consistently.

Now let us pick 20 numbers we have, 022, 077, 065, 484, 140, 135, 239, 074,

037, 275, 474, 075, 145, 401, 264, 076, 449, 374, 230 and 041. Note that if the

number was selected previously, we discard it. We now look up these numbers

on our numbered list and interview the appropriate persons.

Nowadays, many hand calculators have random number programs that can be

used to generate a set of random numbers. The method just described above is

called Simple random sampling.

157

Systematic Random Sampling

This method consists of starting with a random number from the random number table

counting down to this number on our list. Then selecting additional units at evenly

spaced intervals (every kth population unit K > 1) until the sample has been formed. If

the list follows some numerical pattern, this method can’t be used. The regular pattern

might cause bias.

Another random sampling technique is called stratified random sampling , in which we

divide our population into groups and take a selected sample size in each of the groups.

This technique is used for two reasons:

ii) it ensures a large enough sample in each stratum (class) for study of the particular

strata.

refuse collection service in a town. Recognizing that wealthy home owners might stratify

the population of homes on the basis of value, forming three strata: homes valued at

K30,000,000 and less, more than K30,000,00 but less than K100,000, and homes valued

at K100,000 and more. From each stratums, we then take a random sample of selected

homes.

Cluster Sampling

Clusters are identified in the populations, a set of clusters is randomly sampled, and a

complete census is taken of each to form the sample. Clustering tends to decrease costs

and increase sampling error for the same size sample, because people who live close

together are more likely to be similar than others. For example, a few geographical areas

(perhaps a township or a road in a town) are selected at random and every single

household of the population.

variables used for stratifying in ‘people” surveys are age, income, and location of

residence.

158

Non Probability Samples

These samples do not rely on the laws of probability for selection, but depend on the

judgment of interviewers or their supervisors.

Convenience samples consist of studies of people who happen to be available or who call

in their results. Suppose we are interested in conducting a study of the attitudes of

shoppers at a new shopping center on the kinds of stores in the center, the attractiveness

of the center, parking difficulties, and so on. To collect sample information, we ask

persons to participate in the survey who happen to walk past the central area of the

center. The sample in this instance is a convenient sample – the people are not being

selected according to a probability plan and, presumably judgment is not being used in

selecting those to participate in the survey. Convenience samples are prone to bias by

their very nature – selecting population elements that are convenient to choose almost

always makes them special ro different from the rest of the elements in the population in

some way.

Judgment Sampling

Judgment sampling is done by an expert who is familiar with the population measures.

He selects the units from the population. The quality of judgment sample depends on the

competence of the expert who selects the population units to be sampled.

Quota Sampling

Quota sampling attempt to ensure that the sample represents the characteristics of the

population. The interviewer is free to select any one who meet the given specifications.

He or she may choose in a non random fashion. We cannot make good estimate of

sampling error because we haven’t used a random sampling procedure. The method is

cheap and reasonably effective and in consequence is widely used.

159

4.4 Statistical Inferences

Introduction

Statistical inference can be divided into two parts namely estimation and

hypothesis testing. Firstly we deal with estimation which is the procedure or

rules or formulae used to estimate a population characteristics (parameter).

Sample measures (or statistics) are used to estimate population measures (such as

population means, µ the Greek symbol ‘mu’, population variance σ 2 the Greek

symbol ‘Sigma’). The corresponding sample measures are sample mean,‘ x ’

pronounced x-bar, and sample variance ‘ S 2 ’ respectively.

characteristics of the population and then draw information from a sample to see

if the hypothesis is supported or not

Estimation

Properties of good Estimators

mean x of all possible random samples of size n , drawn from a

population of size N, equals the population mean ( µ ) . Therefore the

mean of the distribution of the sample means will be the same as the

population mean.

increases, the accuracy of the estimate of the population parameter also

increases.

the smallest variance among all the estimators.

information about it to estimate the required population parameter.

In practical situation, it is not possible to have all the four qualities on one

estimator. The researcher choose which qualities he/she wants the estimator to

have.

160

Distribution of Sample Means

are taken from this population and the sample means x are found. The distribution of

σ

sample means has mean µ x = µ and standard deviation (standard error) σ x = .

n

If the population is normally distributed, or if the sample size is ‘large’ (i.e. n > 30) , then

the sample means is approximately normal.

Example 1

A normal population has a mean = 500 and standard deviation = 125. Find the

probability that a sample of 65 values has a mean greater than 538.

We have µ = 500 and σ = 125. The distribution of sample means has mean

σ 125

µ x = 500 and s tan dard error σ x = = = 15.50

n 65

σ x = 15.50

538 − 500

Z= = 2.45

15.50

Therefore the probability that a sample mean greater than 538 is equal to the area shaded

= 0.5000 – 0.4929 = 0.0071 from the tables.

161

Example 2

The daily output from a production line has a mean 7500 unts with a standard deviation

of 500 units. What is the probability that during the next 125 days the average output

will be under 7400 units per day?

σ 500

Normal (since n is large) with µ x = µ = 7500 and σ x = = = 44.72

n 125

σ x = 44.72

7400 − 7500

Z= = −2.24

44.72

= 0.5000 − 0.4875

= 0.0125

Confidence Intervals

If we have chosen a good sample and have calculated the mean from the sample for the

effect we wish to study, we may offer this estimate to the public or a company as an

estimate for the population mean. This is called a point estimate. The only problem is

that we offer evidence from one sample about the nature of the population, and we have

no idea how reliable this estimate is.

Reliability depends on sample size n and the amount of variability in the original

population σ . Even more helpful would be a combination of the estimate, the standard

162

error of the estimate and some notion of the probability of being correct. This

information is contained in what is called a confidence interval.

Since sample means are normally distributed, we can use normal curve probabilities to

describe our estimates.

X ± 1.65 σ x = 90% confidence Interval

2

α

Z α is the critical po int whose area to the right is .

2 2

Example 3

Find the 95% confidence limits for the average daily output over 125 days given in

Example 2.

confidence limits for a sample mean are:

= 7500 ± 87.65

= 7412.35 to 7587.65

We are 95% sure that the average output over 125 days will be between 7412.35 and

7587.65 units per day.

The principles involved in setting confidence limits can be used to determine what

sample size should be taken, if we wish to achieve a given level of precision.

163

Example 4

In Example 2, if the daily output from a production line has a mean of 8000 units with a

standard deviation of 534 units. If the probability is 0.99 that the error will be at most

116 points on the test scale for such data, how large should the sample size be?

d = the error term which is half the width of the confidence interval. Hence d = 2.5

σ α

Therefore; d = Z α , α = .01, = .005, Z 0.005 = 2.85 from the tables.

2 n 2

2.85(534)

Hence, 116 =

n

(2.85)(534)

n=

116

n = 172.13

n ≅ 173

For random samples of size n taken from a finite population having the mean µ and

standard deviation σ , the sampling distribution x has the mean µ x = µ and the standard

σ N −n

deviation σ x =

n N −1

Where N is the population size and the sample size is n > 5% of the population size.

164

Example 5

A sample of 120 is drawn from a population of 1200 with a sample standard deviation of

9 centimeters. What is the finite population correction factor? What is the standard error

of the mean?

N −n

fpc = ifn > 5% N

N −1

1200 − 120

fpc = = 0.949

1200 − 1

σ N −n 9

σx = = (0.949) = 0.7797cm

n N −1 120

So far the process of statistical inference has been applied to the arithmetic mean. The

standard error of a sample proportion is given by

pq

σ pˆ = and µ pˆ = P

n

Using this value, we are able to set confidence interval for the estimate of the population

proportion based on the sample proportion in exactly the same way as outlined previously

for the mean as:

pq

µ pˆ ± Z α

2

n

165

Example 6

A manufacturing process produced approximately 5% defective items.

a) Find the mean and standard deviation of the proportion of defectives obtained in

sample 500 items.

b) Find the 95% confidence limits for the proportion of defectives in a sample of 500

items.

∴ mean = µ pˆ = P = 0.05

P (1 − P )

S tan dard deviation = σ pˆ =

n

0.05(0.95)

= = 0.00975

500

95% confidence limits are given by:

= 0.05 ± 0.01911

= 0.03089 to 0.06911

sample are 3.1% to 6.9%.

Example 7

In a random sample of 375 employees, 68% were found to be in favour of strike action.

Find the 99% confidence limits for the proportion of all employees in the company who

are in favour of such action.

166

We are given pˆ = 0.69 and n = 375

∴ µ pˆ = pˆ = 0.68

pˆ (1 − pˆ ) (0.68)(0.32)

σ pˆ = =

n 375

= 0.0241

= 0.68 + 0.0622

0.6178 to 0.7422

When sampling is done where sample size is less than 30 and the population variance is

unknown (i.e. S, the sample standard deviation is used as an estimate of σ , the

population standard deviation). The confidence limits for the time population mean are

given by

S

x ± tα

, n −1 n

2

, n −1

2

S the s tan dard deviation of the sample mean

∑x

2

2

− nx

S=

n −1

167

x−µ

t= S

n

of the x distribution, and S is the sample standard distribution.

ii) It is flatter than the Normal distribution i.e. the area near the tails are greater than

the Normal Distribution.

iii) As the sample size becomes larger the t distribution approaches the normal

Distribution. To use the t distribution the tables in Appendix 1.

Example 8

A random sample of 12 men is taken and is found to have a mean height of 1.67cm and a

standard deviation of 0.48cm. Find:

i) 99%

ii) 95%

α

x = 1.67, n = 12 and S = 48. 1 − α = 99, α = .01 and = 0.005. Hence

2

tα = t0.005,11 = 3.106 from Table 2. The 99% confidence limits are given by:

, n −1

2

168

S

x ± tα

, n −1 n

2

0.48

= 1.67 ± 3.106

12

= 1.67 ± 0.430

= 1.24cm to 2.1cm

Thus the 99% confidence limits for the population mean are between 1.24 and

2.1cm.

α

ii) 1 − α = .95, α = 0.05, = 0.025. Therefore tα = t0.025, 11 = 2.201 , from

2 , n −1

2

Table 2 the 95% confidence limits are given by

S

x ± tα

, n −1 n

2

0.48

= 1.67 ± 2.201

12

= 1.67 ± 0.305

= 1.365 to 1.975

Thus the 95% confidence limits for the population mean are between 1.365 to

1.975cm.

Exercise 4

1) A study of a sample of 500 bank accounts is made to estimate the average size of

a bank account. The sample mean is calculated to be K500 000. From previous

studies of bank accounts, it is known that the standard deviation is K67 000.

Construct a 99% confidence for the mean size of bank accounts.

169

2) An ice cream factory wishes to know the average number of women per block of

houses in a given compound. A sample of 120 blocks of houses within the

compound indicates that the average number of women is 94. When the standard

deviation is estimated for those 120 block of houses, it is found to be S = 15.04.

Calculate a 95% confidence interval for the number of women.

3) Assume that some college students want to find out what percent of the

population will vote for the MMD candidate. A sample of 125 voters reveals that

65 will vote MMD. Should we predict that the MMD candidate will win

(assuming that there are just two parties)? Construct a 98% confidence interval

that the MMD will win.

20% preferred new books while 80% wanted used ones.

books. What is the standard error of a proportion for those

favouring old books?

population favouring new books.

population favouring new books.

size to use. They wish to be within 2% of the true proportion with 95%

confidence. Past records indicate that the proportion of defective is 9 in

300. What sample size should they use?

certain industry are approximately normally distributed with a standard

deviation of K225 000. How large a sample of factory workers would be

required if we wish to estimate the population mean salary µ to within

K27 000 with a confidence of 95%?

assumed to be normally distributed. A random sample of 25 persons

taking the test is conducted and their test times are recorded, yielding an

average test time 120 minutes with a standard deviation of 24 minutes.

Find a 99% confidence interval for the population mean test time µ .

8) The Local Authority have tested the durability of a new paint for white

center lines, a highway department has painted test strips across heavily

travelled roads in nine different locations, and automatic counters showed

that they disappear after having been crossed by 200, 245, 235, 225, 220,

170

230, 235, 248 and 250 cars. Construct a 99% confidence interval for the

average number of crossings this paint can withstand before it disappears.

of estimation dealt with in the previous section. Random sampling is involved

and the properties of the distribution of sample means and proportion are still

used.

process by which the belief is tested by statistical means.

This belief about the population parameter is called the null hypothesis denoted H o . The

value specified in the null hypothesis is often a historical value, a claim or a production

specification. The opposite of the null hypothesis is the alternative hypothesis denoted

by H a or H 1.

For example, if the average score of Mathematics students is 85, 10 years ago, we might

use a null hypothesis H o : µ = 85 for a study involving the average score of this year’s

mathematics class. If television networks claim that the average length of time devoted

to commercials in a 45-minutes program is 10 minutes, we would use H o : µ = 10

minutes as our null hypothesis in a study regarding the length of time devoted to

commercials. The alternative hypothesis is accepted if the null hypothesis is rejected. In

the two examples above, if we believe the average score of mathematics students is

greater than it was 10 years ago, we could use an alternative hypothesis H1 : µ > 85

while in the commercial case if the length of time devoted to commercials is not10

minutes, we could use an alternative hypothesis H1 : µ ≠ 10 .

If we reject the null hypothesis when it is in fact true, we have an error that is called a

type 1 error. On the other hand, if we accept the null hypothesis when it is in fact

false, we have made an error that is called a type II error. Table 4.1 summarizes these

results.

Our Decision

171

Ho is false Type II error Correct decision

x−µ x−µ

Z= i. e Z=

σx σ/ n

A selection of ‘significant’ values of Z together with the significance level α are given

below.

Z 1.64 1.96 2.33 2.58

Example 9

Consider a Normal population with a standard deviation = 30. A random sample of 24

items is found to have a mean of 168. Test the assumption at the 5% significance level

that the population has a mean of 150.

H o : µ = 150

H a : µ ≠ 150

This type of a test, we call it two tailed test. If µ ≠ 150 , it could either be less than 150

or greater than 150, hen the term two tailed test.

α α

= 0 .5 = .025

2 2

1 − α = .95

-1.96 1.96

172

We are given α = .05. Since it is a two tailed test, we share this area equally in the two

α .05

tails i.e = = .025. The shaded area is called the rejection region and the unshaded

2 2

area the acceptance region. The point separating the rejection region from the acceptance

region is called the critical point.

Z= =

σ 30 / 24

n

18

=

6.12

= 2.94

A ‘significant” value of Z at the 5% level is 1.96, i.e the 95% confidence limits for Z are

–1.96 and +1.96 (see diagram above). Therefore, our value of Z is significant (i.e it is

outside the confidence limits). We reject H o . We thus accept that the population mean

is not equal to 150.

Example 10

A random sample of 12 family toy cars is found to have an average retail price of K300

000. Assuming that toy car prices are Normally distributed with a standard deviation of

K50 000.00, test the assumption (at the 5% level) that the average price of a family toy

car is:

a) H o : µ = 35 000

H1 : µ ≠ 35 000

173

x−µ 300 000 − 350 000

Z= =

σ 50

n 12

− 50 000

=

50 000

3.4641

= −3.46

.025 .025

1 − α = .95

−1.96 1.96

greater than +1.96 or less than –1.96. Therefore, our value of Z(-3.46) is

significant. We reject the assumption H o . Thus the sample shows that the

average price of a family car is significantly different from K350 000.

b) H o : µ = 35 000

H1 : µ > 35 000

Z= =

σ 50

n 12

= −3.46

174

5%

0 1.65 Z

accept the assumption that the average family car is equal to K350 000.

Example 11

A random sample of 12 items is obtained from a Normal population and is found to have

a mean = 50 with a standard deviation = 7. Test the assumption, at the 5% significance

level, that the population mean is 40.

H o : µ = 40

H1 : µ ≠ 40 (two tailed test).

Now the sample size is small and hence the test statistic is no longer Z but t given by

x − µ 50 − 40

t= =

S 7

n 12

10

=

2.021

= 4.95

Therefore, our value t = 4.95 is significant. We reject H o . We thus conclude that the

population mean is significantly different from 40.

175

Example 12

An assessment test is given to all prospective employees in a company. Test scores are

known to be Normally distributed. A random sample of 7 participants obtained the

following results: 69, 58, 68, 66, 75, 85, 80.

Test the assumption that the mean test score is 65 using the 5% significance level.

H o : µ = 65

H1 : µ ≠ 65

This is a two-tailed test. We have x : 49, 58, 66,75, 85, 82. Now

x=

∑ x = 483 = 69, and

n 7

∑x

2

2

− nx 34319 − 7(69) 2

S= =

n −1 6

= 12.858

x − µ 69 − 65 4

∴ t= = =

S 12.858 4.86

n 7

t = 0.823

Therefore, our value of t = 0.823 is not significant. We can accept H o . We thus

conclude that the average test score is not significantly different from 65.

Example 13

The amount of monthly income tax paid by employees is approximately Normally

distributed. A random sample of 25 employees paid an average of K350 000 per month

in income tax, with a standard deviation of K160 000. At the 5% significance level test

the assumption that the average amount of income tax paid is greater than K250 000 per

month per employee.

176

We are given S = 160, n = 25 and x = 350

H a : µ > 250 000

t= =

S 160 000

n 25

t = 3.125

Therefore, our value of t = 3.125 is significant. We can reject H o and accept the

assumption that the average income tax paid by employees in the company is

significantly greater than K250 000 per month.

A population contains proportion P of ‘successes”. Random sample of size n are taken

from this population. The proportion of ‘successes” in the samples are distributed with a

P(1 − P)

mean µ pˆ = P and s tan dard deviation σ pˆ =

n

significance of a sample proportion p̂ can be examined using the formula

Pˆ − µ pˆ

Z=

σ pˆ

Example 14

It is assumed that over half of the employees in a large company are in favour of a

proposed new salary structure. A sample of 250 employees found that 42% were in

favour. Does this sample verify the assumption? (use the 1% significance level)

H o : P = 0.50

177

H i : P < 0.50

Now,

P (1 − P ) 0.5(0.5)

σ pˆ = = = 0.0316

n 250

Pˆ − µ pˆ 0.42 − 0.50

∴ Z= = = −2.53

σ pˆ 0.0316

2.53 is significant. We reject H o . We thus accept the assumption that the population

does have a proportion less than 50%, i.e. less than half of the employees are in favour of

the proposed new salary structure.

Example 15

It is required to test the hypothesis that 56% of households have a television set. A

random sample of 500 households found that 75% of the sample had television sets. The

significance level is 1%.

This is a two tailed test because we wish to test the hypothesis as it is and not against a

specific alternative hypothesis that the real proportion is either larger or smaller.

i.e H o : P = 0.56

H i : P ≠ 0.56

Now,

0.56(.44)

σ pˆ = = 0.0222

500

0.75 − .56

∴ Z= = 8.56

0.0222

At the 1% level of significance for a two-tailed test the appropriate Z value is 2.58.

178

Therefore, our value of Z = 8.56 is significant. We reject H o . We thus accept the

assumptions that the proportion of household who have a television set is not 56%.

Exercise 5

1) A Normal population has a standard deviation of 50. A random sample of 30

items is found to have a mean of 270. Using the 1% significance level examine

the assumption that the population has a mean of 280.

2) A machine makes twist-off caps for bottles. The machine is adjusted to make

caps of diameter 1.87cm. Production records show that when the machine iis so

adjusted, it will make caps with mean diameter 1.87 cm and with standard

deviation σ = 0.045cm. During an inspector checks the diameters of caps to see

if the machine is not functioning properly in which case the diameter is no longer

1.87cm. A sample of 65 caps is taken and the mean diameter for this sample x is

found to be 1.98cm. Is the machine working properly i.e µ ≠ 1.87 . (Use a 5%

level of significance).

of K94500. A sample of 20 employees is found to have a mean salary of K756

000 per month. Using the 1% level of significance would you conclude that the

average salary in this company is significantly higher than K720 000 per month?

4) A random sample of seven bank accounts show balances equal to: K270 000,

K120 000, K1600 000, K620 000, K1980 000, K3200 000, K2600 000. Test the

assumption that the mean bank balance is K1250 000. (use the 5% significance

level).

with a standard deviation of 69. At the 5% level test the assumption that the

population has a mean of 520.

had annual turnovers in excess of 30 million kwacha. Using a 1% significance

level, test the assumption that 45% of all Zambian companies have over 30

million kwacha annual turnover.

7) A team of eye surgeons has developed a new technique for a risky eye operation

to restore the sight of people blinded from a certain disease. Under the old

method, it is know that only 45% of the patient who undergo this operation

recover their eyesight. Suppose that surgeons in various hospitals have performed

a total of 230 operations using the new method and that 98 have been successful

(the patients fully recovered their sight). Can we justify the claim that the new

method is better than the old one? (use a 5% level of significance).

179

Hypothesis Testing of the Difference Between Two means

The distribution of sample mean differences is normally distributed and remains normally

distributed whatever the distribution of the population from which the samples are drawn.

When n > 30 i.e. large samples, the Normal area tables are used. When n < 30 the t

distribution are used.

S12 S 22

The standard errors of the σˆ ( x1 − x 2 ) = + difference of means where:

n1 n2

x1 − x 2

Z=

σˆ x − x

1 2

Example 1

A psychological study was conducted to compare the reaction times of men and women

to a certain stimulus. Independent random samples of 50 men and 50 women were

employed in the experiment. The results were shown in the table below. Do the data

present sufficient evidence to suggest a difference between time and mean reaction times

for men and women? Use α = 0.05

Men Women

n1 = 50 n2 = 50

x1 = 43 x 2 = 37

S = 20

1

2

S 22 = 12

180

We have

H o : µ1 = µ 2

H a : µ1 ≠ µ 2 (two − tailed )

∧ 512 522

σ( x1 − x 2 )

= +

n1 n2

20 12

= +

50 50

= 0 .8

x1 − x2 43 − 37

Z= =

0 .8

Now σ x −x

1 2

= 7 .5

A significant value of Z at the 5% level with Z = 1.96 . Therefore our value of Z = 7.5 is

significant. We reject H 0 . We thus conclude that there is a significant difference

between the average earnings in the two companies.

Example 2

A consumer group is testing camp stoves. To test the heating capacity of a stove, the

group measures the time required to bring 2 litres of water from 10ºc to boiling (at sea

level).

Two competing models are under consideration. Thirty-seven of each model are tested

and the following results are obtained.

Model 2: mean time x2 = 10.1 min; standard deviation s2 = 3.2 min

Is there any difference between the performances of these two models (use a 1% level of

significance)?

181

We have

H o : µ1 = µ 2

H a : µ1 ≠ µ 2

x1 − x 2 12.5 − 10.1

Z= =

S12 S 22 (2.6) 2 (3.2) 2

+ +

n1 n2 37 37

2 .4

= = 3.54

0.678

Z = 3.54 is greater than the critical value of Z = 2.58. Therefore , we reject H o and

accept the assumption that there is a significant difference between the performances of

these two models.

In a similar manner it may be required to test the difference between the proportions of a

given attribute found in two random samples.

Sample 1 Sample 2

Population proportion of successes P1 P2

Sample size n1 n2

The assumption is that the two sample are from the same population. Hence the pooled

sample proportion.

182

P1n1 + P2 n2 pq pq

P= and the s tan dard erorr is σˆ ( p1 − P2 ) = + , and

n1 + n2 n1 n2

( Pˆ1 − Pˆ2 ) − ( P1 − P2 )

Z= → (1)

σˆ ( P1 − P2 )

( Pˆ1 − Pˆ2 )

Z=

σˆ ( P1 − P2 )

Example 3

The following results have been recorded from random samples of candidates taking two

Institute examinations.

Communication 50 35

Mathematics 85 42

the proportions of candidates passing the two examinations.

183

n1 = 50 n2 = 85

35 42

Pˆ1 = = 0 .7 Pˆ2 = = 0.49

50 85

H o : P1 = P2

H a : P1 ≠ P2

(.0568)(0.432) (0.568)(0.432)

σˆ ( P − P ) = +

1 2

50 85

= 0.0882

Now P = = = 0.568

50 + 85 135

0.7 − 0.49

∴Z = = 2.38

0.0883

A significant value of Z at 1% level (two tailed is 2.58. Therefore, our value of Z = 2.38

is not significant. We accept H o . There is no significant difference between the

proportion of candidates passing the two examinations.

Example 4

A college committee wishes to know if the proportion of students who received A grades

was decreasing as a result of the committee recent report to the Principal that showed that

grades had risen since 2002 and that Mampi College grades had risen faster than grades

in other college in the country. A sample of grades in 2002 and 2003, after the

committee’s report was given, were studied to see if the proportion of A grades had gone

down significantly. Use α = 0.05.

2002 0.70 120

2003 0.50 110

We have:

184

H o : P2 ≥ P1

H a : P2 < P1

0.70(120) + .50(110)

Now P = = 0.604

120 + 110

1 1

σˆ ( P − P ) = (0.604)(0.396) + = 0.065

120 110

1 2

0.50 − 0.70

Z= = −3.08

0.065

Since –3.08 is less than –1.65, we reject H o . We therefore conclude that the grades have

gone down since the grade committee reports was issued.

Exercise 6

X 45 4

Y 35 9

Use a 5% significant level to test the claim that line A is more reliable than line B.

random sample of 400 voters said that they intend to vote for the MMD candidate.

In a second area in the same constituency there were 32% intending to vote

MMD in a sample of 370. Use a 1% level of significance to determine whether

there is a significant difference between voting intentions in the two areas.

3) The graduating class to two prestigious business schooks were surveyed about

their average starting salary with the following results.

185

School Average starting Standard Sample size

salary(K’ million) deviation

(K’ million)

X 80 1.8 150

Y 85 1.44 115

School Y have equal starting salaries?

recommend in its calculators. If the batteries were of equal life, the company

preferred brand 1 because of its better distribution network. Based on the

following data and using 5% confidence level, which battery should the quality

control engineer recommend?

Deviation(hrs)

Brand 1 110 15 150

Brand 2 115 20 150

5) Consider the following null and alternative hypotheses.

H o : µ1 − µ 2 ≤ 0

H a : µ1 − µ 2 > 0

Suppose it is known that σ 1 = 12, σ 2 = 24. Further, suppose that the two

population are taken from each population independently with mean

x1 = 30 and x 2 = 20 respectively. Should the null hypothesis be rejected or not

rejected. Explain. Use α = .05.

186

EXAMINATION QUESTION WITH ANSWERS

consisting of 145 units. If the population standard deviation is 10.5, what is the

standard error of the sample mean when the sample is drawn with replacement?

1.2 A Corkhill machine is set of fill a small bottle with 9.00 grams of medicine. It is

claimed that the mean weight is less than 9.0 grams. The hypothesis is to be

tested at the 0.01 level. A sample revealed these weight (in grams): 9.2, 8.7, 8.9,

8.6, 8.8, 8.5, 8.7 and 9.0. What are the null and alternative hypotheses?

1.3 A study of Excelsior Furniture limited regarding the payment of invoices revealed

that, on average, an invoice was paid 20 days after it was received. The standard

deviation equaled 5 days. What percentage f the invoices were paid within 15

days of receipt?

1.4 A procedure based on sample evidence and probability theory used to determine

whether a statement about the value of a population parameter is reasonable and

should not be rejected, or unreasonable and should be rejected is called:

D. Hypothesis testing.

(Natech, 1.2 Mathematics and Statistics, December 2003)

187

1.5 If, in a sample of 150, 60 respondents say they prefer product P to product Q ,

then the standard error of the sample proportion is:

(Natech, 1.2 Mathematics and Statistics, December 2001)

(Natech, 1.2 Mathematics and Statistics, December 2003)

1.7 The finite correction factor is used in computing the standard error of the mean

when:

D. σ is finite.

1.8 In a “5 percent two-tail test” Concerned with the value of the population mean,

the area in each tail (region of rejection) of the standard-normal distribution

model is:

B. Rejecting a true null hypothesis

C. Accepting a false null hypothesis

D. Rejecting a false null hypothesis

1.10 In the general procedure of hypothesis testing the “benefit of doubt is give to the:

188

SECTION B

QUESTION ONE

a) State the null and alternative hypotheses given the following information.

During the last year, the average quarterly charge on a current account held at a bank was

K25,000. The bank wishes to investigate whether the amount paid in charges has

increased or not. So they sample 50 accounts and obtain a mean of K25,500.

with a standard deviation of 100. By a new technique in the manufacturing

process it is claimed that tbe breaking strength of the cables has increased. In

order to test this claim a sample of 50 cables is tested. It is found that the mean

breaking strength is 1,850. Can we support the claim at 0.01 level of

significance?

(Natech, 1.2 Mathematics and Statistics, June 2001)

strength of 125 KN with a standard deviation from the mean of 185KN. As a

result of trials with more expensive raw material, a batch of 25 struts with a mean

breaking strength of 1310KN is produced. Is this evident that the new material is

producing stronger struts?

(Natech, 1.2 Mathematics and Statistics, June 2003)

QUESTION TWO

programmes, one of which is called “ZACB hour”.

new students was randomly selected and asked how they came to know about the

institution’s programme. 185 of the 500 students indicated that it was through

“ZACB hour”.

Required:

students to be interviewed if the sample promotion is to lie within 1% of

the true population proportion at 95% confidence interval level.

189

ii) Calculate the number of students to be interviewed if the sample

promotions is to lie within 1% of the true population proportion at 95%

confidence level.

(Natech, 1.2 Mathematics and Statistics, December 2004)

QUESTION THREE

a) i) The mean and the standard deviation of the height of a random sample of

100 students are 168.75cm and 7.5cm respectively.

Required:

Calculate the 99% confidence interval for the mean height of all students

at the college.

standard deviation of all times is 0.05 second.

Required:

the error in the estimate will not exceed 0.01 seconds.

and a standard deviation of 0.06mm.

(Natech, 1.2 Mathematics and Statistics, June 2005)

average of K42 000 per week.

average turnover of K49 000 per week. With a standard deviation of K4 500. At

the 1% level test whether there has been a significant increase in the turnover.

190

d) A random sample of six (6) bank accounts showed balances equal to

Test the assumption that the mean bank balance is K1,032,000. (use the 1%

significance level).

(Natech, 1.2 Mathematics and Statistics, Nov/Dec 2000)

QUESTION FOUR

a) The Manager of a coach company wishes to estimate the average daily number of

kilometers covered by his coaches. He requires a confidence limit of 80%, but the

error must be within plus or minus 20 kilometers of the true mean.

Assuming that the previous investigation have indicated that a very good estimate

for the population standard deviation is 130 kilometers.

ii) Suppose the sample size is greater than his fleet of coaches, what steps

should be taken?

b) XYZ Ltd has developed a cleaning detergent for use by housewives in their

homes. A decision must now be made whether or not to market the detergent.

Marketing the product will be profitable if the mean number of units ordered per

household is greater than 3.0 and unprofitable if less than 3.0. The decision will

be based on the sales potential shown in the home demonstrations of the detergent

with a random sample of the housewives in the target market.

i) Specify the null and alternatives hypotheses if the more costly error is to market

the detergent when it is not profitable.

ii) Specify the null and alternative hypotheses if the more costly error is to

fail to market the detergent when the mean number of units ordered per

household exceeds 3.0.

191

c) An instructor wishes to determine whether or not student performance has

changed over the duration of the course. Scores in two equivalent test in

“mathematics proficiency”, one before and the other after the course, are

summarized in the Table below.

Student 1 2 3 4 5 6 7 8 9 10 11

Before 29 61 73 51 49 71 33 48 44 75 55

After 55 67 73 35 48 93 59 47 42 60 46

Is there any statistical evidence that the course has produced some learning? Use

α = 0.05 .

QUESTION FIVE

a) Formulate the appropriate null and alternative hypotheses in each of the following

situations.

per 1,000 at anyone time. To help reduce this rather high rate of

absenteeism, the company has introduced a new attendance bonus. The

company now wishes to determine whether absenteeism ahs declined.

ii) Suppose you own a book shop that sells a variable number of

books per day, and that if the mean number of books sold is less than 20

per day, you will eventually be bankrupt. If the mean number of books

sold exceeds 20 per day, you care financially safe. You wish to determine

whether your sales (from the bookshop) are leading to a financial disaster.

with a mean diameter of 1.27cm. Otherwise, the process if out of control.

A quality control inspector want to check whether the process is out of

control.

b) A relief organization knows from the previous studies that the average distance

that each family has to walk to fetch water is 5.6km. A small capital investment

programme is initiated to sink boreholes to address this problem.

Two months after the completion of the programme, a sample of thirty families

revealed that the mean distance is now 5km with a standard deviation of 1.4km.

Is this a significant improvement? Conduct your test at 5% level of significance.

(Natech, 1.2 Mathematics and Statistics, December 1996)

192

QUESTION SIX

sampled. 1600 favoured more strict environmental protection measures. What is

the estimated population proportion?

Bearing Centre Ltd is normally distributed with a population mean of 200 and a

population standard deviation of 16. The research department if challenging this

mean, stating it is different from 200. As a result the efficiency ratings of 100

production employees were analyzed and then mean of the sample was computed

to be 203.5.

With this information and using the 0.01 level of significance, test the hypothesis

that the population mina is 200.

(Natech, 1.2 Mathematics and Statistics, December 1997)

193

4.6 Regression and Correlation Analysis

relationship between two variables and goes on to explain about correlation

analysis which measures the strength of the relationship between two variables.

This manual uses Spearman’s rank correlation coefficient and Pearson’s product

moment coefficient of correlation as a measure of strength between two variables.

variable) on the basis of one or more other variables (independent variable). If an

analyst for instance is trying to predict the share price of a particular sector there

will be a whole range of independent variables to be considered. In this manual,

we will restrict our attention to the particular case where a dependent variable y is

related to a single independent variable x .

When only one independent variable is used in making forecast, the technique used is

called Simple Linear regression. The forecasts are made by means of a straight

line using the equation

y = a + bx

b = slope = the amount that y changes with a unit change in x

shown to be reasonably close to the approximation of many situations.

means of a scatter diagram. This is a plot of the two variables on an x − y graph.

Given that we believe there is a relationship between the two variables, the second

step is to determine the form of this relationship.

194

Example 1

Consider the following data of a major appliance store. The daily high temperature and

of air conditioning units sold for 8 randomly selected business days during the hot dry

season.

(x) oc (y)

27 5

35 6

18 2

20 1

46 6

36 4

26 3

23 3

6 •

Number

of

units 5 •

used

4 •

3 • •

2 •

1 • •

18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 x

Figure 1.0

195

The distribution of points in the Scatter diagram suggests that a straight line roughly fits

these points.

The most straight forward method of fitting a straight line to the set of data points is ‘by

eye’. The values of ‘a’ and ‘b’ can then be determined from the graph, ‘a’ is the intercept

on the vertical axis and ‘b’ is the slope.

The other method is that of semi averages. This technique consists of splitting the data

into two equal groups, plotting the mean point for each group and joining these points

with a straight line.

Example 2

Using data of Example 1, fit a straight line using the method of semi-averages.

Step 1

x y

18 2

20 1

23 3

26 3

27 5

35 6

36 4

46 1

Step 2

Split the data up into two equal groups, a lower half and upper half (if there is an odd of

items, drop the central one).

x y x y

18 2 27 5

20 1 35 6

23 3 36 4

26 3 46 1

Totals 87 9 144 16

Averages 21.75 2.5 36 4

196

Table 1.0

y

6 •

5 •

3 •

• •

2 •

1 • •

18 26 34 42 x

Figure 2.0

Step 3

Step 4

Plot the mean points in Step 3 on a graph within suitably scaled axes and joining them

with a straight line. This is the required y on x regression line.

Let us consider a typical data point with coordinates ( xi , yi ) (See Figure 3.0). The error

in the forecast ( y coordinate of data point-forecasted coordinate as given by the straight

line ) is denoted by ei . The line which minimizes the value of ei is called the “least

197

square line” or the regression line. This can be shown by using calculus. Here we just

give the ‘best estimates of ‘ a ’ and ‘ b ’ by the following formula.

∑ xy − ∑ n∑

x y

b=

( x)

∑ x − ∑n

2

2

ŷ

•

ei

•

yi

x

Figure 3.0

Example 3

198

Table 2 shows the calculations for the estimates of a and b.

x y x2 y2 xy

18 2 324 4 36

20 1 400 1 20

23 3 529 9 69

26 3 676 9 78

27 5 729 25 135

35 6 1225 36 210

36 4 1296 16 144

46 1 2116 1 46

∑ x = 231 ∑ y = 25 ∑ x = 7295

2

∑ y = 101

2

∑ xy = 738

n = 8, y = 3.125 , x = 23.1

199

∑ x∑ y

∑ xy − n

b=

(∑ x )2

∑x 2

−

n

(231)(25)

738 −

b= 8

7295 −

(231)

2

16.125

=

624.875

b = 0.0258

a = y − bx

= 3.125 − 0.0258(28.875)

= 2.38

Having obtained the regression line, It can be used to forecast the value of y for a given

value of x . Suppose that we wish to determine the number of units sold if we have a

daily temperature of 42o c .

From the regression line the forecasted value y is yˆ = 2.38 + 0.0258(42) = 3.46 i.e. the

expected number of units sold is 3.

Now suppose that we wish to determine the number of units sold if the temperature is

49o c. The forecasted value of y is the given by yˆ = 2.38 + 0.0258(49) = 3.64 i.e. the

expected number of units sold is 4.

The two examples differ due to the fact that the first y value was forecasted from an x

value within the range of x values, while the second value outside the range of x values

in the original data set.. The first example is a case of interpolation and the second is

that of extrapolation. With extrapolation, the assumption is that the relationship between

200

the two variables continue to behave in the same way outside the given range of x values

from which the least square line was computed.

Exercise 7

x 2 5 6 8 10 11 13 16

y 2 3 4 5 6 8 9 10

b) By eye, fit a straight line to the data (ensuring it passes through the mean

value)

2. The following data have been collected regarding sales and advertising

expenditure.

(K’ms) (K’ 000s)

10.5 230

11.2 280

9.9 310

10.6 350

11.4 400

12.1 430

Note that advertising expenditure is the ‘ x ’ variable and sales is the y variable.

201

3. Fit a least square line to the data in the table below.

x 5 7 8 10 11 13

y 4 5 6 8 7 10

4. The table below shows the final grades in Mathematics and Communication

obtained by students selected at random from a large group of students.

grade in Communication?

grade in Mathematics?

Mathematics (x) 80 86 97 70 89 75 99 69 87 78

Communication (y) 75 65 80 65 80 70 79 45 70 80

5. The table below shows the birth rate per 100 population during 1999 – 2005

Birth rate per 1000 14.6 14.5 13.8 13.4 13.6 12.8 12.6

b) Find the least squares line fitting the data. Code the years 1999 to 2005 as

the whole number 1 through 7.

c) Predict the birth rate in 2009, assuming the present trend continues.

variables. Having obtained the equation of the regression line, correlation

analysis can be used to measure how well one variable is linearly related to

another. The coefficient of correlation r can assume any value inclusive in the

202

range − 1 to + 1 . A value of r is close to or equal to – 1 , we have a negative

correlation. The sign of the correlation coefficient is the same as the sign of the

slope of the regression line.

coefficient.

x x x x

x x

x

x x x x x

r =1 r=0

x

x

x

x

r = −1

The method of investigating whether a linear relationship exists between two variables x

and y is by calculating Pearson’s product moment correlation coefficient (PPMCC)

denoted by r given by the formula

∑ xy − ∑ n∑

x y

r=

( x)

2

( y)

∑ x − ∑ ∑ y − ∑

2

2

2

n n

Example 4

By calculating the PPMCC find the degree of association between weekly earnings and

the amount of tax paid for each member of a group of 10 manual workers.

203

The PPMCC is calculated in the Table below

x y x2 y2 xy

79 10 6241 100 790

81 8 6561 64 648

87 14 7569 196 1218

88 14 7744 196 1232

91 17 8281 289 1547

92 12 8464 144 1104

98 18 9604 324 1764

98 22 9604 484 2156

103 21 10609 441 2163

113 24 12769 576 2712

∑ x = 930 ∑ y = 160 ∑ x 2 = 87446 ∑ y 2 = 2814 ∑ xy = 15334

∑ xy − ∑ n∑

x y

r=

2

( x) 2

( y)

∑ x − ∑ ∑ y − ∑ 2

2

n n

15334 −

(430)(160)

r= 10

(930 )

2

(160 )

2

87446 − 2814 −

10 10

454

=

(956)(254)

= 0.921

r is ‘near’ 1 and indicates a strong positive linear correlation between the two

variables.

Example 5

204

Evaluate the PPMCC for the following data.

x 15 20 25 30 35

x y x2 y2 xy

15 143 225 20449 2145

20 141 400 19881 2820

25 144 625 20736 3600

30 149 900 22201 4470

35 148 1225 21904 5180

∑ x =125 ∑ y = 725 ∑x 2

= 3375 ∑y 2

= 105171 ∑ xy = 18215

∑ xy − ∑ n∑

x y

r=

( x)

2

( y)

∑ x − ∑ ∑ y − ∑

2

2

2

n n

18215 −

(125)(725)

r= 5

−

(125) 105171 − (725)2

2

3375

5 5

90

r=

(250)(46)

= 0.839

words, it gives the proportion of the variation (in the y - values) that is explained (by the

variation in the x - values).

205

In Example 10, the correlation coefficient is r = 0.839. Therefore coefficient of

determination:

r 2 = (0.839) 2

= 0.704

( 3 decimals)

This means that only 70.4% of the variation in the variable y is due to the variation in the

variable x . Note that the coefficient of determination r 2 is between 0 and +1 inclusive.

correlation coefficient obtained by the formula.

6∑ d 2

r = 1−

n(n 2 − 1)

Example 6

Two members of an interview panel have ranked seven applicants in order of preference

for a specified post. Calculate the degree of agreement between the two members.

Applicant A B C D E F G

Interviewer X 1 2 3 4 5 6 7

Interviewer Y 4 3 1 2 5 7 6

D -3 -1 2 2 0 -1 1

d2 9 1 4 4 0 1 1

206

∑ d = 0, ∑d 2

= 20

6∑ d 2

r = 1−

n(n 2 − 1)

6(20)

= 1−

7(49 − 1)

120

= 1−

336

= 1 − 0.3571

r = 0.6429

Example 7

The results of two tests taken by 10 employees are shown below (figures in %)

Employee A B C D E F G H I J

Test X 50 52 58 66 70 74 77 86 92 94

Test Y 56 51 53 65 64 81 76 78 80 92

Rank each employee in order of performance in the two tests and calculate the rank

coefficient .

Employee A B C D E F G H I J

Test X 10 9 8 7 6 5 4 3 2 1

Test Y 8 10 9 6 7 2 5 4 3 1

d 2 -1 -1 1 -1 3 -1 -1 -1 0

d2 4 1 1 1 1 9 1 1 1 0

207

∑ d = 0, ∑d 2

= 20

6∑ d 2

r = 1−

n(n 2 − 1)

6(20) 120

= 1− = 1−

10(100 − 1) 990

r = 1 − 0.1212

= 0.8788

Exercise 8

1. Draw a scatter diagram of each of the sets of values given below, and calculate

the PPMCC in each case.

x 6 7 8 9 10

a)

y 3 6 9 12 15

b) x 1 3 5 7 9 11

y 8 7 6 5 4 3

c) x 2 4 6 8 10 12 14

y 12 8 8 14 9 7 13

2. The following table gives the percentage unemployment figures for males and

females in 9 regions. Draw a scatter diagram of these data and calculate PPMCC.

Region

Unemployment Luapula Northern Eastern Central Lusaka Copperbelt N.Western Western Southern

208

%

Male 3.4 3.5 4.5 4.4 12.5 12.8 3.2 4.2 4.8

Female 3.2 3.8 4.6 3.8 11.8 11.5 4.0 3.8 3.5

health risk. The same jobs have also been ranked in decreasing order on the basis

of the number of applicants attracted per advertised post.

Job A B C D E F G H

Health 1 2 3 4 5 6 7 8

Applicant 4 3 2 1 6 5 8 7

4. The table below gives the Shorthand and Typing speeds of a sample of seven

secretaries

Secretary 1 2 3 4 5 6 7

Speed Typing 42 44 47 47 50 54 57

5. On the different days (picked at random) the following values were obtained for

the price of a share for a particular company together with the index on that day

209

Share price 260 250 350 200 150 100 115 120 135 145

(K)

Index 115 135 140 120 105 110 106 165 175 115

Calculate Spearman’s rank correlation coefficient and say whether the index and

indicate whether the index is a reasonable indicator for the price of the

company’s share.

places will be?

1.2 The prices of the following items are to be ranked prior to the calculation of

Spearman’s rank correlation coefficient. What is the rank of item G?

Item E F G H I J K L

Price 18 24 23 19 25

A. 5 B. 4 C. 3 D. 2.5

(Natech , 1.2. Mathematics & Statistics, December 2003)

210

1.3

8

x x

6

x x

4 x x

x

2 x

x x

0 4 8 12 16

On the basis of the Scatter diagram above, which of the following equations

would best represent the regression line of Y on X?

A. y = −x−8 B. y=x+8 C. y = −x + 8

D. y=x−8

(Natech , 1.2. Mathematics & Statistics, December 2003)

1.4 An investigation is being carried out regarding the hypothesis that factor X is a

cause of ailment Y. Which coefficient of correlation between X and Y gives most

support to the ailment?

=8, then the value of r, the coefficient of correlation to two decimal paces, is

(Natech , 1.2. Mathematics & Statistics, December 2001)

211

1.6 The Scatter diagram below shows

•

• •

• •

(Natech , 1.2. Mathematics & Statistics, June 2005)

1.7 Find the value of ‘a’ in a regression equation if b = 7, ∑ x = 150, ∑ y = 400 and

n = 10.

(Natech , 1.2. Mathematics & Statistics, June 2005)

1.8 In regression analysis, the variable whose value is estimated is referred to as the:

B. The proportion of explained variance

C. The extent of causation

D. The extent of relationship

1.10 Of the following coefficient of correlation, the one that is indicative of the

greatest extent of relationship between the independent and dependent variables is

212

A. 0 B. +.20 C. − .95 D. +.70

SECTION B

QUESTION ONE

a) Derive the product moment correlation coefficient from the following data and

comment on your results.

Pupil A B C D E F G H I J K

Mathematics 41 37 38 39 49 47 42 34 36 48 29

marks, x

Physics 36 20 31 24 37 35 42 26 27 29 23

mark, y

b) Find the estimated line, by method of least squares, fitting the following results

from a Physics experiment.

Load, x 0.1 0.1 0.2 0.2 0.3 0.3 0.4 0.4 0.5 0.5

(Newtons)

Extensions, 18 11 25 22 35 50 54 45 52 68

y (mm)

c) A company has the following data on its profit (y) and advertising expenditure

9x) over the last six years.

Profits Advertising

(Million (K) Million (K)

11.3 0.52

12.1 0.61

14.1 0.63

14.6 0.70

15.1 0.70

15.2 0.75

i) Use two (2) methods to justify your assumption that there is a relationship

between the two variables.

ii) Forecast the profits for next year if an advertising budget of K800 000 is

allocated.

(Natech , 1.2. Mathematics & Statistics, December 2003)

213

QUESTION TWO

a) In the context of regression analysis explain what is meant by the following terms.

i) Regression coefficient

ii) Explanatory variable.

b) The following data shows the monthly imports (I) of apples and average prices

(P) over a twelve-month period.

(‘000 tonnes) (K/tones)

100 232

120 220

125 218

130 210

128 210

126 212

120 217

100 240

90 242

90 238

95 230

98 230

i) Determine the regression equation if imports (I) of apples on the price (P)

and use it to forecast monthly imports when the average monthly price is

K250 per tonne.

ii) If the correlation coefficient of the data is –0.95, interpret the results.

QUESTION THREE

Hungry Lion is a major food retailing company, which has recently decided to open

several new restaurants. In order to assist with the choice of sitting these restaurants the

management of fast foods limited whished to investigate the effect of income on eating

habits. As part of their report a marketing agency produced the following table showing

the percentage of annual income spend on food y, for a given annual family income ((K)

‘x’)

214

x y

(‘K’000,000)

18 62

27 48

36 37

45 31

54 27

72 22

90 18

i) y against x

ii) log10 y against log10 x, and comment on the relationship between income

and percentage of family spent on food.

b) Use the method of least squares to fit the relationship y = ax b to the data.

Estimate a and b.

annual income of K64,800,000.

(Natech , 1.2. Mathematics & Statistics, December 2001)

QUESTION FOUR

2000 20

2001 18

2002 15

2003 14

2004 11

Required:

ii) Comment on the result in (i) above.

iii) Calculate the coefficient of determination and comment.

215

iv) Use a regression equation to estimate the sales in the year 2005.

b) The table below shows the respective masses X and Y of a sample of 12 fathers

and their oldest ones.

Mass X 65 63 67 643 68 62 70 66 68 67 69 71

of father

(Kg)

Mass Y 68 66 68 65 69 66 68 65 71 67 68 70

of son

(Kg)

ii) Calculate the rank correlation coefficient using Spearman’s method.

(Natech , 1.2. Mathematics & Statistics, June 2005)

c) Find the degree of correlation between the Bank of Zambia base lending rate and

the dollar exchange rate taken over the past six months using:

ii) The coefficient of rank correlation.

st

Base % as on 1 of 14 14 13.5 12.5 12 12

each month

Average rate ($) 1.90 1.91 1.86 1.84 1.84 1.83

QUESTION FIVE

a) The following table shows the number of units of a good product and the total

costs incurred.

Total Costs (K) 40 000 45 000 50 000 65 000 70 000 70 000 80 000

b) Find the appropriate least squares regression line so that the costs can be predicted

from production levels and estimate the total costs when production is 250 units.

216

d) Calculate r and explain how much of the variation in the dependent variable is

explained by the variation of the independent variable.

QUESTION SIX

electronics factory. The data below relates to the number of week’s experience in

the soldering of components, and the number of components, which were rejected

as unsatisfactory last week.

Employee A B C D E F G H

Weeks of 4 5 7 9 10 11 12 14

experience (x)

No. of rejections 21 22 15 18 14 14 11 13

(y)

ii) Calculate a coefficient of correlation for these data and interpret its value.

Predict the number of rejects you would expect from an employee with

one week experience.

reading, ability varied with his/her ability to write. The points awarded

were as follows:

Child A B C D E F G H

Writing 7 8 4 0 2 6 9 5

Reading 8 9 4 2 3 7 6 5

(Natech , 1.2. Mathematics & Statistics, December, 2002)

c) The mass of a growing animal is measured, in g, on the same day each week for

with weeks. The results are given below.

Week x 1 2 3 4 5 6 7 8

217

Mass (g) y 480 504 560 616 666 702 759 801

i) Using 2cm to represent week 1 on the x-axis and 2cm to represent 100g on

the y-axis, plot a scatter diagram of mass y against week x.

(Natech , 1.2. Mathematics & Statistics, December, 1998)

QUESTION SEVEN

a) The following Table gives the cost price and number of faults per annum

experienced with seven brands of video recorders.

Video Recorders

Brand Price (K’000’) No. of Faults per Annum

A 492 2

B 458 6

C 435 7

D 460 4

E 505 3

F 439 5

G 477 1

iii) Interpret your answer in (i) above.

(Natech , 1.2. Mathematics & Statistics, December,1998)

b) The following Table gives a set of ten pairs of observation of inspection costs per

thousand articles produced recorded on a number of occasions at several factories

controlled by a single group and producing comparable products.

thousand articles articles per thousand

1 0.25 50

2 0.30 35

3 0.15 60

4 0.75 15

5 0.40 46

218

6 0.65 20

7 0.45 28

8 0.24 45

9 0.35 42

10 0.70 22

QUESTION EIGHT

A Quality Control Manager has been hiring temporary workers to check all the surgical

needles before they are dispatched (in boxes) to the customers. He believes that there is a

relationship between the number of defective needles (per 1000) dispatched to customers

and the experience (in weeks) of the workers. To test this theory, he randomly selects a

sample of eight workers and gives then a box each of surgical needles to check.

Unknown to the workers, the inspected boxes are returned to the Manager for some more

checking. He checks all the surgical needles in each of these boxes and records the

number of defective needles (per 1,000) contained in it. This information is summarized

in the table below.

219

Worker A B C D E F G H

experience.

experience.

220

CHAPTER 5

SERIES

5.0 SERIES

A Sequence is a list of numbers which follow a definite pattern or rule. If the rule is that

each term, after the first, is obtained by adding a constant, d , to the previous

term, then the sequence is called an arithmetic sequence, such as 3, 7, 11, 15, 19,

. . . where d = 4. d is known as the common difference.

If the rule is that each term, after the first is obtained by multiplying the previous

term by a constant, r , then the sequence is called a geometric sequence such as 2,

6, 18, 54, 162 . . . ., where r = 3, r is known as the common ratio.

A series is the sum of the terms of a sequence. A series is finite if it is the sum of

a finite number of terms of a sequence. That is 2 + 6+18+ 54+162 and the

number of terms is a finite series. A series is infinite if it is the sum of an infinite

number of terms of a sequence.

7, 11, 15, 19, . . . with d = 4. Denote the first term of an arithmetic sequence

with the value ‘ a ’ and progressing by adding the value ‘ d ’ to each previous

terms, the arithmetic sequence can be outlined as in Table 5.1.

Term number T1 T2 T3 . . . Tn

Example 1

T1 = a = 3, T2 = a + d = 7, T3 = a + 2d = 11, . . . etc.

221

The value of any term can be calculated knowing that the nth term of the

arithmetic sequence is Tn = a + (n − 1)d → (5.1) .

Example 2

a + (n − 1)d = 3 + (4 − 1)(4)

= 3 + 12 = 15

Sn =

n

[2a + (n − 1)d ] → (5.2)

2

a + a + (n − 1)d

n

Sn =

2

Tn

n

[a = Tn ] → (5.3) where ‘a’ is the first term

2

and Tn is the nth term of an arithmetic series.

Example 3

40 + 36 + 32 + 28 + . . .

(5.2)

S 20 =

20

[2(40) + (20 − 1)(−4)]

2

= 10[80 − 76]

= 40

222

Example 4

Find the sum of the series 6, 11, 16, 21, . . . if series consists of 15 terms.

15

[6 + 76] = 615.

2

18, 54, 162, . . ., with r = 3. Denoting the first term of a geometric

sequence with the value ‘ a ’ and progressing by multiplying the previous term by

a common ratio r , the geometric sequence can be outlined as in Table 5.2.

Sequence a ar ar 2 . . . ar n −1

Term T1 T2 T3 . . . Tn

In this pattern it can be seen that when any term is divided by the previous term,

the result is a common ratio, r . The nth term of a geometric sequence is

Tn = ar n −1 → (5.4)

The sum of the first n terms of a geometric series is given by the formula,

S n = a = ar + ar 2 + . . . + ar n −1

1 − r n

Sn = a → (5.5) or

1− r

r n − 1

Sn = a → (5.6)

r −1

223

It is more convenient to use formula (5.5) when r < 1 and formula (5.6) when

r > 1.

When the geometric series has an infinite number of terms and r is less than 1, if n

becomes very large r n approaches 0. Therefore the sum of an infinite series as long as

r < 1 is given by the formula:

a

S∞ = → (5.7)

1− r

Example 5

Find the 8th term of the series 3, 9, 27, . . ., The 1st term is 3 and the common ratio is

3, that is a = 3, and r = 3.

Example 6

Find the sum of the series 1, 4, 16, 64, . . . which has 8 terms. Since the common

4 64

ration, r, is 4 (obtained y from or ) we shall use formula 5.6,

1 16

(r n − 1)

Sn = a . In this problem a = 1, and n = 8. Hence

r −1

1.(48 − 1)

S8 =

4 −1

= 21845

Example 7

1 1

+

Find the sum of the first 15 terms of the series 5 + 1 + + . . .

5 25

1 1

This is a geometric series. Since the ratio r = . Therefore r = , a = 15, n = 15, and

5 5

hence, using formula (5.5)

224

1 15

1−

5 25 1

15

S15 = 5 = 1− .

1 4 5

1−

5

Example 8

1 1

Find the sum of the given series 5 + 1 + + +. . .

5 25

1

a = 5, r=

5

5 5 24

S∞ = = =

1 4 4

1−

5 5

Exercise 1

4. The 4th term of a series A.P is 13 and the 8th term is 25. Find the 13th term.

5. The 9th term of a series in A.P is 17 and the 16th term is 31. Find the 28th term.

6. In a series in G.P the first term is 4 and the common ratio is 3. find the tenth and

eleventh terms.

7. Find the sum of the series 7, 12, 17, . . . if there are 18 terms in the series.

8. Find the sum of the series in arithmetical progression, which has the 1st term of 75

and an 8th term and last term of 110.

1 1 1

10. Determine the sum of the infinite G.P series 1 + + + +. . .

4 16 64

5 5

20 + 5 + + + . . .

4 16

225

3 1 1 1

12. Determine the sum of the infinite G.P series − + − +. . .

8 8 24 72

13. The first term of a series in G.P. is 3.5 and the 6th term is 0.00112. if the

series has nine terms, find its sum.

14. Find the sum of the series 6, 9, 13.5, 20.25, . . . which has 16

terms.

Introduction

This section defines a time series and describes the structure within which time series’

movements can be explained and understood.

order is called a time series. Business people, economists, and analysts of various

kinds all look back at the sequence of events that occurred over the past year or

years in order to understand what happened and thereby (they hope to) be in a

better position to anticipate what may happen in the future.

Examples of time series are total monthly sales, yearly unemployment figures,

daily average temperatures, etc.

The classical time series model focuses on the decomposition of the time-

dependent variable into four components: trend (T), cycle (C), seasonal variation

(S), and residual or irregular (I).

in its components Y = T × C × S × I . The movements of a time series may be

classified as follows:

pattern or direction that the series exhibits. By definition, it has a duration of

more than one year. For example, data for beer sales show to have an upward

trend to the right, increase or decrease in population and technological

changes etc.

generally apparent over a number of years. By definition, it has a duration of

more than one year. Examples of cycles are well known business cycles that

226

record periods of economic recession, booms and inflation. Long-term

product demand cycles and cycles in the monetary and financial sectors.

3. Seasonal Variations. These are the oscillations, which depend on the season of

the year. The interval of time can be any length (minutes, hours, days, etc). the

changes are of a periodic type. Examples, employment is usually higher at

harvest time at Nakambala Sugar Estate in Mazabuka, rainfall will be higher at

some times of the year than at others, goods sold during the week and at

Christmas are higher than at other sale times, etc.

4. Residual or Irregular Variation is the random movement that a series exhibits after

the trend, cycle and seasonal variations are removed. Unpredictable events such

as strikes, fires, breakdowns, illness, etc., are some of the examples of random

variations.

The motivation behind decomposing a time series is twofold. On the one hand, we wish

to see whether a particular component is present in a given time series and to

understand the extent to which it explains some of the movements in the variable

of interest. On the other hand, if we wish to forecast a particular variable, we can

usually improve our forecasting accuracy by first breaking it into component

parts, then forecasting each of these parts separately, and finally combining the

individual effects to produce the composite overall forecast.

variable of interest. This maybe done for the short-term or for the long-term, and

different forecasting models are more appropriate for one case than for the other.

Decomposition Analysis

Decomposition analysis seeks to breakdown the time series into its components,

which are then used as a basis for the forecast.

Trend Calculation

The basic purpose behind the trend calculation is to find the line (or its equation)

which best fits the given data.

There are two methods of finding a line already discussed in the earlier section on

regression analysis. These were:

• Least squares method.

227

Example 1

The following table gives the company sales of a certain product over a 7 – year

period. Forecast the sales in 2004.

Sales (K’000 000’) 32 26 27 22 21 21 30

• • •

30 • •

Sales • •

20

10

How we measure time along the horizontal axis (it turns out) is irrelevant in time-

series analysis. We can suit ourselves, picking whatever numbers serve to reduce

the computational burden. A common practice is to measure the time periods

consecutively (1, 2, 3, …), and we shall do it here.

Sales Time

Year y x x2 xy

1984 32 1 1 32

1985 26 2 4 52

1986 27 3 9 81

1987 22 4 16 88

1988 21 5 25 105

1989 21 6 36 126

2000 30 7 49 210

∑ y = 179 ∑ x = 28 ∑ x = 140

2

∑ xy = 694

228

These values can be used to fit a ‘least squares’ line of best fit and produce a trend

line equation of

yˆ = 28.71 − 0.786 x

This equation can then be used to give the trend figures shown in the table below:

(e.g., where x = 1, yˆ = 28.71 − 0.786(1) = 27.93 )

Time ^

Trend Value y

1 27.93

2 27.14

3 26.36

4 25.57

5 24.79

6 24.99

7 23.21

Moving Averages

Moving averages smooth out a time series in order to isolate the trend.

Example 2

Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Profit

(x K1 000 000 25 28 37 50 39 25 27 37 60 70 55

Isolate the trend in the time series of annual profit given above by finding:

First it is advisable to draw a graph of the time series so that the overall picture can be

seen clearly.

229

Profits

(K’000’000’)

80

•

60

• •

•

40 • • •

• • •

•

20

94 95 96 97 98 99 20 01 02 03 04 years

A moving average is a simple arithmetic average computed over any number of time

periods. For a three period moving average, we would take the first three (1, 2 and 3) and

average them. Then we would move to the next grouping (2, 3 and 4) and averaging

them; and so on. In a similar fashion, we can compute 5 moving averages, as shown in

the table below, or any other number of month’s averages. Notice that, the longer the

time period, over which we average, the smother the series becomes. Eventually it

becomes a straight line moving average. Reducing the number of observation points for

the 3 moving average, we lose the first and last observation; for the 5 moving average, we

lose both the first 2 observation and the last 2 observations.

Average (3MA) Average (5MA)

1994 25

1995 28 30.0

1996 37 38.3 35.8

1997 50 42.0 35.8

1998 39 38.0 35.6

1999 25 30.3 35.6

2000 27 29.7 37.6

2001 37 41.3 43.8

230

2002 60 55.7 49.8

2003 70 61.7

2004 55

When n is odd, there will be a middle item opposite which to associate the original

observation. When n is even, for example for the data involving quarterly sales in

Example 2 the four moving total for year 1, falls between quarters 2 and 3. The second

total of 127 is recorded between the 3 and 4 quarters. The process continues. None of

this totals correspond to the actual quarter. To bring a total number of sales opposite the

actual quarter we take the average of the two totals. Each of these new totals is the sum

of two sums of four numbers, i.e. a sum of eight numbers, therefore we need to divide by

8 to get the average.

This set of figures are called centered moving average (CMA). Here, they are the four

centered moving average (4CMA).

1 1

2

124

3 31.4

127

4 32.5

133

2 1 33.6

136

2 34.3

138

3 34.6

139

4

Seasonal Variation

Once the trend has been calculated the amount of seasonal variation about the trend can

be determined.

Y −T = S +C + I

231

and by the multiplication model as:

Y

= S ×C × I

T

Whilst season fluctuations are readily identified, they may be combined with irregular or

random disturbances. In order to remove such random influences from the data, it is

corrected for seasonal variations by calculating the average departure of the actual data

from the trend over several years. Since random influences may operate in opposite

directions in succeeding years, this method of averaging variations from the trend should

do something to eliminate then. These average variations are calculated from the data of

column(6) in Example 2. It will, of course, be a mere accident if the sum of the

variations in column (6) is zero, and so the average quarterly variations will need

adjusting so that their sum is zero. This is effected by adding one-quarter of the sum of

the actual averages (if this sum is negative) to each of them. If the average is positive,

then one quarter of this sum taken as negative and must be added to each average. In

order to obtain a result to one decimal place, this may entail correcting the differences

also to one decimal place, the larger differences being subtracted from (or added to) the

averages with larger absolute magnitudes.

Example 2

The following table gives the sales from a grocery store in each quarter for the last four

years. (The figures are given in thousands of copies).

Quarters

1 2 3 4

Year 1 20 20 60 24

2 23 26 63 26

3 24 27 63 27

4 25 29 67 30

Calculate the trend figure and seasonal variations, using the moving averages. Assuming

an additive model.

Year Quarters Sales moving Totals (T) 4CMA

1 1 20

2 20

3 60 124 31.4 +28.6

4 24 127 32.5 -8.5

2 1 23 133 33.6 -10.6

2 26 136 34.3 -8.3

3 63 138 34.6 +28.4

4 26 139 34.9 -8.9

3 1 24 140 35.0 -11.0

2 27 140 35.1 -8.1

232

3 63 141 35.4 +27.6

4 27 142 35.8 -8.8

4 1 25 144 36.5 -11.5

2 29 148 37.4 -8.4

3 67 151

4 30

The deviations are used to estimate the seasonal variations in the following table.

Quarters

Year 1 2 3 4

1 - - +28.6 -8.5

2 -10.6 -8.3 +28.4 -8.9

3 -11.0 -8.1 +27.6 -8.8

4 -11.5 -8.4

Total

1 2 3 4 Average

Total Deviations

-33.1 -24.8 84.6 -26.2

Average Deviations

-11.03 -8.27 28.2 -8.73 +0.17

Adjusted Deviations

11.0725 -8.3125 28.1575 -8.7725

− 0.17

= −0.0425

4

Note that if you were required to find the seasonally adjusted figures or deseasonalised

figures. For the additive model, we have:

Quarter Sales (Y) Variations

1 1 20 -11 31

2 20 -8 28

3 60 +28 32

4 24 -9 33

2 1 23 -11 44

2 26 -8 34

3 63 +28 35

4 26 -9 35

3 1 24 -11 35

2 27 -8 35

3 63 +28 35

233

4 27 -9 36

4 1 25 -11 36

2 29 -8 37

3 67 +28 39

4 30 -9 39

Suppose we now want to forecast the sales in the first, second, third and fourth quarters

of the 5th year.

The trend is shown in the graph below.

80

• •

60 •

Trend •

Values •

40 •

•

20

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

1 2 3 4

Time

From the graph the trend estimates for the 5th year are:

2nd quarter: 39.7 – 8 = 31.7

3rd quarter: 40.1 + 28 = 68.1

4th quarter: 40.4 – 9 = 31.4

234

Quarter 1st 2nd 3rd 4th

Sales K28 000 K32 000 K68 000 K31 000

In example 2, assuming the model was multiplicative. The trend values are the same.

The difference starts with the seasonal variations these are now:

Y

= S × C × I and we call them seasonal indices. For year 1, quarter 3, we have

T

60 24

= 1.91 , quarter 4, is = 0.74 . The rest of the results are shown in the

31.4 32.5

table below:

Seasonal

Year Quarters Sales (Y) Trend figures (T) Y

4CMA Indices ( )

T

1 1 20

2 20

3 60 31.4 1.91

4 24 32.5 0.74

2 1 23 33.6 0.68

2 26 34.3 0.76

3 63 34.6 1.82

4 26 34.9 0.74

3 1 24 35.0 0.69

2 27 35.1 0.77

3 63 35.4 1.78

4 27 35.8 0.75

4 1 25 36.5 0.68

2 29 37.4 0.78

3 67

4 30

The ratios are used to estimate the seasonal variations in the following table.

Quarters Total

Year 1 2 3 4 Averages

1 - - 1.91 0.74

2 0.68 0.76 1.82 0.74

235

3 0.69 0.77 1.78 0.75

4 0.68 0.78 - -

Total Seasonal Indices 2.05 2.31 5.51 2.23

Average Seasonal Indices 0.69 0.77 1.84 0.73 4.03

Adjusted 1 2 3 4

Seasonal Indices 4 0.76 1.83 0.73

× 0.69 = 0.68

4 .3

original values

For the multiplicative model, seasonally adjusted values = .

seasonal var iations

Y

Quarter Sales (Y) Seasonal Adjusted Sales

S

Indices

1 1 20 0.68 29.4

2 20 0.76 26.3

3 60 1.83 32.8

4 24 0.73 32.9

2 1 23 0.68 33.8

2 26 0.76 34.2

3 63 1.83 34.4

4 26 0.73 35.6

3 1 24 0.68 35.3

2 27 0.76 35.5

3 63 1.83 34.4

4 27 0.73 37.0

4 1 25 0.68 36.8

2 29 0.76 38.2

3 67 1.83 36.6

4 30 0.73 41.1

Suppose we want to forecast the sales in the first, second, third and fourth quarters of the

5th year.

1. By fitting a line of best fit through the trend found by moving averages as in the

previous example.

236

2. By using linear regression.

Using (1) again we plot as graph a in the Example 2. Combining the trend and seasonal

variations, we get:

2nd quarter 39.7 (0.77) = 30.6

3rd quarter 40.1 (1.84) = 73.8

4th quarter 40.4 (0.73) = 29.5

Exercise 2

1. The sale of Local Authority houses to existing tenants over a four-year period is

tabulated below.

Year Jan - April May - Aug Sept - Dec

1991 45 87 65

1992 65 102 71

1993 80 126 89

1994 92 144 104

Plot these values on to a suitable graph. Plot on the same graph the three-point

moving averages in order to highlight the trend in this time series.

237

2. The quarterly production figures for a large manufacturing company are given

below. Use four-point moving averages to isolate the trend. Plot the centred

moving averages on to a graph.

2000 2001 2002 2003 2004

st

1 quarter - 154 150 110 136

2nd quarter - 156 152 142 -

3rd quarter 140 132 132 124 -

4th quarter 150 147 142 140 -

3. The table below shows the staff turnover (the number of workers leaving

employment as a percentage of the total work force) experienced by a company

over a four-year period.

Quarter

st nd

Year 1 2 3rd 4th

1 5.1 3.8 5.8 5.3

2 5.5 3.7 6.3 5.8

3 4.2 4.2 6.9 5.9

4 4.4 5.0 7.0 6.4

By finding average deviations from the trend, estimate the seasonal variation for

each of the four quarters. (Use an additive model).

4. The number of package tours booked through a travel agency over a three-year

period is given in the table below.

1st quarter 150 148 152

2nd quarter 100 95 85

3rd quarter 50 60 6985

4th quarter 100 102

Estimate the number of tours booked during each quarter in 2003. (use a

multiplicative model).

238

5. Quarterly production at a copper mining plant was reported as follows:

Quarterly Production

(000 tonnes)

Quarter

Year 1 2 3 4

2002 40.5 42.3 39.5 46.5

2003 46.4 46.4 42.5 50.8

2004 48.0 48.0 45 52.2

2005 51.4 51.4

Using the method of moving averages, find the average seasonal deviations (use

the additive model).

6. Calculate the five-month moving average for the following sales information.

Show both the original series and the calculated moving averages on the same

graph. What purpose is served by such calculations and such a graph?

2003 2004

January 25 47

February 40 39

March 42 31

April 32 38

May 21 50

June 21 37

July 43 35

August 48 33

September 37 41

October 26 51

November 33 43

December 35 38

239

7. Sales from Company GBM’s motor division have been monitored over the past

four years and are presented below

Year Quarter

1 2 3 4

1 10 20 29 40

2 20 31 40 50

3 30 35 42 55

4 40 48 50 60

graph.

240

EXAMINATION QUESTIONS WITH ANSWERS

B. Dispersion

C. The regular pattern of change expected over any time period.

D. The comparison of the variability of two or more sets of figures.

1.2 In a Time Series analysis, the multiplicative model is used to forecast sales and

the following seasonal variations apply.

Quarter 1 2 3 4

Seasonal Variations 1.3 1.4 0.5 ?

The seasonal variation for the fourth quarter to one decimal place is:

1.3 The components associated with conventional time series are all:

B. Short-run factors D. Time-related factors

1.4 The time series component most useful in long-term forecasting is the

1.5 The time series component most useful in short-term forecasting is the:

241

1.7 A seasonal index of “65” for a particular month indicates that the level of values

for that month generally is:

B. 65 percent lower than the monthly average for the year;

C. 65 percent higher than the monthly average for the year;

D. 35 percent lower than the monthly average for the year.

1.8 When annual data are used for the purpose of identifying the seasonal component

of a time series, then the procedure that is followed can be represented by the

algebraic expression:

Y Y

A. = S ×C × I B. = C×I

T TS

Y TS

C. =S D. = C×I

T ×C × I Y

^

1.9 In the linear trend equation Y = a + bx, the x is most often represented by:

1.10 The model generally used in conjunction with the time series analysis is:

A. Y = T ×S ×C × I B. Y =T −S −C − I

TS

C. Y = D. Y =T +S +C + I

CI

242

SECTION B

QUESTION ONE

Quarters

Year 1 2 3 4

1998 99 92 84 73

1999 95 82 71 87

2000 91 82 67 87

b) (i) Assume a four-year cycle and calculate the trend by the method of moving

averages from the following data relating to production of sugar at a sugar

estate.

Production Production

Year (kg) Year (kg)

1991 464 1996 540

1992 515 1997 557

1993 518 1998 571

1994 467 1999 586

1995 502 2000 612

(ii) From the trend values obtained in part (i) above, what would you say is

the main disadvantage of obtaining a time series trend using the method of

moving averages?

243

QUESTION TWO

Year Quarter Sales Average (T) (Y)

1996 1 26.8 - -

2 36.3 - -

3 38.1 37.4750 1.017

4 47.5 38.98.75 1.218

1997 1 31.2 40.3625 0.773

2 42.0 42.0750 0.998

3 43.4 44.2250 0.981

4 55.9 46.1750 1.211

1998 1 40.0 48.3500 0.827

2 48.8 51.3250 0.951

3 54.0 54.8125 0.985

4 69.1 57.7750 1.196

1999 1 54.7 59.6875 0.916

2 57.8 60.4500 0.956

3 60.3 - -

4 68.9 - -

Required:

(i) Evaluate the seasonal component for each quarter (the average of the

seasonal variations).

(ii) Forecast sales for the four quarters of the year 2000 using trend forecasts

of 66.7, 68.8, 70.9 and 73 (assume an additive model).

(ii) Cyclical movements

(iii) Seasonal movements

244

Explain what is meant by these movements.

QUESTION THREE

a) The following are the sales figures for Moonga Brothers Engineering Limited for

the fourteen years from 1991 to 2004:

1991 491

1992 519

1993 407

1994 452

1995 607

1996 681

1997 764

1998 696

1999 751

2000 802

2001 970

2002 1026

2003 903

2004 998

Using the five-year moving averages method, establish the general trend of the

sales, and comment on the results.

b) With which movement of a time series would you mainly associate each of the

following?

(iii) A recession.

population.

c) Find the moving average of order 3 for the following set of data.

2, 6, 1, 5, 3, 7, 2.

245

(Natech, 1.2 Mathematics and Statistics, June 2002)

period.

Mon Tue Wed Thurs Fri Sat

Week 1 28 25 29 29 36 54

Week 2 30 25 30 34 37 56

Week 3 31 28 33 34 40 59

i) Find the six-point moving average and plot the centered values on to a

graph.

ii) Use your graph to forecast the trend values during the fourth week.

(Natech, 1.2 Mathematics and Statistics, June 2001)

Introduction

This section introduces index numbers and describes the most simple form. Laspeyres

and Paasche are discussed. Finally, we discuss the time series analysis.

Index Number

An index number is a simple device, which attempts to explain the changes in an

economic activity overtime. The use of index numbers is important in the

calculations of the inflation rate. ZESCO and ERB have incorporated the

inflation in their computation of electricity tariffs and gasoline prices respectively.

Simple Indices

Price and Quantity Indices

A price index measures the change in the money value of a group of items

overtime. While a quantity index measures the changes in the quantity of an item.

The comparison is made between the given year relative to the base year.

246

Pi

Simple Price Index = × 100

P0

qi

Simple Quantity Index × 100

q0

P0 is the price of the item at time 0 (base year).

q i is the quantity of the item at time i (current year).

q0 is the quantity of the item at time 0 (base year).

Example 1

If a commodity costs K3 000 in 2005 and K2 500 in 2004, calculate the simple

price index for 2005 (Pi ) using 2004 (P0 ) as the base year.

Pi 3000

Simple Price Index = × 100 = × 100 = 120

P0 2500

The price index is 120. This means that 2005 (current year) price of the

commodity is 120 percent of 2004 (base year) commodity. In other words the

commodity’s price has gone up by 20%.

Example 2

12 000 of a certain commodity was bought in January 2004 and 14 000 of the

same commodity was bought in December 2005. Calculate the simple quantity

index for December 2005 using January 2004 as base year.

qi

= × 100

q0

Simple quantity index

14 000

= × 100 = 200

12 000

This means that the quantity sold has increased by 100% of its 2004 figure.

Usually, an index number is required to show the changes in a number of items at

once rather than just one item. In this case we use a weighted average of price

relatives or quantity relatives. The formulas are:

247

Pi

∑ w P

= 0 × 100

∑w

or weighted average of quantity relative

qi

∑ w q

= 0 × 100

∑

Example 3

Calculate an index of crop prices in 2004 based on 2003 given the table of information

below.

Crop Weighting 2004 2003

Wheat 70 250 155

Maize 35 200 115

Rice 15 150 100

The price indices (relatives) for each crop are calculated below.

250

Wheat: × 100 = 161.29

155

200

Maize: × 100 = 173.91

115

150

Rice: × 100 = 150

100

248

Pi

∑ w P

0 × 100 = 70(161.29 ) + 35(173.91) + 15(150 )

i

∑ wi (70 + 35 + 15)

11290.3 + 6086.85 + 2250

=

120

19627.15

= = 163.56

120

The base of an index number series is changed by taking proportions as shown below.

Index A has 2000 as a base year and index B has 2003 as a base year. To convert index

A to index B, each index A value was divided by 140. It can be seen that the numbers for

each year are in the same proportions for both index A and index B.

Base Change

2000 100 71.4

2001 120 85.7

2002 130 92.9

2003 140 100

2004 150 107.1

Laspeyres Indices

A Laspeyres Index is a special case of a weighted aggregate index, which always use base year

weights. It can be either a price index or quantity index.

∑ q P × 100

0 1

∑q P

0 0

∑ q P × 100

1 0

∑q P

0 0

Paasche Indices

A Paasche is a special case of a weighted aggregate index, which uses current year’s

weights. It can either be a price index in which case:

249

Paasche price index = Pp =

∑ Pq 1 1

× 100

∑Pq 0 1

∑ Pq 1 1

× 100

∑ Pq 1 0

Example 4

Calculate the Laspeyre and Paasche indices of share prices in 2003 and based on 2000

given the data below:

Company 1st Jan 2000 1st Jan 2003 1st Jan 2000 1st Jan 2003

(P0 ) P1 ( ) (q0 ) (q1 )

X 150 160 6 000 10 000

Y 250 255 21 000 26 000

Z 350 395 42 000 62 000

Laspeyre =

∑ Pq 1 0

× 100

∑Pq 0 0

= × 100

150(10 000 ) + 250(26 000 ) + 350(62 000 )

22 905 000

= × 100 = 77.12

29 700 000

Paasche Index =

∑ Pq 1 1

× 100

∑Pq 0 1

= × 100

150(10 000) + 250(26 000 ) + 350(62 000 )

32 720 000

= × 100 = 110.17

29 700 000

The Laspeyre’s price index is a reasonable measure of the change in prices over a short

period of, say, two years, but if the given year is a longer period in time from the base

year, the weights used tend to become out of date as spending habits change and no

longer give a realistic comparison between the two years. This disadvantage maybe

250

overcome by the paasche’s price index. However, it is equally unrealistic in that it

compares hypothetical past quantities with current real quantities rather than vice versa.

One suggested way out of the dilemma is to calculate an average index number which is

the geometric mean of the laspeyres and the paasche index numbers. This is beyond this

manual.

i) The purpose of the index number unless the purpose is clearly defined the

usefulness of the final index will be suspect. The index must be designed with

something in particular.

ii) Selection of items for inclusion. The items to be included must be agreed upon.

These should be relevant to the index being calculated.

iii) Selection of appropriate weights. The weights should reflect the importance of

the items under consideration.

In a chain base index the base period progresses by one time period each time, therefore

each index number is interpreted relative to the previous period.

Chain Index = × 100

Pr ice / Quantity at time n − 1

Example 5

The table below shows the week ending share price on the stock exchange over a period

of four weeks for a local company’s shares:

Week 1 2 3 4

Price (K) 150 200 250 175

Calculate and interpret a chain base index using week 1 as the base.

251

index(week 1) :

150

× 100 = 100

150

index(week 2 ) :

200

× 100 = 133.33

150

index(week 3) :

250

× 100 = 125

200

index(week 4 ) :

175

× 100 = 70

250

At the end of the second week the share price had increased by 33.33% from the end of

the first week. By the end of the third week the share price had increased again but at a

slower rate (25%) when compared to week 2. In week 4 the price had gone down with a

30% decrease from week 3.

Exercise 3

1) Show changes in the price of copper between 2000 and 2001 by finding indices

based on 2003 prices.

Average price of copper (K per

tone) 10 000 10 500 10 800 11 000

2) Find the chain-based indices for the value of exports achieved by a company

during 2000 – 2004.

Total exports (x 1 000 000) 500 530 520 650 850

3) Calculate the Laspeyre and Paasche price indices for 2003 given the data shown

below (base year = 2001).

2001 2003

Item Quantity Price (K) Quantity

Price (K) Purchased Purchased

I 10 500 30 11 000 30

II 9 500 50 10 000 70

III 8 000 70 8 500 60

IV 12 000 110 12 500 100

4) Calculate indices based on 2000 for the volume of sugar exported given the table

below.

252

Year 2000 2001 2002 2003

Total export (1 000 tonnes) 60 68 70 74

5) Find (a) a laspeyre price index, and (b) a paasche price index of the quantity

produced in 2003 based on the figures in 1993.

Product 1993 2003 1993 2003

A 4 000 6 000 10 000 23 000

B 6 000 7 000 5 000 9 500

C 12 000 15 000 900 1 350

Price 4.1 3.7 3.5 3.8 3.9

When converted to index numbers with base 1990, the index for 1994 to the

nearest whole number is:

A. 95 B. 105 C. -0.2 D. 5

prices to the cost of buying base period quantities at base period prices.

B. Relating the cost of buying base period quantities at current period prices

to the cost of buying base period quantities at base period prices.

prices to the cost of buying current period quantities at base period prices.

253

D. Relating the cost of buying base period quantities at current period prices

to the cost of buying current period quantities at base period prices.

1.3 The following table shows index numbers for the period 1994 – 1998, with 1994

as base year.

Index No. 100 108 111 120 125

If it is decided to commence a new series using 1998 as the base year, what are

the index numbers for the years 1994 through 1998?

A. 75, 83, 86, 95, 100 B. 10, 11, 11, 12, 100

C. 80, 86, 89, 96, 100 D. 75, 77, 86, 95, 100

1.4 The numbers for the years 1996, 1997 and 1998, calculated on the chain base

method, for a particular commodity, are shown below.

Chain Index No. 100 107 108

What is the 2000 index, to the nearest whole number, using 1998 as base?

1.5 Taking 1996 as base (1996 = 100), the price index of a certain commodity in 1998

was 118. which of the following is the price index (to the nearest whole number)

of the same commodity in 1996, taking 1998 as base?

A. 82 B. 84 C. 85 D. 87

254

P1q1 P1 P0

A. × 100 B. × 100 C. × 100

P0 q0 P0 P1

P0 q0

D. × 100

P1q1

1.8 Laspeyres’ weighted aggregate price index can be computed by using the

formula:

A.

∑ Pq1 1

× 100 B.

∑Pq 0 1

× 100 C.

∑ Pq1 1

× 100

∑Pq 0 1 ∑ Pq 1 1 ∑Pq 0 0

D.

∑ Pq1 0

× 100

∑Pq 0 0

1.9 An index number that represents a comparison over time for a group of

commodities rather than for a single commodity is termed:

1.10 If the consumer price index is 150 for a given period, the purchasing power of the

kwacha in the given period as compared with the base period is:

SECTION B

QUESTION ONE

Value 46 52 62 69 74

b) A company uses three raw materials (R, S and T) in its production process. The

following is the information about the prices (K per tonne) of the raw materials in

2001 and 2002 and the average weekly quantities (Q) used during 2002.

255

Raw Materials 2001 Prices 2002 Prices Q

R 5 800 6 000 100

S 4 200 4 000 40

T 500 750 1 000

QUESTION TWO

a) The following extract is taken from an article. Published in the X daily paper,

dated 21 January 2000:

The rate of inflation continued to fall last month putting the Government’s target

of single-figure price increases within reach in the next month or two.

Shop prices rose 0.6% in December, the same increases as in the previous month,

bringing the annual rate of inflation from 14% to 13%. The index of retail prices

rose to 199.5 (Jan 1998 = 100).

This month could see a bigger fall in the year-on-year rate of price increases.

The annual rate of inflation will fall to near 10% or even below it. Inflation over

the last six months has been running at about 6.3% at an annual rate.

i) Explain why, if shop prices rose 0.6 percent in December, the annual rate

of inflation should fall from 14 percent to 13 percent.

ii) What do you understand by the index of ‘199.5 (Jan 1998 = 100)’.

b) The price of tomatoes and potatoes, and the amount consumed in two years is as

follows:

256

Item 2001 2002 Units Consumed

Tomatoes 2 000 3 000 2

Potatoes 15 000 16 000 5

i) Construct a price relative index using quantity weights 200 = 100 (base

year).

c) The following table gives the index number for different groups together with

their respective weights for the year 2000 (base year 1995).

&

Charcoal

Group Index No. (I) 130 280 190 300 200

Group Weight (a) 60 5 7 9 19

i) What is the overall cost of living index number for the year 2000?

ii) Suppose a person was earning K1 500 000 per month in 1995, what should

be his salary in 2000, if his standard of living in that year was the same as

in 1995?

(Natech, 1.2 Mathematics and Statistics, June 2003)

QUESTION THREE

a) Calculate the Laspeyre and Paasche indices of the share prices in 1998, based on

1995, given the data tabulated below.

Company (K’000) (K’000) Sold Sold

1st Jan 1995 1st Jan 1998 1st Jan 1995 1st Jan 1998

A 0.80 0.90 5 000 10 000

B 1.80 1.75 20 000 15 000

257

C 2.40 2.85 40 000 60 000

December 782 000

January 875 000

February 621 000

March 681 000

April 997 000

Taking January as base period, compute the index for each month.

258

CHAPTER 6

FINANCIAL MATHEMATICS

6.0 Introduction

This Chapter is a continuation of the previous chapter, it introduces the types of interest

and applies geometric and arithmetic progressions to solve problems in Financial

Mathematics. It concludes with annuities.

Persons who rent buildings or equipment expect to pay for the use of

someone else’s property. Similarly, those who borrow money must pay

for the privilege of borrowing another’s money. This privilege is called

interest. The amount of money that was borrowed is the principal of a

loan.

This interest which increases in value by the same amount each year is

called Simple interest. This simple interest is given by the formula

I = P×r×t → (6.1)

where I = interest

P = Principal

r

r% = Interest rate

100

T = time in years

Therefore, the total value (Amount or future value) after t years, is the

principal plus interest and is given by

At = P + P × r × t

= P (1 + rt ) → ( 6 .2 )

When the total value (Amount or future value), the interest rate and time

are known, the principal (present value) may be calculated by rewriting

formula (6.2) as:

At = P (1 + rt )

At

P= → (6.3)

1 + rt

259

Formula (6.3) is often referred to as the “present value” formula.

Example 1

K25 000 000 is invested for three years at an interest rate of 15%.

b) Calculate the total value of savings at the end of one, two, and three years. Show

that the total value of savings at the end of successive years is an arithmetic

progression.

c) Calculate the present value (principal) when the future value (total value) is K3

750 000 after three years.

15

P = 25 000 000; r= and t = 3 years.

100

Therefore:

I = P× r ×t

15

= 25 000 000 × ×3

100

= K11 250 000

b) Using formula (6.2), the total value of the savings after t years is

calculated as:

After 1 year, t = 1

At = P(1 + rt )

A1 = 25 000 000(1 + .15(1))

= K 28750 000

After 2 years, t = 2

A2 = 25 000 000(1 + .15(2))

= 25 000 000(1.3)

= K 32 500 000

260

After 3 years, t = 3

= 25 000 000(1.45)

= K 36 250 000

When the total value of the investment is calculated for each year, notice that the

increments are constant, indicating that this is an arithmetic progression

where the difference between any two consecutive years is K3 750 000.

c) The present value K36 250 000 earned in three years’ time may be

calculated by using (6.3), given r = .15 and t = 3.

P= = =

1 + rt 1 + 0.15(3) 1.45

= K 25 000 000.

invested) is usually compounded. For example, if K10 000 is placed in savings

Account at 20% per year interest, then I = 10 000 × .20 × 1 = K2 000 interest will

be added to the account in the first year to bring the balance to K12 000. During

the second year I = 12 000 × .20 × 1 = K24 000 will be paid. Interest calculated

in this way is called Compound Interest.

In other words, compound interest pays interest on the principal plus any interest

accumulated in previous years. When interest is compounded in this way, the

total value At , of principal P, at 2% per annum is given by the formula

At = P (1 + r )t → ( 6 .4 )

Example 2

investment at the end of year 9?

261

12

P = 1 000 000, r = , t = 9 years

100

A9 = P (1 + r )t = 1 000 000 (1 + .12)9

= K 2 773 078.76

Example 3

interest rate of 12.5% compounded annually.

12.5

P = 5 000 000, r= = .125, t = 4 years

100

A4 = P (1 + r )t = 5 000 000(1.125) 4

= K 8 009 033.20

interest per annum. Find the amount that would have accumulated:

i) After 1 year

ii) After 2 years

iii) After three years.

Where P = Principal

r = Interest rate per annum

n = time.

262

6.3 Terminal Values

Comparison of Projects.

If we were to be given the choice between two Projects A and B, the expected

profits of which over the next four years are:

B: K30,000,000 per annum

Which would we prefer (assuming both require the same initial outlay)?

the number of years remaining until the end of the projects, that is the year 1 cash

flow of K25,000,000 earns 3 years interest and is thus worth K107 753 125 at the

end of 4 years. We have compounded the flows to produce what is termed as the

Terminal value of each flow.

Project A Cashflows K

K107,753,125

=========

Project B

263

Net Terminal Value

With the calculations just carried out , we are in a position to choose between the two

projects since they have the same outlay. However, we have not as yet considered

whether either of them is worthwhile. This will depend on the initial outlay required to

generate K107 753 125 which we could receive by investing in Project A. If we end up

with a deficit, we could reject the project.

Suppose in this case the projects require an initial outlay of K15 000 000 at the beginning

of year 1 (refered to as year 0). We cannot compare this outlay directly to K107, 753,125

generated since this is the return at the end of four years. At that time we will have lost

four year’s potential interest on the outlay of K15 000 000. To allow for this we need to

calculate the terminal value of the initial outlay by adding four years’ interest at 5% The

complete solution is as follows:

3

1 25 000 000 (1.05) 28 940 625

2

2 25 000 000 (1.05) 27 562 500

3 25 000 000 (1.05) 26 250 000

4 25 000 000 25 000 000

K89 520 531.25

==========

Note that the year column refers to the end of various years. Thus the initial outlays

occur at the start of the project, i.e., the end of year 0 (which means the beginning of year

1). The first cash flow is received at the end of year 1, and so on for the subsequent cash

flows. The net surplus in this case K89,520,531.25 is called the net terminal value

(NTV) and since it is positive, indicating a surplus, the project is worthwhile and should

be accepted. The positive net terminal value indicates that the cash and interest earned

from the project exceed the value of the initial outlay plus interest. If the net terminal

value is negative, indicating a deficit, the project would be rejected.

264

Example

a) An initial outlay of K500 000 which will generate the following cash flows.

1 30 000

2 20 000

3 40 000

4 50 000

b) An initial outlay of K5 000 000 which will generate the following cash flows:

1 2 500 000

2 2 000 000

3 -

4 5 000 000

c) An initial outlay of K3 000 000 which will generate cash flows of k120 0000 for

four years. The annual interest rate available for deposits is 8.5%.

Solution

0 (500 000) × (1.075) 4 (667 734.57)

1 30 000 × (1.075)3 37 268.91

2 20 000 × (1.075) 2

23 112.50

3 40 000 × (1.075) 43 000.00

4 50 000 50 000.00

(514 353.16)

265

b) Year Cash flow Compound factor Terminal value

1 2 500 000 × (1.10) 3

3 327 5 00

2 2 000 000 × (1.10) 2

2 420 000

3 − − −

4 5 000 000 5 000 000

3 427 000

1 1200 000 × (1.085) 3

1 532 746.95

2 1 200 000 × (1.085) 2

1 412 670.00

3 1200 000 × (1.085) 1 302 000.00

4 1200 000 1 200 000.00

(1 289 840.85)

=========

266

6.4 Other Applications of the Compound Interest Formula

any three of these variables are given, the fourth may be determined. In some

cases, you will require the rules for indices and logs. For example, a general

expression for r may be derived as:

At = P (1 + r )t

At

= (1 + r )t

P

1

At t

= 1+ r

P

making r the subject of the formula gives the required formula for r .

1

A t

r = t −1 → (6.5)

P

Example 4

a) Find the compound interest rate required for K15 000 000 to grow to

K25 000 000 in 5 years.

b) A bank pays 13.5% interest compounded annually. How long will it take

for K15 000 000 to grow to K20 000 000?

267

Direct from the formula, (6.5)

1

25 000 000 5

r = − 1

15 000 00

= 1.108 − 1 = 0.108

or r = 10.8%.

value over a period of 5 years.

compound interest formula (6.4),

1.667 = (1.135)t

ln(1.667) = t ln(1.135)

ln(1.667)

t=

ln(1.135)

0.511025603

=

0.12663265

= 4.0355

So, at 13.5% interest, it will take over 4 years for the investment to double

in value.

268

6.5 Present Value At Compound Interest

At present value of a future sum, At , is the amount which, when put on deposit

now (i.e. t = 0, P ), at (r%) rate of interest, will grow to the value of KAt after t

years. The present value, P, is calculated by arranging the compound interest

(6.4).

At = P (1 + r )t

At

P= → ( 6 .6 )

(1 + r )t

Example 5

If the future value of an investment is K25 000 000 invested at 12.5% compound

interest per annum for five years. Compute the present value.

25 000 000

P=

(1.125)5

When interest is compounded several times per year, for example it may be compounded

daily, weekly, monthly, quarterly, semi-annually or continuously. Each period is

called a conversion period or interest period. Then the amount of the future value

is given by the formula

mt

r

At = P1 + → ( 6 .7 )

m

m = conversion periods per year

t = number of years

269

Example 6

K25 000 000 is invested for five years at 12.5%. Calculate the total value of the

investment when compounded

i) Monthly

ii) Daily

(6.7) the total value after three years with n = m × t = 12 × 5 = 60

conversion periods is calculated as:

mt

r

Pt = P1 +

m

60

.125

P5 = 25 000 0001 +

12

= 25 000 000 (1.01041666)60

= K 46 555 402.11

m×t

r

P5 = P1 +

m

1825

.125

= 25 000 0001 +

365

= 25 000 000(1.868)

= K 46 700 000

When working with problems involving interest we use the term payment

period as follows:

Semi-annually Twice per year

Quarterly 4 times per year

Monthly 12 times per year

Daily 365 timer per year (some basics use 360 times per

year)

270

6.7 Effective Rate Of Interest

Interest rates are usually cited as nominal rates of interest expressed as per annum

figures. However, as compounding may occur several times during the year with

the nominal rate, the amount owed or accumulated will be different from that

calculated by compounding once a year. So a standard measure used to compare

the amount earned (owed) at quoted nominal rates of interest when compounding

is done several time per year is called the annual percentage rate (APR) or

effective annual rate or effective rate of interest.

mt

r

At = P1 + nominal rate compounded m times per year.

m

At = P (1 + APR )t APR rate compounded annually. Note that m = 1 i.e, once per

year.

Equating the two amounts since they are the same, we have

mt

r

P 1 + = P (1 + APR )t

m

m

r

APR = 1 + − 1 → (6.8)

m

Example 7

12.5% per annum. What is the effective rate of interest?

2

0.125

APR = 1 + −1

2

= 0.1289

271

Example 8

quarterly. Find the effective interest rate (APR)

b) Two banks in a local town quote the following nominal interest rates. Bank X

pays interest on a saving account at 12.5% compounded monthly and bank Y pays

12.5% on a savings account compounded quarterly, which pays its savers the

most interest?

4

0.25

APR = 1 + −1

4

= 0.274

12

.125

APR = 1 + − 1 = 0.132

12

= 13.2%

Bank Y offers the greater effective interest rate and thus pays its savers more

interest.

If an initial investment will bring in payments at future times, the payments are called

cash flows. The net present value, denoted NPV, of cash flows is defined to be

the sum of the present values of the cash flows (revenue), minus the initial

investment (cost). If NPV > 0, then the investment is profitable, if NPV < 0 the

investment is not profitable.

272

Example 9

Suppose that you can invest K100 000 000 in a business that guarantees you cash flows at

the end of years 1, 2 and 3, as indicated in the table. Assume an interest rate of

12.5% compounded annually and find the net present value of the cash flows.

1 5 000 000

2 400 000

3 200 000

(Revenue) (cost)

= 4 444 444.44 + 316 049.38 + 140 466.39 − 100 000 000

= − K 95 099 039.79

Since NPV < 0, the business venture is not profitable. If one considers the time value of

money, it would be better to invest the K100 000 000 in a bank paying 12.5%.

The discount rate at which a project has a net present value of zero is called the Internal

rate of return (IRR). There is no precise formula for calculating the IRR of a

given project. However, it can be estimated (using linear interpolation technique)

with:

a) graphically, or

r1 × NPV2 − r2 × NPV1

b) by formula given by IRR = → (6.9)

NPV2 − NPV1

Both techniques need that the NPV is calculated using two different discount rates. We

explain the two methods in the following examples.

Example 10

273

A project involves an initial outlay of K100 000 000. The expected cash flow at the end of the

next four years is given as given as follows (the amounts are in million of kwachas).

1 2 3 4

Cash flows 50 125 167 182

a) Determine IRR graphically by plotting the NPV against r. For r = 0.05, 0.08, .10,

.20.

b) By formula, show that the value of the IRR is slightly different when calculated

from pairs of points.

requires the repeated use of the formula NPV = ∑ At (1 + r ) −t where ∑ is

the symbol for the sum of several NPVs. Then we plot the curve of NPV

against r .

Table 6.1 Excel Sheet for Calculating NPVs at Different Interest Rates

t

Cash flow

= 0.05 = 0.08 r = 0.10 r = 0.20 r =0.24

0 − 300 − 300 − 300 − 300 − 300 -300

1 50 47.61905 46.2963 45.45455 41.66667 40.32258

2 125 113.3787 107.1674 103.3058 80.0000 81.2953

3 167 144.2609 132.5700 125.4696 85.5040 87.58937

4 182 149.7319 133.7754 124.3084 74.5472 76.98119

154.9905 119.8091 98.53835 -18.2821 -13.8113

274

NPV

200

150 •

•

100 •

50

••

0 • •

-50 0.1 0.2 0.3 r

IRR

Figure 6.1

The NPV for each discount rate is plotted in Figure 6.1. The IRR is the value of

r at which this graph crosses the horizontal axis. In Figure 6.1 this point is

between r = 10% and 20%, but considerably closer to 20%.

b) In Table 6.1 are several positive and negative NPVs. Therefore, the IRR given by

formula (6.9) is calculated from any such pair.

Points A B C D E

275

r1 × NPV2 − r2 × NPV1

IRR =

NPV2 − NPV1

IRR =

− 18.2821 − 98.53835

− 21.53586

=

− 116.82045

= 0.1843

r1 × NPV2 − r2 × NPV1

IRR =

NPV2 − NPV1

=

− 13.8113 − 119.8091

− 29.859088

=

− 133.6204

= 0.22346

The two results (i) and (ii) demonstrate that slightly different estimates are

calculated from different pairs of points.

276

6.10 Comparison of Appraisal Techniques: NPV and IRR

When comparing the profitability of two or more projects, the most profitable project

would be (a) the project with the largest NPV, (b) the project with the largest IRR.

ii) It is practical as it discounts net cash flows.

The disadvantage is that it relies on the choice of one discount rate which means that a

change in the discount rate could lead to a change in the choice of project.

The advantage of the IRR is that it does not depend on external rates of interest. A major

weakness is that the method does not differentiate between the scale of projects;

for example, one project might involve a cash flow in units of K5 000 000

while another involve units of K5. Not that in most cases where two or more

similar project are being ranked in order of preference, the methods of NPV and

IRR will generally agree on the best project but this is not a hard and fast rule.

Example 11

K’000, 000

Year 0 1 2 3 4

Project B -22.5 -9 4.5 13.5 22.5

a) Use the net present value criterion to decide which project is the most

profitable if a discount rate of

i) 8%, and

ii) 12% is used.

considered more profitable?

277

Project A

Present

at Value

Discount factor

Present

at Value

8% 12%

1.0000 1.0000 45.00

0.8573 0.7972

0.7938 0.7118

0.7350 0.6355

− r2 × NPV1 + r1 × NPV2

IRR =

NPV2 − NPV1

=

− 0.6 − 5.82

= =

− 6.42 − 6.42

= +0.116

278

Project B

Present

at Value

Discount factor

Present

at Value

8% 12%

1.0000 1.0000 22.50

3.04

r1 × NPV2 − r2 × NPV1

IRR =

NPV2 − NPV1

0.08(−3.04) − .12(0.29)

=

− 3.04 − 0.29

= =

− 6.42 3.33

= 0.083

From (a) at rate 8%, project A has the highest NPV (9.42) and thus would be chosen as best.

(Note also that project B has the highest NPV (0.29)). And from (b) project A has the

highest rate of return at 11.6% and thus would be chosen as best agreeing with the choice

in (a). Overall clearly project A is the best choice.

279

Exercise 1

1) K5 400 000 is invested at 9.5% simple interest. How much will have to be

accrued after 5 years?

3) Calculate the present value of K56 million that is expected to be received in five

years’ time when simple interest is 6.5%.

4) Calculate the compound interest rate required for K250 000 to grow to K450 000

in 3 years’ time.

5) Calculate the number of years it will take a sum of K450 000 to grow to K1 800

000 when invested at 4.5% interest compounded annually.

6) Calculate the APR for a 6.5% nominal rate of interest which is compounded

b) 12 times per year, and

c) 3 times per year.

7) Two banks in a Geal town quote the following nominal interest rates: Bank X

charges interest on a loan at 9.5% compounded semi-annually and bank Y charges

9.0% on a loan compounded quarterly. Which bank charges the most interest on a

loan?

8) You have a choice of two savings schemes. Scheme A offers 7.0% interest

payable semi-annually and scheme B offer 6.5% interest payable quarterly.

Which bank charges the most interest on a loan?

9) Find the present value of K25 million in 6 years time if the discount rate is 13.5%

compounded semi-annually.

10) A Financial group can make investment of K240 million now and receive K264

million in two years time. What is the internal rate of return?

280

11) An investment project has the following NPV calculated for a range of discount

rates. Give an approximate IRR for the project.

5 11.25

5.5 7.02

6 3.42

6.5 1.2

7 -2.349

The company considering the project could invest an equivalent amount of money for a

similar length of time at an interest rate of 7.5%. Should they undertake the

project?

12) Calculate the NPV of a project, which requires an initial outlay of K90 million

now but should return K36 million at the end of year 2 and K20 million at the end

of four years. Assume a discount rate of 3.5% compounded annually. Estimate

the IRR of this project.

b) K30 000 000 deposited for 5 years at an annual interest rate of 12%.

14) Find the terminal value and compound interest payable if you deposit

K24 000 000 for one year with a bank offering 5% interest per month on deposit

accounts.

281

6.11 Series of Payments

time interval. The fixed period is called the payment period, and the given

time interval is the term of the annuity. An example of an annuity is

depositing of K100,000 in a savings account every 6 months for a year.

In this Section, we consider the amount accrued from a series of such payments

and also the present values of a series of such payments which are to be

made.

(1 + r )n − 1

A = R → (6.10)

r

while the present value of an annuity is found using the following formula.

1 − (1 + r ) − n

P(Pr esent value of annuity ) = R → (6.11)

r

r is the interest rate per period

n number of period

P is the present value of an ordinary annuity.

Example 11

Find the amount of an annuity consisting of payments of K225 000 at the end of

every 3 months for 4 years at the rate of 6.5% compounded quarterly.

To find the amount of the annuity we use equation (6.10) with R =22 000,

282

0.065

n = 4(4) = 16, and r = = 0.01625

4

(1.01625)16 − 1

A = 225 000

0.01625

= 225 000(18.10599851)

= K 4 073 849.67

Example 12

What is the terminal or future value of an annuity of K4 500 000 for five years at 10% of

interest rate per annum?

(1.10)5 − 1

A = 4 500

0.10

= 4 500 000(6.1051)

= K 27 472 950.00

The first payment will be made at the end of year 1, and so at the end of 5 years, it will have

been invested for 4 years and will have a value of 4 500 000(1.10) 4 . The next payment is

made at the end of year 2, and so at the end of year 5 it will have been invested for 3

years and will have a value of 4 500 000(1.10)3 . It is easy to work using a table as

follows:

283

End of Year Amount (K) Value of the end of Year 5

1 4 500 000 00091.10) 4

2 4 500 000 000(1.10)3

3 4 500 000 000(1.10) 2

4 4 500 000 000(1.10)

5 4 500 000 000

At the end of year 5 the total value of all the payments will be the total of the third column. In

reverse order, we can see that this is a geometric series with the first term a = 4 500 000,

common ratio r = 1.10 and n = 5.

That is 4500 000 + 4500 000(1.10) + 4500 000(1.10) 2 + 450 00(1.10)3 + 450 000(1.10) 4

r n − 1

Sn = a using formula (5.6)

r −1

(1.10)5 − 1

S5 = a

1.10 − 1

The present value of an annuity is the sum of the present values of all the payments. It represents

the amount that must be invested now to purchase the payments due in the future. Unless

otherwise specified, we assume that each payment is made at the end of a payment

period, that is called an ordinary annuity.

Example 13

Find the present value of an annuity of K450 000 per month for 3 years at an interest rate of

6.5% compounded monthly.

0.065

Using equation (6.11), R = 450 000, r = and n = 12(3) = 36.

12

Thus

284

1 − (1.0054) −36

P = 450 000

0.0054

= 450 (32.6371817

Alternatively, there will be altogether 12(3) = 36 monthly payments. The interest rate is

0.065

= 0.0054. The present value of the payment is therefore:

12

+ 2

+ . . . +

1.0054 (1.0054) (1.0054)36

450 000 1

a= , r= and n = 36.

1.0054 1.0054

r n − 1

So the sum is S n = a using formula (5.6)

r −1

1 36

− 1

450 000 1.0054 = K14 686 731.77

=

1.0054 1

1.0054 − 1

Example 14

Suppose that Mr Chilufya owes Mr Banda two sums of money: K500 000 due in 2 years

and K300 000 due in 5 years. If Mr Chilufya wishes to pay off the total debt now

by a single payment, how much should the payment be? Assume an interest of

5% compounded semiannually.

The single payment x due now must be such that it would grow and eventually

pay off the debts when they are due. That is, it must equal the sum of the present

values of the future payments. As shown in the figure below, we have

285

x = 500 000(1.025) −4 + 300 000(1.025) −10

Year

0 1 2 3 4 5

Single

Payment x 500 000 300 000

Value of

Dents

300 000(1.025)-10 10 periods

In general, an equation of value illustrates that when one is considering two methods of paying a

debt (or other transaction), at any time the value of all payments under one method must

equal the value of all payments under the other method.

Example 15

A debt of K15 000 000, which is due 7 years from now is instead to be paid off by three

payments: K2 500 000 now, K7500 000 in 4 years, and a final payment in the 6th year.

What would this payment be if an interest rate of 5% compounded annually is assumed?

Let x be the final payment due in 6 years. Setting up the equation of value, we have

= 15 000 000(1.05) −1

286

Year

0 1 2 3 4 5 6 7

2500 000(1.06)6

x = K2470666.51

6.13 Perpetuities

When the present value of an annuity continue for an indefinitely long period of time, we

have what we call ‘Perpetuities’ . The present value of annuity say receivable in

arrears in perpetuity at a given discount rate r is given by the following formula:

A Annual cashflows

PV of perpetuity = = → (6.12)

r discount rate

Example 15

Find the present value of K25 000 000 receivable annually in arrears at a discount rate of

7.5% . A = 25 000 000, r = 0.075

A 25 000 000

PV = = = K 333 333 333.30

r .075

287

Example 16

The T Company is expected to pay K11 250 every 6 months indefinitely on a share of its

preferred stock. If money is worth 6.5% compounded semi annually to X, what

should he be willing to pay for a share of the stock?

A 11250

PV = = = K 346 153.85

r 0.0325

When borrowing a sum of money from a bank or building Society for house purchase (a

mortgage), it is usual to repay it by a series of regular equal installments. The

present value of the series will be the same as the amount borrowed.

Example 17

Chisha wishes to borrow a sum of money to buy a house. She wishes to repay exactly

K2 500 000 a month for 15 years at the rate of 13.5% compounded monthly,.

Find how much she can borrow.

.135

Using formula (6.11), R = 2 500 000, r = = 0.01125, n = 15 × 12 = 180 .

12

1 − (1.01125) −180

= 2 500 000

0.01125

= 2 500 000(77.02270031)

= K192 556 750.80

interest rate is 1.125%. The present value of repayments is therefore

288

2 500 000 2 500 000 2 500 000 2 500 000

+ + +. . . +

1.01125 (1.01125) 2 (1.01125)3 (1.01125)180

2 500 000 1

a= , r= , n = 180

1.01125 1.01125

1 180

− 1

2 500 000 1.01125

=

1.01125 1

1.01125 − 1

Example 18

Lungowe borrows K11250 000 to be paid in 4 years to buy a car. How much must she

repay per month assuming an interest rate of 7.5% a year compounded monthly.

1 − (1 + r ) − n

P = R

r

0.075

where P = 11 250 000, n = 4(12) = 48, r = = 0.00625

12

1 − (1.00625) −48

11 250 000 = R

0.00625

70312.5 = R(0.258489819)

R = K272 012.65

289

6.15 Amortization Schedule

An analysis of how each payment in the loan is handed can be given in a table called an

Amortization Schedule. The amortization schedule contains

ii) Interest for period

ii) Payment at the end of the period

iv) Principal repaid at end of period

A loan is amortized when part of each payment is used to pay interest and the remaining

part is used to reduce the outstanding principal. Since each payment reduces the

outstanding principal, the interest portion of a payment decreases as time goes on.

For examination purposes, a schedule would only be asked for where the period

was relatively short; for example, up to 5 or 6 time periods.

Example 19

equal payments for the next 2 years.

b) Construct an amortization schedule.

0.06

P = 22 500 000, r = , n = 2× 2 = 4

2

1 − (1.03) − 4

22 500 000 = R

0.03

R = K 6 053 108.52

290

b) The Amortization Schedule is shown in Table 1.0

Interest for periodPayment at End of rincipal Repaid at

at Beginning of Period End of Period

period

22 500 000 675 000 6 053 180.52 5 378 108.52

17 121 891.48 513 656.74 6.053 108.52 539 457.78

11 582 439.70 347 473.19 6 053 108.52 57 05 635.33

5 876 804.37 176 304.13 6 053 108.50 5 876 804.37

1712 434.06 24 212 434.06 22 500 000.00

(current)

A sinking fund is a fund into which periodic payments are made in order to satisfy a

future obligation. This is the amount of an annuity as opposed to the present

value of an annuity in the case of a loan. Here we use formula (6.10).

A( Amount of an annuity )

(1 + r ) n − 1

= R

r

a) repayments of debts

b) to provide funds to purchase a new asset when the existing asset is fully

depreciated.

291

Example 20

The Board of Education received permission to issue K200 000 000 I bonds to build a

new block of classrooms. The board is required to make payments, every 6

months into a sinking fund paying 12.5% compounded semi-annually. At the end

of 15 years the bond obligation will be retired. What should each payment be?

The payment R required twice a year to accumulate to K200 000 in 15 years (15 × 2 = 30

.125

payments at a rate of interest = 0.0625 per payment period).

2

(1 + r ) n − 1

A = R

r

(1.0625)30 − 1

200 000 000 = R

0.0625

= R(82.62525618)

R = K 2 420 567.38

Example 21

A woman borrows K13 500 000, which will be paid back to the lender in one payment at

the end of 4 years. She agrees to pay interest semi annually at 15%. At the same

time she sets up a sinking fund in order to repay the loan at the end of 4 years.

She decides to make equal deposits into her sinking fund, which earns 6.5%

interest compounded semi-annually.

b) Construct a table that shows how the sinking fund grows over time.

c) How much does she need each month to be able to pay the interest on the

loan and make the sinking fund deposit?

292

a) The sinking fund deposit is the value of R in the formula.

(1 + r ) n − 1

A = R

r

0.065

A = K13 500 00, n = 4 × 2 = 8, and r = . The sinking

2

fund deposit is therefore:

0.065 8

1 + − 1

13 500 000 = R 2

.065

2

R = K1 504 745.55

b) The table below shows the growth of the sinking fund over time. The

entries for payment number 8 are obtained by using the amount of an

annuity formula for a monthly payment of K1 504 745.55 made for 8

months at 6.5% compounded monthly.

0.065 8

1 + − 1

Total = 1504745.55 2

0.065

2

= 1504745.55(4.199259328)

= K 6 318 816.79

The deposit for payment number 8, the final payment, is only K1 504 745.58

because a deposit of K1 504 745.58 results in a total payment of K134

99999 97.

293

Period Interest Added Deposit Increase in FundAmount in Fund at

End of Period

0 1 504 745.55 1504 745.55 1 504 745.55

48 904.23 1 504 745.55 1 553 649.78 3 058 395.33

97.85 1 504 745.55 1 604 143.40 4 662 538.73

151 532.51 1 504 745.55 1 656 278.06 6 318 816.79

205 361.55 1 504 745.55 1 710 107.10 8 028 923.89

260 940.03 1 504 745.55 1 765 685.58 9 794 609.47

318 324.81 1 504 745.55 1 823 070.36 11 617 679.83

377 574.59 1 504 745.55 882 320.17 13 500 000.00

c) The monthly interest payment due on the loan of K13 500 000 at 15% interest is

found using the simple interest formula.

1

I = 13 500 000(0.15) = K1,012,500

2

Thus the woman needs to be able to pay K1 504 745.55 + K1 012 500

Example 22

A copper mine is expected to yield an annual net return of 900 million for the next 15 years, after

which it will be worthless. An investor wants an annual return on the investment of 18%.

If she can establish a sinking fund earning 12% annually, how much should he be willing

to pay for the mine?

Let x be the purchase price. Then 0.185 x represents an 18.5% annual return on investment.

The annual sinking fund contribution needed to obtain the amount x in 15 years is found

(1 + r ) n − 1

by solving x − 1 where n = 15 and r = 0.12. The investor should be willing

r

to pay an amount x so that

294

Annual return + Annual sinking = Annual return

on investment fund requirement

−1

(1.12)15 − 1

0.185 x + x = 900 000 000

.12

A purchase price of K4 248 805 526.00 will achieve the investor’s goals.

Example 23

A machine costing K18 million new is estimated to have after 6 years of use a scrap value of

K1.8million. if the depreciation fund earns 3%, use the sinking fund method to:

b) Find the amount in the fund at the end of 4 years,

c) Prepare a depreciation schedule.

Therefore:

(1 + 0.03)6 − 1

17.2 = R

0.03

17.2(0.03) 0.486

R= =

(1.03) − 1 0.194052296

6

= 2 504 479.51

295

Depreciation Interest fundIncrease fund Amount in fund Book value

Charge

0 0 0 0 18 000 000

2 504 479.51 152 522.80 2 657 002.31 5 084 093.41 12 915 906.59

2 504 479.51 314 334.24 3 203 569.42 10 477 808.1 7 522 191.90

2 504 479.51 398 898.66 3 602 468.08 13 296 621.85 4 703 378.15

2 504 479.51 486 00.00 4 088 468.08 16 200 000.02 1 799 999.98

The error of K0.02 in the final book value is due to rounding off all entries to 2

decimal places.

Exercise 2

1) Find the present value of the given future payment at the specified interest rate.

b) K15.75 million due in 7 years at 6% effective

c) K18 million due in 12 years at 7.5% compounded semi-annually

d) K11.25 million due in 15 months at 6.5% compounded quarterly.

e) K9 million due in 2½ years at 18% compounded monthly.

2) Mulenga wishes to borrow a sum of money to buy a house. She wishes to repay

exactly K2 000 000 a month for 15 years, starting at the end of the present. How

much can she borrow assuming an interest rate of 13.5% payable monthly?

3) Construct amortization schedules for the indicated debts. Adjust the final

payment, if necessary.

compounded annually.

296

b) K36 million repaid by six equal semi annual payments with interest rate of

8% compounded semi annually.

c) K4050 000 repaid by five equal quarterly payments with interest at 10%

compounded quarterly.

4) A person borrows K9million and will pay off the loan by equal payments at the

end of each month for 6 years. If interest is a the rate of 18.5% compounded

monthly, how much is each payment?

12.24% compounded monthly.

6) What sum must a parent invest now in order to obtain school fees of K9 million

payable 3 times a year for 10 years starting in 4 months’ time, when the nominal

interest rate is 6.5% compounded 3 times a year?

7) Chibuye is saving for his daughter’s wedding in 3 years’ time. He decides to save

either

i) K67 500 a month starting at the end of the current month at a nominal rate

of 7.5% a year compounded monthly or

ii) K 2 070 000 a quarter starting at the end of the first 3 months at a nominal

rate of 6.5% a year compounded quarterly. How much does he save?

using a sinking fund method. Find the annual payment (based on an ordinary

annuity) if the fund earns 12.5%. Draw up a schedule showing both the position

of the debt and the fund each year.

9) A debt of K2 000 000 due in 4 years and K2 000 000 due in 5 years is to be repaid

by a single payment now. Find how much the payment is if an interest rate of

10% compounded quarterly is assumed.

10) A debt of K5 000 000 due in 5 years is to be repaid by a payment of K3 000 000

now and a second payment at the ends of 6 years. How much should the second

payment be if the interest rate is 5% compounded quarterly?

297

EXAMINATION QUESTIONS WITH ANSWERS

(SECTION A)

1.1) Today Chisenga purchase an annuity of K6 750 000 per year for 15 years from an

insurance company which was 3% compounded annually. If the first payment is

due in one year, what did the annuity cost Chisenga?

d) K9 787 500

(Natech, 1.2 Mathematics & Statistics, November/December 2000)

1.2) A certain machine costs K5 400 000. The depreciation for a month at the end of

any month is estimated to be 5% of the value of the beginning of the month. At

what value is the machine cared after 24 months of use?

d) K90 990 000

(Natech, 1.2 Mathematics & Statistics, November/December 2000)

1.3) Find the Net present value of a project which requires an initial outlay of K50 000

and guarantees you a cash flow of K30 000 per annum for the next three years

with an interest sale of 10%.

d) K25 000

(Natech, 1.2 Mathematics & Statistics, June 2002)

1.4) In how many years will K1 000 000 amount to K3 207 000 at 6% per annum

compound interest? (Give your answer to the nearest whole number).

a) 17 b) 18 c) 19

d) 20

(Natech, 1.2 Mathematics & Statistics, June 2002)

1.5) Calculate the annual effective rate of interest of 5% compounded monthly to two

decimal places.

a) 6% b) 5.12% c) 5% d) 4.91%

298

1.6) What is the present value of an annuity that pays K400 000 a month for the next

five years if money is worth 12% compounded monthly.

d) K2 808 000

(Natech, 1.2 Mathematics & Statistics, June 2001)

1.7) What is the amount for an ordinary annuity of K10 000 a year for 4 years at 8%

compounded annually?

d) K13 604.89

(Natech, 1.2 Mathematics & Statistics, December 1998)

on September 3, K800 on September 4, and so, how much will be deposit from

September 1 to September 15, inclusive?

d) K3 276.70

(Natech, 1.2 Mathematics & Statistics, December 1998)

1.9) Find the compound interest on K800 000 for 2 years at 6% per annum, interest to

be added half yearly.

d) None of these

(Natech, 1.2 Mathematics & Statistics, December 1998)

1.10) If K40 000 000 invested for 5 years yields a simple interest of K3 800 000, what

will be the interest on K24 000 000 invested at the same rate for 7½years?

d) K760 000

(Natech, 1.2 Mathematics & Statistics, June 1998)

299

MULTIPLE CHOICE QUESTIONS

(SECTION B)

1.1) What sum will earn K15 750.00 simple interest in 146 days at 4.5% per annum?

d) K875 000.00

(Natech, 1.2 Mathematics & Statistics, December 2002)

1.2) If 1 500 000 is deposited at simple interest of 3% per year, what amount of money

would be in the account at the end of 12 years?

d) K18 000

(Natech, 1.2 Mathematics & Statistics, December 2002)

1.3) What is the discountable value of a bill for K475 000 drawn on 4th march at 3

months and discounted on 10th may at 6%?

d) 2 186.30

(Natech, 1.2 Mathematics & Statistics, December 2002)

1.4) The terms for a five year lease agreement are that, K10 million must be paid at the

beginning of the first year, to be followed by four-equal payments at the

beginning of years two, three, four and five at a discount rate of 8%. If the

present value of the four equal payment is K26 496 000, the total amount to be

paid during the lease period is close to?

d) K44 million

1.5) A machine assumed to depreciate at a fixed rate of 12% per annum, will have a

book value of K9 288 080 in six years time. Its purchase value to the nearest ten

is:

d) K20 million.

300

1.6) A government bond of K1 million is advertised to become K1.57 million after 5

years. The effective annual rate of interest to the decimal place is:

d) 11.4%

1.7) The net present value of an investment at 20% is K12 400 000 at 12% is a loss of

K8 000 000. What is the internal rate of return of this investment?

(Natech, 1.2 Mathematics & Statistics, December 2003)

1.8) How long will it take for K4 275 000 to amount to K4 446 000 at 8% simple

interest rate giving your anser in months?

d) 3.0 months

(Natech, 1.2 Mathematics & Statistics, December 2001)

1.9) A bank accounts pays 12% annual interest compounded monthly. How much

must be deposited now so that the account contains exactly K45 000 000 at the

end of the year?

d) K40 000 000.00

(Natech, 1.2 Mathematics & Statistics, December 2001)

principal and S is the compound amount at the end of n interest periods at the

periodic rate of r. To make n the subject of the formula result in

S

ln

P (1 + r ) S

n=

P

a) n= b) n = ln c)

S P (1 + r ) ln(1 + r )

ln(S )

d) n=

ln P (1 + r )

(Natech, 1.2 Mathematics & Statistics, December 2001)

301

SECTION B

QUESTION ONE

a) A borrower receives K4 000 000 today agreeing to repay the lender a total of

K4 800 000 at the end of 12 months. What annual simple interest rate is being

charged?

b) Find the present value of K15 000 in 9 months’ time at a simple interest rate of

6%.

provide an annuity of K1 250 000 a quarter for four years?

QUESTION TWO

a) An initial investment of K90 000 000 in a business guarantees the following cash

flow:

Cash Flow

K28 800 000

K36 000 000

K50 400 000

ii) Is the investment profitable?

b) Chipasha Mulenga recently purchased a computer for K5 400 000 and agreed to

pay it off by monthly payments of K270 000. if the store charges interest at the

rate of 12% compounded monthly, how many months will it take to pay off the

debt?

end of every 3 months for 3 years at the rate of 6% compounded quarterly.

iv)

(Natech, 1.2 Mathematics & Statistics, December 2001)

d) Miss Mwalilino has an obligation of K1 350 000 due five years from now. If

interest is assumed to be 7 percent and is compounded yearly, what is the present

value of the obligation?

302

QUESTION THREE

a) Moonga borrows K500 000 now at an interest rate of 5% per annum. The loan

has the be repaid through five equal installments at the end of each year for the

next five years. Calculate the annual repayment.

b) Mr Sokonjo has just received his gratuity amount to K60 million. He wishes to

invest K50 million of the gratuity. He is now faced with a choice between two

investment opportunities, A and B. capital outlay for each is K50 million.

receivable every 5 years.

B yields K11 million receivable at the end in perpetuity. If the discounting rate is

estimated at 20% for Mr Sokonjo,

value (NPV) method.

ii) Recommend with a reason which one of the two (2) investment

opportunities Mr Sokonjo should choose.

(Natech, 1.2 Mathematics & Statistics, December 2004)

QUESTION FOUR

a) Supremo Stores advertises goods at K700 00 deposit and three further equal

annual payments of K500 000 for the next three years. If the discount rate is

7.5%, calculate the present value of the goods.

b) i) For how many years must I invest K20 000 if I want it to have a value of

at least K500 000 and the interest rate is 6%, payable annually?

ii) How does your answer change if interest is payable every 6 months?

(Natech, 1.2 Mathematics & Statistics, June 2003)

c) Mr Musole, a sole proprietor, is paying K500 000 each quarter into a fund which

pay 12% per year interest, compounded quarterly. How much will have

accumulated in the fund by the end of the fifth year?

d) M-net offers a decorder for K540 000 and K67 500 per month for the next 12

months. If interest is charged at 9% compounded monthly, find the equivalent

cash value to be paid now.

(Natech, 1.2 Mathematics & Statistics, Nov/Dec 2000)

303

CHAPTER 7

Business Decision Making

statistical software packages, or a graphing calculator such as the TI-83 have

made life easy to solve problems or complete projects for students. Computers

are able to perform millions of calculations with speed and accuracy, often

summarizing the solutions in interesting, colourful charts and tables.

Students who have studied computer languages can write their own programs to

solve many of the exercises in this book or they may prefer to use one or more

available software packages which provide ready made programs as mentioned

above. In either case the student benefits from an interesting and useful

experience.

It may be noted, however, that the use of the computer is not essential to the

reader. Almost all the exercises on this manual can be solved with pencil and

paper, but the use of an inexpensive hand-held calculator will reduce the amount

of labour involved in many calculations. Some exercises are provided in which

the use of a computer is recommended, and these are clearly marked.

This section introduces matrices as structures in which data can be stored and

manipulated. The rules for adding and multiplying matrices are given. Also the

manipulation of simultaneous equations using matrix algebra is explained through

examples.

a matrix is stated as the number of rows by number of columns. The

following are examples of matrices with their dimensions:

3 1

3 −1

A = B = 2 0 C = (3 14 )

2 2 1 1

Dimension 2 × 2 3× 2 1× 3

304

A business might have the number of employees in each of its departments

classified as to their sex for example.

Male Female

Accounts 16 5

Ledgers 10 3

Purchasing 5 8

The actual matrix is a framework, which holds the data values; the

sections Accounts, ledgers, purchasing, male and female in our example

are there simply to identify precisely what the data is. Thus, if we call the

whole matrix set A, for convenience, we have:

16 5

A = 10 3

5 8

Dimension : 3 × 2

Where it is understood that the first row is Accounts, the second row refers

to Ledgers and third row refers to purchasing. Similarly, the first column

is the number of male employees, the second female employees.

The null matrix is a matrix of any dimension in which every element is

zero, such as:

0

0 0

, 0 , (0 0 0 0 )

0 0 0

Dimension 2 × 2 3 ×1 1× 4

The unit matrix or identity matrix is any square matrix in which every

element is zero except the elements on the main diagonal, each of which

has the value 1, such as:

1 0 0

1 0

I = , I = 0 1 0

0 1 0 0

1

305

The unit or identity matrix is represented by the symbol I.

Matrices are equal if they are of the same dimension and the

corresponding elements are identical:

2 1

2 − 3 2 − 3 2 3 3

, are equal but the matrices , 3 2 are not equal.

1 5 1 5 1 2 2 3 2

The elements are identical but the dimensions are not.

The transpose of a matrix is the matrix obtained by writing the rows of any

matrix as columns or vice versa as follows:

T

row 1 1 3 1 2

=

row 2 2 4 3 4

1 3 1 0 1 + 1 3 + 0 2 3

+ = =

2 0 1 2 2 + 1 0 + 2 3 2

1 3 1 0 1 − 1 3 − 0 0 3

− = =

2 0 1 2 2 − 1 0 − 2 1 − 2

In general, two matrices can be ADDED (or one matrix, subtracted from another) only if

they have identical sizes. That is, the number of rows in each of the two matrices

must be the same and the number of columns in the two matrices must be the

same.

306

Example 1

3 0 3 8 1 2 4

A = , B = , C =

1 2 4 10 1 3 6

a) Calculate

i) A+B

ii) A-B

restrictions on matrix addition and subtraction.

3 0 3 8 3 + 3 0 + 8 6 8

a) i) + = =

1 2 4 10 1 + 4 2 + 10 5 12

3 0 3 8 3 − 3 0 − 8 0 − 8

ii) − = =

1 2 4 10 1 − 4 2 − 10 − 3 − 8

matrices B and C, it is found that there is no third column in matrix

A, therefore it is not possible to add pairs of corresponding

elements in the two matrices. Matrix addition is not possible.

3 0 1 2 4 3 + 1 0 + 2 ?+ 4

+ =

1 2 1 3 6 1 + 1 2 + 3 ?+ 6

there is no third column in matrix B from which to subtract the elements in

column three of matrix C.

307

7.2.3 Multiplying a Matrix by a Number

number is sometimes called Scalar multiplication. And when scalar

multiplication is performed, each element in the matrix is multiplied by the scalar:

Example 2

3 1

B = calculate 3B.

2 5

3 1 9 3

a) 3B = 3 =

2 5 6 15

1 0 2 0

b) 2I = 2 =

0 1 0 2

Matrix multiplication AB is possible if the number of elements in the rows of the first

matrix (A) is the same as the number of elements in the columns of the second

matrix (A). This condition for matrix multiplication can be established quickly

by writing down the dimensions of the matrices to be multiplied, in order

A × B = product Dimension of

product 2 × 4

Dimensions: (2 × 3) × (3 × 4) = (2 × 4 )

The ‘inside’ numbers are the same, therefore multiplication is possible. The ‘outside’

numbers give us the dimension of the product.

308

Example 3

2 1 1 0 3 1 1

A = , B = , C =

3 5 1 1 0 1 2

2 1 3 1 1

a) AC =

3 5 0 1 2

Dimension: 2 × 2 × 2 × 3 = 2 × 3

=

3(3) + 5(0 ) 3(1) + 5(1) 3(1) + 5(2 )

6 + 0 2 +1 2 + 2 6 3 4

= =

9 + 0 3 + 5 3 + 10 9 8 13

3 1 1 2 1

b) CA =

0 1 2 3 5

2 × 3 × 2 × 2

2 1 1 0

c) AB =

3 5 1 1

2 × 2 × 2 × 2 = 2 × 2

AB = = =

3(1) + 5(1) 3(0 ) + 5(1) 3 + 5 0 + 5 8 5

309

1 0 2 1

d) BA =

1 1 3 5

2 ×2 2 × 2

BA = =

1(2 ) + 1(3) 1(1) + 1(5) 5 6

3 1 2 1

In the above example, AB = and BA = therefore

8 5 5 6

AB ≠ BA. (Since two matrices are equal only if all corresponding elements

are identical). So in matrix multiplication, the order of multiplication is

important. In general, in matrix multiplication AB ≠ BA. .

r × 1 . If this was the equation ax = b, where a, x and b are numbers, and not

b

matrices, we could solve for x by dividing both sides by a to give x = . We

a

can’t do the same thing (divide by A) to solve AX = b because we have not

defined a way of dividing by a matrix.

A ⋅ A−1 = A−1 A = I where I is the identity matrix.

Several methods exists for finding A−1 given A. Here two methods will be given

through examples.

310

Example 4

1 2

Find the inverse of A =

2 3

itself.

3. The replacement of any row of a matrix by the sum of itself and a constant

multiple of some other row.

1 2 1 0

2 3 0 1

matrix

Step 1

The main idea is to create an identity matrix in the original matrix. The

matrix obtained in the position of the Identity Matrix is the inverse of the

original matrix.

Multiply row 1 by –2 and add the resulting row to row 2 to get the new

row 2.

-2 -4 -2 0

2 3 0 1

0 -1 -2 1

1 2 1 0

0 −1 − 2 1

311

Step 2

1 2 1 0

0 1 2 −1

Step 3

We make the entry ' a12 ' zero by multiplying row by –2 and adding this

resulting row 2 to get the new row 1.

1 2 1 0

0 -2 -4 2

1 0 -3 2

1 0 −3 2

0 1 2 − 1

Hence

−3 2

A−1 =

2 − 1

AA−1 = I

Check: 1 2 − 3 2 − 3 + 4 2 − 2 1 0

= =

2 3 2 − 1 − 6 + 6 4 − 3 0 1

Method 2

matrix A is denoted by A or Det A and is defined as follows: (for a 2 × 2

matrix)

312

a b

If A = then A = ad − bc

c d

1 d − b

and A−1 =

ad − ac − c a

1 2

Applying this method to our matrix A =

2 3

A = 1(3) − 2(2 ) = 3 − 4 = −1

1 3 − 2 − 3 2

∴ A−1 = =

− 1 − 2 1 2 − 1

which is the same result as obtained by using the elementary row operations.

Example 5

3 x + 2 y = 22

a)

x + 3 y = 19

P = 22 − 2q

b)

P = 11 + 3q

3 2 x 22

=

1 3 y 19

313

Method 1

Using elementary row operations, we have

3 2 22

1 3 19

coefficients

Step 1

1 3 19

3 2 22

Step 2

The new row 2 is obtained by multiplying row 1 by –3 and adding the resulting row to

( )

row 2. r2 → −3r1 + r2 where 1 stands for new row 2.

1 3 19

0 − 7 − 35

Step 3

1

Divide row 2 by –7 (i.e., r2 → − r2 ) to get

2

1 3 19

0 1 5

314

Step 4

To get the new row 1, multiply row 2 by –3 and adding this resulting row to row 1

( )

r2 → −2r2 + r1 to get

1 0 4

0 1 5

Therefore, x = 4, y = 5.

3(4 ) + 2(5) = 12 + 10 = 22

Check:

4 + 3(5) = 4 + 15 = 19

Method 2

3 2 x 22

A = , X = , b =

1 3 y 19

1 3 − 2

A = 9 − 2 = 7, A−1 =

7 − 1 3

Then X = A−1b

x 1 3 − 2 22

=

y 7 − 1 3 19

x 1 66 − 38 1 28

= =

y 7 − 22 + 57 7 35

x 4

= .

y 5

315

b) Rewrite the given equations in the form.

p + 2q = 22

p − 3q = −13

1 2 22

1 − 3 − 13

Step 1

1 2 22

r2 → − r1 + r2

0 − 5 − 35

Step 2

1 1 2 22

r2 → − r2

5 0 1 7

Step 3

1 0 8

r1 → −2r2 + r1

0 1 7

∴ P = 8 and q = 7

Method 2

316

1 2 p 22

A = , X = and b =

1 − 3 q − 13

Then A = −3 − 2 = −5

1 − 3 − 2

A−1 =

−5 −1 1

Therefore X = A−1b

1 − 3 − 2 22

= −

5 − 1 1 − 13

1 − 66 + 26 1 − 40

= − = −

5 − 22 − 13 5 − 35

8

= ,

7

∴ p = 8 and q = 7.

Example 5

A distributor records the weekly sales of television sets in three retail outlets in different

parts of the country (See Table 7.1).

Shop X 50 300 150

Shop Y 85 425 213

Shop Z 90 30 28

The retail price of each model in each of the three shops is given in Table 7.2.

(000’000) (000’000) (000’000)

Shop X 1.2 1.85 2.10

317

Shop Y 1.5 1.80 1.85

Shop Z 1.1 1.95 2.00

b) The total weekly revenue for each model for each shop.

c) The total weekly profit for each shop.

Shop X 50 300 150

Q = Shop Y 85 425 213

Shop Z 90 30 28

0.9 Sharp

C = 1.0 Sony

1.2 Phillips

Q ⋅ C = Total Cost

85 425 213 1.0 = 85(0.9 ) + 425(1.0 ) + 213(1.2 ) = 757.1

90 30 28 1.2 90(0.9 ) + 30(1.0 ) + 28(1.2 ) 144.6

million.

318

b) The total revenue = price × quantity. The quantities are given by the matrix Q,

for the data in Table 7.1. The prices are obtained from the data in Table 7.2.

Matrix multiplication is carried out by multiplying rows by columns. Therefore

to multiply quantity × price for each television set, we get the transpose matrix of

the data in Table 7.2 that’s:

P = 1.85 1.80 1.95 − price of Sony

T

Shop X 50 300 150

Q × P = Shop Y 85 425 213

T

Shop Z 90 30 28

X price of sony 1.85 1.80 1.95

price of phillips 2.10 1.85 2.00

= X 85(1.5) + 425(1.80 ) + 213(1.85) X

X

X 90(1.1) + 30(1.95) + 28(2.00 )

The off diagonal entries marked X don’t apply. Total revenue for shops X, Y and

Z are summarized as follows: TR;

319

60 + 555 + 315

= 127.5 + 765 + 394.05

99 + 58.5 + 56

930

= 1286.55

213.5

c) Profit = TR − TC

930 525

= 1286.55 − 757.1

213.5 144.6

405

= 529.45

68.9

Example 6

A manufacturer produces two products A and B. For each unit of A sold the profit is

K50,000, and for each unit of B sold the profit is K68,750. From past experience it has

been found that 12.5% more of A can be sold than of B. Next year the manufacturer

desires a total profit of K262.5 million. How many units of each product must be sold?

Let x be the number of units of A to be sold and y the number of units of B to be sold.

Then x = 1.125 y and 50 000 x + 68 750 y = 262 500 000.

x − 1.125 y = 0 (1)

50 000 x + 68 750 y = 262 500 000 (2)

1 − 1.125 0

50 000 68 750 262 500 000

320

1 − 1.125 0

r2 → −50 000 r1 + r2

0 125 000 262 500 000

1 1 − 1.125 0

r2 → r2

125 000 0 1 2100

1 0 2362.5

r1 → 1.125 r2 + r1

0 1 2100

Thus x = 2362.50 and y = 2100, so approximately 2362.50 units of A and 2100 units of

B must be sold.

Exercise 1

2 5 4 3 2 3

1) Taking A = 3 2 9 B = 1 5 9

2 2 3 7 2 5

1 4 3

−1

2) Find A when A = 0 1 1

7 4 0

2 1 1 4 0

1 1 3 4 5

b) A = 3 0 2 , B = 5 1 , C = , D =

5 2 0 4 0 2 5 5 0 4

AB AC AD BA BB CD CB CA CD DC

2 5 3 0 4

4) Given A = and B =

3 − 2 5 − 3 5

321

Find: a) AB and b) BA.

3 1 − 2

5) Given A = (5 2 ) and B =

2 5 0

Find: a) AB b) BA.

2 3 − 2 4 0 3

a) +

1 5 5 5 − 2 − 1

2 − 1 4 1 0 − 5

b) −

0 5 6 1 3 1

5 − 3 0 1 2

c) +

2 4 2 3 4

1 − 3 2 5 3 6 1 − 2

d) +

4 1 1 1 4 2 − 3 − 3

7) Let (r × c ) denote a matrix with shape r × c, i.e, r denotes the number of rows

and c the number of columns.

b) Find the dimensions of the product of the matrices with the following

dimensions.

i) (5 × 4) (4 × 6)

ii) (3 × 1) (1 × 5)

iii) (5 × 2) (5 × 3)

iv) (6 × 3) (7 × 3)

v) (5 ×) (5 × 1)

322

vi) (6 × 5) (5 × 5)

45 x + 25 y = 115

16 x + 30 y = 62

0 7 1 5

b) If A = and B =

5 2 6 6

9) A fast food chain has three shops, X, Y and Z. The average daily sales and profit

in each shop is given in the following table.

Shop X Shop Y Shop Z Shop X Shop Y Shop Z

Chips 900 500 600 3500 3000 2500

Chicken 750 400 500 1500 2000 3500

Beef 400 1100 800 2000 2500 1500

10) The percentage of voters who will vote for party candidates P, Q and R is given in

the following table:

P Q R Number of Votes

Area X 35% 15% 50% 110 000

Area Y 65% 25% 10% 80 000

Area Z 45% 36% 19% 75 000

Use matrix multiplication to calculate the total number of votes for each candidates.

323

EXAMINATION QUESTIONS WITH ANSWERS

8 2

5 2 is given by

4 1 1 − 1

3 3 3 3 2 − 2

A. 5 1

B. − 5 4

C. − 5 8

6 3 6 3

8 2

6 6

D. 5 2

6 6

1 2 3 1 − 2 − 4

1.2 If X = 2 4 6 and Y = − 1 − 2 − 4

3 6 9 1 2 4

What is XY?

0 0 0 1 0 0 − 1 − 2 − 3

A. 0 0 0 B. 0 1 0 C. − 2 − 4 − 6

0 0 0 0 0 1 − 3 − 6 − 9

0 0 − 1

D. 1 2 2

2 8 12

324

(Natech, 1.2 Mathematics and Statistics, June 2003).

2 2

1 2

A = 1 4 B=

3 5 0 2

4 8 2 8

5 10 1 10 6 10 9

A. B. C. 4 8 10

8 6 3 16

6 4

D. 10 8

9 16

(Natech, 1.2 Mathematics and Statistics, June 2002)

1 − 3

1.4 Find the inverse matrix, A−1 , of matrix A given as follows:

2 4

−1 2 2 5 3 10 − 3 1

A. B. C.

− 3 − 4 − 1 5 1 10 4 2

1 0

D.

0 1

3 − 2 6 5

1.5 If A = B = and C = 4 B − 3 A, then

5 −1 12 − 2

325

8 1

1.6 The Inverse of the matrix A if A = is

2 0

−1 1

0 − 1 0 4

A. B. C.

2 2

− 2 8 1 − 4 1 0

−1

D. 0

2

−1 4

1 3 1 2 3

1.7 If A = , B = , A+ B is

4 5 0 1 2

2 5 0 1 2 6

A. B. C.

4 6 4 4 4 7

D. None of these.

1 5 1 1

1.8 Find the product of BA of the following matrices A = , B =

2 0 1 2

6 11 1 1 2 6

A. B. C.

2 2 1 2 3 2

D. None of these.

2 1 1

1.9 If A = 4 3 2 , find A

2 − 1 − 3

A. −8 B −8 C. −40 D. 8

326

3 1

1.10 Evaluate the determinant .

2 5

5 − 1

A. 17 B. 13 C. D. None of these.

− 2 3

SECTION B

QUESTION ONE

4 2 − 3 1

P = ; Q =

− 2 1 3 − 4

i) X +P=Q

ii) Y + Q = 4P

AB = I = BA where I is the identity (or unit matrix). In each of the following

show that matrix A is the inverse of matrix B.

7 3 1 − 3

i) A = ; B =

2 1 − 2 7

0 .2 − 0 .2 2 1

ii) A = ; B =

0 .6 0 .4 − 3 0 .4

3 7 5 − 7

iii) A = ; B =

2 5 − 2 35

327

QUESTION TWO

a) Zam Protect Insurance Company has four salesmen working in the Midlands area.

The number of policies they sold during the last month is given in matrix A, as

follows:

8 7 6 8 Vehicle

6 9 11 5 Life

A=

4 3 2 0 Fire / Riot

0

2 1 3 Household

1 2 4 2

b) Given that A = and B =

3 3 3 1

QUESTION THREE

1 1 6

0 1 3

a) A = 3 , B = , C = 3 0

5 − 2 1 0 − 2 2

328

b) A fast food chain has 3 shops, X, Y and Z. The average daily sales and profit (in

thousands of kwacha) in each shop is given in the following table.

Sales

Shop X Shop Y Shop Z Unit Profit ‘000’

Chicken 1000 600 700 2 5 7

Chips 1150 800 900 3 6 9

Drinks 700 1400 1100 6 5 3

ii) the profit for each shop

QUESTION FOUR

2

1 5 2 − 1 1 3 4

A = , B = , C = 6 , D = .

3 − 3 0 3 8 0 1 2

i) Show, that AB ≠ BA

329

c) The percentage of voters who will vote for party candidate A, B, and C is given in

the following table.

A B C Number of Votes

Area X 35% 15% 50% 105 000

Area Y 65% 25% 10% 80 000

Area Z 28% 45% 27% 75 000

i) Use matrix multiplication to calculate the total number of votes for each

candidate.

ii) On polling day if the turnout is 65% in Area X, 35% in Area Y and 25% in

Area Z, use matrix multiplication to calculate the total votes for each

candidate.

QUESTION FIVE

1 0 1

1 5 3 2 1

i) A = , ii ) B = , iii ) C = 2 1 0

3 2 0 1 5 1 3 2

5Q1 + 2Q2 = 11

Q1 + 2Q2 + 4Q3 = 23

10Q1 + 4Q2 + 4Q3 = 36

330

QUESTION SIX

2 3 5 − 1

a) If A = and B = , find

1 2 6 1

b) Use any matrix method to solve for P1 and P2 , given the following equations.

5 P1 + 9 P2 = 61

12 P1 + 2 P2 = 68.

QUESTION SEVEN

3 3 9 4

a) A = , B =

1 3 5 6

i) Find A + B

ii) Find AB and BA. Which general rule does this apply?

25 x + 50 y = 525

15 x + 25 y = 275

331

QUESTION EIGHT

a) The ABC’s polling organization asked a sample f voters for their preference for

mayor of the city of Kitwe in the coming election. The organization found the

following table:

Candidate Candidate Candidates

MMD 550 100 60 8

UPND 200 450 80 3

Independents 50 100 15 100

3

4 − 2 1

b) A = , B = (2 0 1 − 2 ), C = . Find

6 0 −1

4

1

i) AB, ii ) 6A iii ) A, iv) BC.

2

332

7.3 Basic Linear Programming

7.3.1 Introduction

In this section we find the optimal value of linear functions (cost, profit, revenue,

output, etc) subject to several constraints. Industrial production, flow of

resources, investments, nutrition, etc all involve complex

interrelationships, among numerous activities. A common feature of

many of these problems is to formulate a course of action that will

minimize or maximize some essential quantity.

using their separate respective inequalities to produce a feasible region of

operation.

called the objective function. Although there are usually infinitely many

solutions to the system of constraints (these are called feasible solutions or

feasible points), the aim is to find one such solution that is an optimum

solution (that is, one that gives the maximum or minimum value of the

objective function).

Example 1

A factory can produce two products, X and Y. The contribution that can be

obtained from the products are,

A contribution of K10 000 per unit B contributes K15 000 per unit and it is

required to maximize its contribution. The objective function for this

factory can be expressed as as

where x = number of units of X produced

y = number of units of Y produced

processing each unit is given in the table below.

333

Product X Product Y Maximum process

(hr/unit) (hr/unit) capacity per day

(hrs)

Process I 12 12 840

Process II 3 6 300

10 000 15 000

The limitations or constraints are circumstances which always exist and these govern

the achievement of the objective. The constrains in any given problem must be clearly

identified, quantified, and expressed mathematically. The constraints as regard to

processes can be stated as follows:

Pr ocess I 12 x + 12 y ≤ 840

Pr ocess II 3 x + 6 y ≤ 300

possible to make negative quantities of a product, i.e

x ≥ 0, y ≥ 0.

which have no physical counterpart. Together they include the x -axis and the y -axis as

possible boundaries of the feasible area.

334

y

120

8 x + 4 y ≤ 480

70

A(0, 50)

B Process II constraint

3 x + 6 y = 300

(140 80)

, (40, 30)

3 2

Region 12 x + 12 y = 840

C

D 60 70 100 x

The optimum solution can be found by looking at the corner points and substituting these

values in the objective function.

10 000 x + 15 000 y

B , 10 000 + 15 000 = = 866 666.67

3 3 3 3 3

335

140 80

The maximum contribution occurs at point B. Therefore units of X and units of

3 3

Y should be produced to realize a profit of K866 666.67.

A binding constraint must pass through the optimum solution point. If it does not, it is

non binding. In our example, only process II and III constraints are binding. When a

constraint is binding, we may regard it as a scare resource since it has been used

completely.

140 80

Pr ocess II 3 + 6 = 140 + 160 = 300

3 3

Pr ocess II 8 + 4 = + = = 480

3 3 3 3 3

redundant constraint is one which can be deleted from the solution space without

affecting the solution space. In our example, process I constraint is a redundant

constraint.

Example 2

2 x + 13 y ≤ 780

3 x + 6 y ≤ 300

s.t

8 x + 4 y ≤ 480

x ≥ 0, y ≥ 0.

336

y

120

Process III

(0, 60)

Process I

260 420

B ,

11 11

A(0, 50)

390 60

C ,

7 7

feasible Process II

region

260 420

, 12 x + 13 y = 780, 3 x + 6 y = 300 . Point C is the point of intersection between

11 11

390 60

process Iii and process I , 12 x + 13 y = 780, 8 x + 4 y = 480.

7 7

337

Corner Objective value function

10 000 x + 15 000 y

260 60

B , K 809 090.91

11 7

390 60

C , K 685 714.29

7 7

260 420

The optimal solution is to produce units of X and units of Y and the maximum

11 11

profit is K809 090.91.

Constraint I and II are binding while constraint III is non binding as shown in the table

below.

units of X 12 3 8

11 11 11 11

units of Y 13 6 4

11 11 11 11

Maximum hours available 780 300 480

2

Unused hours 0 0 138.18 or 138

11

2

Process I and Process II have used all their hours completely while Process III has 138

11

hours un used.

338

Example 3

2 x + y ≤ 8,

2 x + 3 y ≤ 12,

x ≥ 0,

y ≥ 0.

8

2x + y = 8

4

D

feasible

C

region

2 x + 3 y = 12

A B

x

In Figure 7.1 the feasible region is non-empty and bounded. We have shaded the

unwanted region. Thus Z is a maximum at one of the four corner points. It can be shown

that:

(minimum) value, and this value can be found at a corner point.

2 x + y = 8 and 2 x + 3 y = 12 simultaneously, which gives x = 3, y = 2. Thus,

A = (0,0), B = (4,0), C = (3,2), D = (0,4).

339

Evaluating Z at these points, we obtain

Z ( A) = 5(0 ) + 2(0 ) = 0

Z (B ) = 5(4 ) + 2(0 ) = 20

Z (C ) = 5(3) + 2(2 ) = 19

Z (D ) = 5(0 ) + 2(4 ) = 8

Hence the maximum value of Z, subject to the constraints, is 12 and it occurs when

x = 4 and y = 0 .

Example 5

Minimize Z = 20 x + 30 y

Subject to

2 x + y ≤ 10,

3 x + 4 y ≤ 24,

8 x + 7 y ≥ 56,

x , y ≥ 0.

y

10

8 2 x + y = 10

8 x + 7 y = 56

6

•A

3 x + 4 y = 24

C x

5 6 8

340

As can be seen above, the feasible region is empty, so there is no optimum solution.

Example 6

Minimize C = 5 x + y

Subject to

3 x + y ≥ 3,

4 x + 3 y ≥ 6,

x + 2 y ≥ 2,

x , y ≥ 0.

3 •

2 feasible region

•B

• C

D

3x + y = 3 •

0 1 1.5 2 x

4x + 3y = 6 x + 2y = 2

341

The coordinates of A, and D are obvious on inspection. To find B, we solve the

equations 3 x + y = 3 and 4 x + 3 y = 6 . Similarly to find C, we solve the equations

4 x + 3 y = 0 and x + 2 y = 2 . Thus,

3 6 6 2

A = (0,3), B = , , C = , , D = (2,0 )

5 5 5 5

C ( A) = 5(0 ) + 3 = 3

3 6

C (B ) = 5 + = 4.2

5 5

6 2

C (C ) = 5 + = 6.4

5 5

C (D ) = 5(2 ) + 0 = 10

Example 7

A production line can be set up to produce either product A or product B. The following

table gives the breakdown for each product.

(Hours) (Kg) (Hours)

A 2 4 6 1

=

60 10

B 1 8 8 2

=

2 60 15

In any one week only 60 hours of labour and 560 kgs of material is available. Due to cost

and availability of the test equipment, it must be used for at least 8 hours. Also because

of existing orders, at least 10 of product A must be produced. The profit from each unit

of A produced is K50 000 and from each unit of B is K70 000. Find the weekly

production that will maximize profit and what is this maximum profit.

342

Let x and y be the number of products of A and B produced in a week. Then maximize

P = 50 000 x + 70 000 y

1

S ⋅t 2x + y ≤ 60 labour

2

4 x + 8 y ≤ 560 materials

1 2

x+ y ≥8 Testing

10 15

x ≥ 10 sales

x≥0

y ≥ 0.

120 4 x + y = 120

x = 10

70

• A

•B x + 2 y = 140

feasible

60 •D region

• C

0 10 30 80 140 x

1 2

x+ y ≥8

10 15

343

The coordinates for A are given by the intersection of x + 2 y = 280 and x = 10.

the coordinates for D are given by the intersection of

1 2

x + y = 8 and x = 10. B is given by the intersection of

10 15

4 x + y = 120 and x + 2 y = 28 − while coordinates for C are found by the

1 2

intersection of x + y = 8 and 4 x + y = 120.

10 15

Thus,

A(10, 65), B , , C , , D(10, 52.5)

7 7 13 13

100 440

B P = 50 000 + 70 000 = K 5,114,285.71

7 7

240 600

C P = 50 000 + 70 000 = K 4,153,846.15

13 13

105

D P = 50 000(10 ) + 70 000 = K 4,175,000.00

5

100 440

The maximum number of units is x = and y = giving a maximum

7 7

profit of K5,114,285.71.

344

Exercise 2

1. Maximize z = 20 x + 24 yz

Subject to

x + y ≤ 60,

x − 2 y ≤ 0,

x , y ≥ 0.

2. Maximize P = 7 x + 5 y

Subject to

3 x + 2 y ≤ 220,

2 x + 3 y ≤ 210,

x , y ≥ 0.

3. Minimize C = 3 x + 2 y

Subject to

x + 2 y ≥ 80,

3 x + 2 y ≥ 150,

5 x + 2 y ≥ 100,

x, y ≥ 0.

4. Minimize C = 15 x + 7 y

Subject to

3 x + y ≥ 3,

4 x + 3 y ≥ 6,

4 y + x ≥ 4,

x , y ≥ 0.

345

5. A company extracts minerals from ore. The numbers of kilograms of minerals A

and B that can be extracted from each ton of ores I and II are given in the table

below together with the costs per ton of the ores. If the company must produce at

least 3500kg of A and 3000kg of B, how many kilograms of each ore should be

processed in order to minimize cost? What is the minimum cost?

Ore I Ore II

Mineral A 100kg 200kg

Mineral B 200kg 50kg

Cost per kg K200 000 K240 000

6. A firm manufactures two products A and B. Each product requires machine time

and finishing time as given in the table below. The number of hours of machine

time and finishing time available per day is 24 hours respectively. The unit profit

on A and B is K13 500 and K18 000 respectively. What is the maximum profit

per day that can be obtained?

Machine Finishing

Time Time

A 120 minutes 240 minutes

B 240 minutes 120 minutes

7. A farmer raises chickens and fowls on her farm. She wants to rise no more than

80 birds altogether. The number of chickens should not be less than 50. She

spends K10, 000 to raise a chicken and K12, 000 to raise a fowl. She has K1,

000,000 available for this purpose. Chickens sell for K15, 000 and fowls for K18,

000 each respectively.

8. A company operates two types of airplanes, the ZA106 and the ZA108. The

ZA106 is capable of carrying 18 passengers and 14 tons of cargo, whereas the

ZA108 is capable of carrying 25 passengers and 7 tons of cargo. The company is

contracted to carryat least 207 passengers and 84 tons of cargo each day. If the

cost per journey is K300 000 for a ZA106 and K400 000 for a ZA108, what

choice of airplane will minimize cost?

346

9. The XYZ company is planning production of two products: forks and spoons, for

a certain period of time. Each product requires three types of processing. The

length of time required for processing each unit is given in the following table:

(hr/unit) (hr/unit) Process

Capacity

(hr)

Process I 4 2 14

Process II 1 1 5

Process III 1 0 4

Profit per unit K10 000 K13 000

corner point.

10. A firm is comparing the cost of advertising in two medias, Newspaper and radio.

For every kwacha’s worth of advertising, the table below gives the number of

people, by income group, reached by these media. The firm wants to reach out at

least 32000 persons earning under K100, 000 000 and at least 9000 earning over

K100,000,00. Find the amounts that the firm should spend on newspaper and

radio advertising so as to reach these numbers of people at a minimum total

advertising cost. What is the minimum total advertising cost?

__________________________________________________

Under Over

K100 000 000 K100 000 000

Newspaper 200 50

__________________________________________________

347

EXAMINATION QUESTIONS

SECTION B

QUESTION ONE

A company produces two qualities of maheu; these are, type A 940% sweet and in

standard bottles) which is intended for the home market, and type B (60% sweet and in

large bottles) which is for export. After maturing in vats, both types require two stages of

processing; blending and bottling. The process times for a standard batch of each type of

maheu are:

Blending Bottling

Type A 1½ 1

Type B 2 3

There are 2,400 hours available for each process but because of the steady but limited

demand for type A, the number of batches of that type must not exceed 1,200; apart from

this, all stocks produced can be sold. The contribution to profit and fixed overheads per

batch is K2,000 for type A and K3,000 for type B.

ii) State the constraining factors for this situation with a view to deciding which

processing mix will maximize the total contribution to profit.

(Natech, 1.2 Mathematics and Statistics, December 2003)

QUESTION TWO

In a factory, two products Alpha and Omega are produced using four different materials.

The table below indicates the material requirement in kilograms per unit of each product.

Requirement

Aeto 6 kgs 4 kgs

Beto 5 kgs 3 kgs

Ce to 5 kgs 10 kgs

Deto 16 kgs 8 kgs

348

During a normal working month, there are 2400 kgs of Aeto, 1500 kgs of Beto and 2000

kgs of Ceto. Currently there is no restriction on the availability of Deto.

The products earn contribution per unit of K22, 500 and K30, 000 for Alpha and Omega

respectively.

ii) Graphically, estimate the optimum production mix and hence calculate the

maximum contribution earned.

QUESTION THREE

ii) Find the coordinates of each corner point of the region of feasible solutions; and

iii) Determine the optimal strategy by evaluating the objective function at each corner

point.

Minimize Z = 3 x + 4 y

1.5 x + y ≥ 60

Subject to: 2 x + 3 y ≥ 150

x + 2 y ≥ 90

and x , y ≥ 0.

349

QUESTION FOUR

Simba Lawn-Care Services contracts with homeowners and business firms for a package

of service including planting, fertilizing, weed control, and maintenance of grass lawns.

Mr. Zimba, owner of Simba Lawn-Care Services mixes his own lawn treatment formulae

to meet the special needs of the individual account. Currently, a treatment solution is

needed which contains at least 14 measures of chemical A, at least 5 measures of

chemical B, and at least 12 measures of chemical C. Two preparations containing these

chemicals are sold commercially. Each canister of solu-X contains 4 measures of

chemical A, 1 measure of chemical B, and 2 measures of chemical C. Each canister of

Phos-Pho-Gen contains 2 measures of chemical A, 1 measure of chemical B, and 3

measures of chemical C. Each canister of solu-X costs K4,000, while each canister of

Phos-Pho-Gen costs K3,000.

The total revenue Simba Lawn-Care Services receives from an account is fixed by

contract; thus the company would like to perform the required services at a minimum

cost. Mr. Zimba, therefore, needs to know how to combine the two products, Solu-X and

Phos-Pho-Gen, to obtain a lawn treatment containing the required quantities of each

chemical. The chemical requirement per container of each of the two products, solu-X

and Phos-Pho-Gen, are given in the following table:

Minimum Amount

Chemicals Quantities of Chemical Per Required in Treatment

Required Container (Measures) (Measures)

Solu-X Phos-Pho-Gen

Chemical A 4 2 14

Chemical B 1 1 5

Chemical C 2 3 12

Cost of container K4 000 K3 000

ii) Determine the co-ordinates of the corner points of the feasible region.

iii) Find the optimal strategy by evaluating the objective function at each corner

point.

350

QUESTION FIVE

a batch of standard biscuits takes 20 kg of flour and 2 kg of butter, whereas a batch of

special biscuits requires 10 kg of flour and 5 kg of butter.

The firm makes a profit of K20,000 on a batch of standard biscuits and a profit of

K60,000 on a batch of special biscuits. The factory has at most 200 kg of flour and 40 kg

of butter available each day.

ii) Determine by graphical means how many batches standard biscuits and special

biscuits the factory should produce each day in order to maximize profit.

QUESTION SIX

Suppose that a company is planning production for a period of one week. It is making

two products, X and Y, each of which requires certain foundry, machinery, and finishing

capacity as shown in the following table:

X 6 hr/unit 3 hr/unit 4 hr/unit

Y 6 hr/unit 6 hr/unit 2 hr/unit

The following number of hours are available in each area during the week being planned.

Machining 300 hours

Finishing 240 hours

ii) Determine the coordinates of the corner points of the feasible region.

iii) State the objective function and determine how many units of each product should

be produced in order to achieve maximum profit, given that each unit of product

X produces a profit of K3,000 and each unit of product Y produces a profit of

K2,000.

351

7.4 INTRODUCTION TO DIFFERENTIAL CALCULUS

1. Introduction

and complex field of mathematics with applications in many different

fields. This manual concentrates only on simple differentiation and

integration which is likely to be relevant in accounting and business. The

rules for differentiation, its integration and its practical use in the finding

of the maximum and minimum values of functions or turning points on

curves are covered. Finally, the rules of integration are given.

NO, it is not especially when one follows:

ii) an understanding of some relevant applications.

the curves of certain business functions. For example, cost, revenue and

profit functions. The aim of any business is minimize cost and maximize

profit. If one is able to determine the production function of his or her

business, the level at which the maximum profit will occur can be

determined. Differentiation can also be used to find the “rate of change”

of cost or revenue functions. This rate of change is called marginal.

Hence the rate of change of the cost function is the marginal cost and that

of the revenue function is the marginal revenue etc.

find revenue or cost function from the marginal revenue or marginal cost

function respectively.

1) Simple Functions

The most commonly used functions in business are the linear and

quadratic functions. For example a simple linear function for total

cost might have the form:

output or activity, the independent variable and a and b are

constants, representing fixed cost and variable (or marginal) cost

respectively.

352

Such a function is shown in Figure 1.0.

represents the marginal cost

Costs

a = fixed cost

activities x

Figure 1

2) Quadratic Functions

function. This is of the form y = ax 2 + bx + c where y = total cost or revenue

etc, the dependent variable, x = output activity, the independent variable, a , b

and c are constants. ‘ a , b ’will form part of the variable cost and c is the fixed

cost.

a different one. The new function is known as the derivative of the original one.

353

Derivative of a Simple Function

The simple function y = Kx n (where K and n are any numbers) can be differentiated to

give the new function:

dy

= Knx n −1

dx

dy dy

where is read as “the Derivative of y with respect to x”. is also denoted

dx dx

by y′ . In particular,

dy

a) y = Kx, then =K

dx

dy

b) If y = K , then =0

dx

dy

If y = 8x 4 , then = 8(4) x 4 −1 = 32 x 3 ;

dx

dy

If y = 5x, then = 5(1) x1−1 = 5;

dx

dy

If y = 20, then =0

dx

Example 1

dy

a) If y = 25x 3 , then = 25(3) x 3−1 = 75 x 3

dx

dy

b) If y = −165x 7 , then = −165(7) x 7 −1 = −1155 x 6

dx

dy

c) If y = 9 x100 , then = 9(100) x100 −1 = 900 x 99

dx

354

Derivatives where the function is a sum and a difference

The Derivative of the sum of two (or more) simple functions is the sum of the separate

derivatives of the functions.

Example 2

dy

a) If y = 3 x 4 − 12 x 3 + x + 20, then = 12 x 3 − 36 x + 1 .

dx

7 1 dy

b) If y = 3 + − 3 x 2 + 5 = 7 x − 3 + x −1 − 3 x 2 + 5, then = 21x − 4 − x − 2 − 6 x .

x x dx

dy

c) If y = x 6 + 5 x 5 , then = 6 x 5 + 25 x 4 . .

dx

dy

If y = ( x 2 + 5 x)( x + 2), find .

dx

y − ( x 2 + 5 x) ( x + 2)

first second

dy d d

then = ( first ) (sec ond ) + (sec ond + ( first )

dx dx dx

d d

= ( x 2 + 5 x) ( x + 2) + ( x + 2) ( x 2 + 5 x )

dx dx

first second

Of second

= ( x 2 + 5 x)(1) + ( x + 2)(2 x + 5)

= x 2 + 14 x + 10

The derivative of the product of two functions is the first function times the derivative of

the second, plus the second function times the derivative of the first.

355

Example 3

dy

a) If y = (5 x 2 + 3)(6 x 4 + 7); then = (5 x 2 + 3)(24 x3 ) + (6 x 4 + 7)(10 x)

dx

= 180 x 5 + 72 x 3 + 70 x

1

dy 1 1 1

dx 2

3 72 1 5

= x + x 2 + 9 x 2 + 54 x 2

2

x+5 dy

If y = , find

x+2 dx

d d

deno min ator − numerator deno min ator )

d dx dx

(quotient ) =

dx (deno min ator ) 2

d d

( x + 5) − ( x + 5) ( x + 2)

dy

= ( x + 2) dx dx

dx ( x + 2) 2

( x + 2)(1) − ( x + 5)(1)

=

( x + 2) 2

x+2− x−5 −3

= = .

( x + 2) 2

( x + 2) 2

That is, the derivative of the quotient of two functions is the denominator times the

derivative of the numerator, minus the numerator times the derivative of the denominator,

all divided by the square of the denominator.

356

Example 4

d d

( x − 2) ( x + 3) − ( x + 3) ( x − 2)

x + 3 dy dx dx

a) If y = ; =

x − 2 dx ( x − 2) 2

dy −5

= .

dx ( x − 2) 2

d d

(8 x 2 − 5) (3 x) − 3 x (8 x 2 − 5)

3x dy dx dx

b) If y = ; =

3 x − 5 dx

2

(8 x − 5)

2 2

dy − 15 − 24 x 2

= .

dx (8 x 2 − 5) 2

differentiable function say u, i.e u = 2 x − 5 , the whole expression can be written as

y = U 4 . In such cases the rule for differentiation is

dy dy du

= × which is known as the chain rule. Thus to differentiate y = (2 x − 5) 4 . We

dx du dx

dy du

let u = 2 x − 5 then y = u 4 . And = 4u 3 and = 2.

du dx

dy dy

Therefore = 4u 3.2 = 8u 3 . But the original function is in x. Hence, = 8(2 x − 5)3 .

dx dx

357

Example 5

dy

a) If y = (2 − 5 x)3 find .

dx

dy dy du

= .

dx du dx

Let u = 2 − 5 x, then y = u 3

du dy

= −5 and = 3u 2

dx du

dy

Therefore = −5(3u ) = −15u 2 . We can write our answer in terms of x alone by

dx

replacing u by 2 − 5 x.

dy

= −15(2 − 5 x) 2 .

dx

dy 1

dx

dy dy du 1 1

= . = u 2 .(−2)

dx du dx 2

dy −1 1

= −u 2 = −(1 − 2 x) 2

dx

Differentiation can be repeated as many times as necessary on any given function. The

second derivative is important for the syllabuses covered by this manual as it is used to

determine whether a point is a maximum or minimum.

d2y

The second derivation of any function y is written as or y′′ and is obtained by

dx 2

differentiating a given function y twice.

358

Example 6

d2y

If y = 3x − 2 x + 5, find

2

a)

dx 2

d2y d

Then = ( 6 x − 2) = 6

dx 2 dx

d2y

b) If y = 5 x + 3 x + x − 6 x + 2, find

5 4 3

dx 2

d2y

Then 2

= 25 x 4 + 12 x 3 + 3 x 2 − 6

dx

d2y

= 100 x3 + 36 x 2 + 6 x

dx 2

Now that the idea of differentiation has been explained and the rules given for

differentiating common functions, it is time to look at practical examples.

Example 7

A firm has analyzed their operating conditions, prices and costs. The Cost Accountant

have developed the following functions.

units sold. The firm wishes to maximize profit and wishes to know

b) At what price

c) What will be the amount of profit?

359

a) Profit = Total revenue – Total Cost

= 350Q − 5Q 2 − (Q 2 + 20Q + 60)

= −6Q 2 + 330Q − 60.

d ( profit )

= 12Q + 330

dQ

d ( profit )

equaiting

dQ

to 0 implies − 12Q + 330 = 0

Q = 27.5

d 2 ( profit )

= −12 < 0 implies maximum profit when Q = 27.5 . Therefore

dQ 2

the firm should sell 27.5 units to maximize profit.

maximized when Marginal Revenue = Marginal Cost.

R = 350Q − 5 P 2

D( R)

MR = = 350 − 10Q

dQ

C = Q 2 + 20Q + 60

d (C )

MC = = 2Q+ 20

dQ

d ( R ) d (C )

MR = MC or =

dQ dQ

i.e 350 − 10Q = 2Q + 20

330 = 12Q

Q = 27.5

360

b) Total Revenue

= 350(27.5) − 5(27.5) 2

= 9625 − 3781.25

= 5843.75

5843.75

The price will be = K 212.50

27.5

= 756.25 + 550 + 60

= K1366.25

= K4 477.5.

Using differentiation techniques, turning points of curves can be identified using three

steps. We shall show this by means of an example.

Example 8

1 2

Suppose the function y = x − 2 x + 15 is a production function where y is the cost (in

4

million of kwachas) of manufacturing x (in hundreds) items for some process. The

procedure is as follows:

dy dy 1

Step 1 : Obtain for the given function = x−2

dx dx 2

361

dy

Step 2: Solve the equation = 0 , which will give the x-coordinates of any

dx

turning points that exists.

dy 1 1

Since = x − 2 the equation x − 2 = 0 needs to solved. x = 4.

dx 2 2

2

d y

Step 3: Evaluate at which (and any) x value found in Step 2.

dx 2

d2y

> 0 signifies a Minimum point;

dx 2

d2y

< 0 signifies a Maximum point

dx 2

dy 1 d2y 1

In our example, = x − 2, therefore 2 = .

dx 2 dx 2

1

Thus the turning point at x = 4 is a minimum since > 0. Hence, 400 items must be

2

manufactured in order to minimize total costs. The minimum total cost at this value of x

1

is y = (4) 2 − 2(4) + 15 = 4 − 8 + 15 = 11 (million kwacha).

4

Example 9

Determine the coordinates and nature of any turning points on the curve represented by

2 x3 2 x3

the function y = 18 x − . Solve y = 18 x − ,

3 3

dy d2y

= 18 − 2 x 2 and = 0 gives

dx dx 2

18 − 2 x 2 = 0

x2 = 9

x = ±3

2 3

The turning points exist on the curve y = 18 x − x at x = 3 and − 3.

3

362

d2y d2y

Note that when = −4 x and x = 3, 2 = −4(3) = −12 < 0 Signifying a maximum.

dx 2 dx

2

d y

When − −3, 2 = −4(−3) = 12 > 0, signifying a minimum.

dx

Substituting x = 3 into the original equation will give the y-coordinate of the maximum

2

as: y = 18(3) − (3)3 = 54 − 18 = 36. Hence, the maximum point for the curve is at

3

x = 3 and y = 36 or (3,36).

Similarly, substituting x = −3 into the original equation will give the y-coordinate of the

2

minimum as: y = 18(−3) − (−3)3 = −54 + 18 = −36 . Hence, the minimum point for the

3

curve is at x = −3 and y = −36 or (−3,−36).

Example 10

Find the rate of change of y = x 6 with respect to x and evaluate it when x = 2 and when

x = −1 . Interpret your results.

dy

= 6x 5

dx

dy

When x = 2, then = 6(2)5 = 192 . This means that if x increases by a small amount,

dx

then y increases approximately 192 times as much. More simply we say that y is

dy

increasing 192 time as fast as x decreases. When x = 1, then = 6(−1)5 = −6. The

dx

importance of the minus sign is that y is decreasing 6 times as fast as x increases.

Integration

For example, since differentiating 5 x 4 gives 20 x 3 , integrating 20x 3 should give 5 x 4 .

The problem occurs when differentiating a constant. This is because it always gives zero.

Example, 5 x 2 + 2; 5 x 2 − 3; 5 x 2 + 9 are the same function when differentiated with

respect to x . Hence the derivative is 10 x . Therefore, the best that can be done is to

363

integrate 10 x to give 5 x 2 + C , where C is some arbitrary constant. If conditions are

given about the function under integration, we can find the particular value of C.

x n +1

The rule for integrating a simple function x is ∫ x dx = n n

+ C where ∫ represents

n

‘the integral of’ and x is the variable of integration. Note that C is the constant of

integration.

Example 11

8 x 3+1 5 x1+1 8 5 5

∫ (8 x + 5x)dx = + + C = x 4 + x 2 + C = 2 x 4 + x 2 +C

3

a)

3 +1 1+1 4 2 2

7 2

∫ (7 x − 2 x + 5)dx = x − x 2 + 5 x +C

2

b)

3

c) ∫ (10 x + 2)dx = 5 x 2 + 2 x +C

1

3 5 32 3

d) ∫ ( 2 . 5 x 2

+

4

) dx =

3

x + x+C

4

dy

e) If = x + 5 and y = 5 when x = 0, find y in terms of x .

dx

dy

Now integrating will give y . That is, y = ∫ ( x + 5)dx = x 2 + 5 x +C. But

dx

y = 5 when x = 0. 0 2 + 5(0) +C= 5 giving C = 5. Thus y = x 2 + 5 x + 5.

364

Example 12

The total revenue obtained (in million of kwacha) from selling x hundred items in a

particular month is given by R which is a function of variable x .

dR

Given that = 50 − 2 x

dx

b) Find the number of items sold on one day that will maximize the total revenue

and evaluate this total revenue.

dR

∫ dx dx = ∫ (50 − 2 x)dx = 50 x − x +C

2

a) Revenue =

When no items are sold revenue will be zero. That is R = 50(0) − (0) 2 +C= 0

So that, R = 50 x − x 2 .

b) The value of x that maximizes revenue R is found by solving the equation

dR

= 0. That is 50 − 2 x = 0

dx

x = 25

d 2R

= −2 < 0

dx 2

confirms that when x = 25 , the total revenue is maximized. Hence 2 500 items

should be sold per month to maximize revenue. This maximum revenue is

R = 50(25) − (25) 2 = K 625 000 000.

365

Exercise 3

1) y=5 2) y = 5 + 3x 3) y = 3x 6

x5 + 5 x 2

4) f ( s ) = s ( s + 5)

3 3

5) f ( x) = 5 x 6) y=

3x

z2 +1

7) f ( z) =

z2 −1

Find the point of minimum cost.

cost when q = 50.

10) A process has a total cost function give by c = 50 + 10 x and a revenue function

given by R = 88 x − 8 x 2 , where x is the level of activity (in hundreds). The

cost(C) and revenue (R) are both in units of a million kwacha.

b) Calculate the level of activity that maximizes profit and the amount of

profit at this level.

366

EXAMINATION QUESTIONS WITH ANSWERS

SECTION A

6

1.1. The derivation of the function, f ( x) = − 5 x is equal to:

x2

−3

1

− 12 5 x 2 5

a) 6 x − 5x

2 2

b) + c) − 12 x −

x 2 2 x

12 5

d) 3

−

x 2 x

(Natech, Mathematics and Statistics; December 2000)

a) 17 b) 1 c) 27 d) -17

hours in thousands. How many labour hors maximize output?

1.4 The demand equation for a certain product is P ( x) = 500 − 0.0125 x where P (x)

is the price per unit, in kwacha and x is the quantity demanded. For what value of

x is revenue a maximum.

dy

1.5 What is of the following function? y = ( x 2 + 1) / x 3

dx

a) 2x 2 b) (−3 − x 2 ) c) ( −3 − x 2

3x x3 x4

d) − 3 x( x 2 + 1) + 2 x

(Natech, 1.2/B1 Mathematics and Statistics; December 1999 (Rescheduled))

367

3

3 1

3 2

A. 2( 2 x ) 2 B. 3 x ( x 2 − 4) 2 C. ( x − 4)

2

D. . None of these.

(Natech, 1.2 Mathematics and Statistics; December 1998)

dy

1.7 Find the differential coefficient, , of the following function y = (4 x 3 − 15 x 2 )8 .

dx

D. 8(12 x 2 − 30 x)(4 x 3 − 15 x 2 )7

1 5

3

−1 −1 3

dy 15 x 2 dy

A. = −6 x 2 − B. = −12 x 2 − 3 x 2

dx 2 dx

3

dy 1 5 −1

C. = −12 x( ) x 2 − 3( ) x 2 D. none of these

dx 2 2

average profit function is equal to:

20 x − 7 20 x 2 + 35

A. 20 x − 7 x B. C.

x x2

20 x 2 − 7 x − 35

D.

x

1.10 If f ( x) = (3 x + 2)( x − 1), then f ′( x) using the product rule, is equal to:

A. 3 x( x − 1) + 2( x − 1) B. 6x − 1 C. 3x 2 − x − 2

D. (3)(1)

368

SECTION B

1) Kango Pottery Ltd, a manufacturer of ornamental china plates estimates its profit

function to be P ( x) = 60 000 + 20 000 x − x 2 where x is the amount of money, in

kwacha, spent on advertising.

ii) What is the maximum profit?

2) Find the relative maximum and minimum values of the following function

f ( x) = − x 3 + 3x 2 + 9 x + 5

simplify your answer as much as possible.

particular week, the total cost function is 14 + 3 x and the total revenue

function is 19 x − 2 x 2 .

ii) Find the profit break-even points

iii) Calculate the level of demand that maximizes profits and the

amount of profit obtained.

4) Find the point(s) where the gradients of the following equations are zero.

i) y = 20 + 18 x − 3 x 2

ii) y = 2 x3 − 3 x 2 − 36 x + 72

(Natech, 1.2 Mathematics and Statistics; June 2002)

369

5) a) A company has examined its cost structure and its revenue structure and

has determined that the following functions approximately describe its

costs and revenues C = 100 + 0.015 x 2 , where C = total cost and x =

number of units produced. , where R = 2 x total revenue and x = number

of units produced and sold. Find, by calculus method, the output which

will maximize profits for this company.

b) If R( x) = 29 x − 6 x 2 − 15, find:

ii) the value of x, correct to nearest whole number, for which R(x) is

maximum.

6) a) The revenue and cost function of product x have been identified as:

ii) Compute the maximum profit based on the results in (i) above.

− x 2 + 20 x

i) y=

6x

ii) y = (4 x 2 − x + 10)5

1 3 2 3

7) a) Find the 1st derivative of the following T = t + t + t −1.

2 2

b) Find the points where the gradients of the following equations are zero.

y = 2 x3 − 3 x 2 − 36 x + 72

(Natech, 1.2 Mathematics and Statistics; December 2003)

370

8) a) In a certain office, examination and analysis of past records show that

there is a relationship between the number of clerks employed and the

average cost of processing an order for new business. If q is the number

1000 1

of clerks employed, average cost is given by C (q ) = + q

q 10

using the second derivation method y = x(12 − x) 2 .

5

9) Differentiate the function given by y =

3 x4 + 2

371

CHAPTER 8

SOLUTIONS

CHAPTER 1

Exercise 1

1) 30 2) 17 3) 22 4) 6 5) 105 6) 48

53 − 31

7) 19 8) -19 9) 10) 25 11) 12) 88

3 3

−7

13) 134 14) 15) 240

4

Exercise 2

2 6 2 3

1) a) b) c) d)

1 5 3 1

1

2) 3) 416 4) K336 000 5) K86 400

500

Exercise 3

5) 400km 6) 416 7) K712 500 8) $91

9) 15 hours 10) K6 000 000

Exercise 4

2

5) 2 days

7

372

Exercise 5

4) K2 765 000 5) £123.68 6) 1 SAR = K750

7) a) $111.11 b) K2362 500 c) K2 344 440

Exercise 6

1) 1500m 2) 0.55kg 3) 55.65kg 4) 513kg

5) 35cm 6) 45.6m 7) 0.135kilo litre 8) 902500m 2

9) 167cm 10) 25.02kg 11) 3735cm3

CHAPTER 2

Exercise 1

1) a) 4 b) 31 c) −9 d) − 12 e) − 12

f) 15 g) 5 h) − 15 .

Exercise 2

1) a) a11 b) a15 c) a5 d) a3 e) a3

a 36

f) 3−36 g) 3−24 h) − .

b 20

e) 12.1825 f) 145.413 g) 0.9802 h) 2.8629

Exercise 3

1) x = 2, y = 2 2) x = 8, y = 5 3) x = 2, y = 5

4) x=3y =4 5) q = 8, p = 5 6) x = 1, y = 2, z = 3

7) q = 5, p = 3 8) P1 = −59, P2 = 15, P3 = 56

373

27 7

9) x = 45, y = 50 10) x= ,y=

4 2

Multiple Choice

SECTION B

Solution One

3 2 + 3q

a) + =5

2q − 5 q

Multiply both sides by q (2q − 5)

3q + (2q − 5)(2 + 3q ) = 5q (2q − 5)

3q + 4q + 6q 2 − 10 − 15q − 10q 2 − 25q

6q 2 − 8q − 10 = 10q 2 − 25q

4q 2 − 17 q + 10 = 0

17 10

q2 − q+ =0

4 4

2

17 289 10

q − = −

8 64 4

2

17 129

q − =

8 64

17 129

q− =±

8 8

11.3578 + 17

q=±

8

q = 3.54 or 0.71

b) At equilibrium Ps = Pd and Qd = Qs

374

200 − 5Q = 92 + 4Q

− 9Q = −108

Q = 12

c) 3x − y + z = 5 → (1)

2 x + 2 y + 3z = 4 → ( 2)

x + 3 y − z = 11 → (3)

4 x + 2 y = 16 → ( 4)

Equation (2) and 3 × equation (3) to get equation (5) 5 x + 11 y = 37 .

Multiply equation (4) by –5 and equation (5) by 4 and add the two new equations

to get the value of y.

− 20 x − 10 y = −80

20 x + 44 y = 148

34 y = 68

y=2

4 x + 4 = 16

4 x = 12

x=3

z = 5 − 3(3) + 2 = −2 . x

Solution Two

i)

x 1 2 3 4 5 6 7 8

C = x2 + 2 x + 6 9 14 21 30 41 54 69 86

375

ii)

18 •

12 • C = x2 + 2 x + 6

6 •

0 1 2 3 4 5

iii) 25 = x 2 + 2 x + 6

x 2 + 2 x − 19 = 0

a = 1, b = 2, c = −19

− 2 ± 22 + 4(1)(19) − 2 ± 8.94

x= =

2 2

x = 3.472

x ≅ 347 tonnes

376

CHAPTER 3

Exercise 1

2) Score Tally Frequency

6 I 1

7 I 1

8 IIII IIII 10

9 IIII IIII IIII 14

10 IIII I 6

11 IIII 4

12 IIII 4

∑ f = 40

3)

30

26

22

18

Number

of stores 14

10

price (Kwacha/g)

377

4) 28

24

21

18

Number

of Accounts 15

12

price (Kwacha/g)

5)

200

150

Number

of people

100

50

0 2 5 8 11 14

378

Age (years)

f F

0 – 10 26 26

10 – 20 44 70

20 – 30 36 106

30 – 40 30 136

40 – 50 8 144

50 – 60 6 150

150

125 • •

•

100 •

Cumulative 75

frequency •

50

•

25

10 20 30 40 50 60 70

379

ii) “greater than” distribution

f F

0 – 10 26 150

10 – 20 44 124

20 – 30 36 80

30 – 40 30 44

40 – 50 8 14

50 – 60 6 6

150 •

125

100

Cumulative 75

frequency •

50

•

25 •

•

10 20 30 40 50 60 70

380

7)

others

Competitions

TV

Newspaper

Radio

150

TV × 360 = 207.69 ≅ 208o

260

30

Radio × 360 = 41.538 ≅ 42o

260

50

Newspaper × 360 = 69.23 ≅ 69o

260

20

Competitions × 360 = 27.69 ≅ 28o

260

10

Others × 360 = 13.846 ≅ 14o

260

381

8)

300

No. of

200

Employees

100

50

A B C D

Factory

9)

300

No. of

200

Employees

100

50

X Y Z W

Factory

382

1000

900

700

600

Frequency 500

400

300

200

100

Companies

Company X

Company Y

Company Z

Exercise 2

1) a) 592.5 b) 9.083 c) 14.6 d) 8

e) −8.8

e) 45.894

3) K345 833.33

4) i) 9.681 ii) 1.55 iii) 1.2

383

5) i) 1 ii) 1

ii) a) 241.216 b) 21.071 c) 21.667

e) mode f) mode

Exercise 3

4) a) 64 b) 35 c) 30 d) 17

e) 50 f) 16.5 g) 98.163 h) 0.061

6) Year 1

Year 2

There is less variability in the number of rooms per dwelling in Zambia in the

second year than the first year.

384

EXAMINATION QUESTIONS WITH ANSWERS

1.7 B 1.8 C 1.9 C 1.10 C

SECTION B

Solution One

Since n = 8 , and

1

position (8) = 2; Q1 = 4

4

3

position (2) = 6; Q3 = 11

4

11 − 4 7

∴ QD = = = 2 .5

2 2

59.3

b) Congo DR = × 360o = 136o

156.9

61.6

Congo Brazaville = × 360o = 141o

156.9

15.8

Tanzania = × 360o = 36o

156.9

10.3

Kenya = × 360o = 24o

156.9

9 .9

Zambia = × 360o = 23o

156.9

385

Zambia

23

Kenya

24

Congo DR

36 136

Tanzania

141

Congo Brazaville

Solution Two

a) For category x

x − midpo int f xf x2 f

6.95 3 20.85 144.9075

10.95 5 54.75 5.995125

14.95 7 104.65 1564.5175

18.95 6 113.7 2154.615

22.95 3 68.85 1580.1075

26.95 1 26.95 726.3025

∑f = 25 ∑ xf = 389.75 ∑x 2

f = 6769.9625

386

Thus, the standard deviation is

( fx )

∑ x f − ∑f

2

2

S=

f

6769.9625 −

(389.75)2

S= 25

25

For category y,

x − midpo int f xf x2 f

6.95 4 27.8 193.21

10.95 8 87.6 959.22

14.95 8 119.6 1788.02

18.95 3 56.85 1077.3075

22.95 3 68.85 1580.1075

26.95 4 107.8 2905.21

∑f = 30 ∑ xf = 468.5 ∑x 2

f = 8503.075

387

( fx )

∑ x f − ∑f

2

2

S=

f

8503.075 −

(468.5)

2

= 30

30

= 39.5556

≅ 6.29

b)

Complaints per week (x) Number of weeks (f) Cumulative frequency (F)

0 5 5

1 12 17

2 7 24

3 2 26

4 1 27

1

Position of the median is given by (27) = 13.5

2

The 1.5th observation will be found where cumulative frequency is 17. hence, the

median is 1.

c)

f x fx f x−x

*0 – 100 3 50 150 960

100 – 200 6 150 900 1320

200 – 300 11 250 2750 1320

300 – 400 15 350 5250 300

400 – 500 12 450 5400 960

500 – 600 7 550 3850 1260

600 – 700* 6 650 3900 1680

∑f = 60 ∑ fx = 22200 ∑ x − x = 7800

388

x=

∑ fx = 22200 = 370

∑f 60

Mean deviation =

∑ f x−x

∑f

7800

= = 130

60

Solution Three

x f xf x2 f

32.5 22 715 23237.50

37.5 27 1012.5 37968.75

42.5 21 892.5 37931.25

47.5 31 1472.5 69943.75

52.5 21 1102.5 57881.25

57.5 18 1035 59512.50

∑f = 140 ∑ xf = 6230 ∑x 2

f = 286475

i) Mean =

∑ xf =

6230

= 44.5

∑f 140

389

(∑ xf ) 2

∑x f −

2

σ = ∑f

∑ f −1

286475 −

(6230 )

2

= 140

139

= 66.475 ≅ 8.15

iii) Since the data is grouped, and thus the original access times are not known, both

the measures above are estimates, i.e. approximations of the actual values.

Solution Four

35 – 39 l 1

40 – 44 IIII lll 8

45 – 49 IIII IIII I 11

50 – 54 III 3

55 – 59 II 2

60 – 64 II 2

65 – 69 II 2

70 – 74 1 1

30

390

Solution Five

English History

44 × 152 + 26 × 192

= 668.8 + 499.2

= 1168

Therefore, mean class size of college

1168

= = 16.6857 = 16.7

70

ii) From the frequency distribution it is found that 4 classes were of size 1 – 6

students and 15 + 3 classes were of size 7 – 12 students. Therefore, a total of 22

classes would not be run. Thus, 70 – 22 = 48 classes will remain. The 1168

students would, therefore, be distributed over 48 classes, giving a mean class size

1168

of = 24.3

48

iii) Given that the students attending classes of size 1 – 6 and 7 – 12 are not admitted,

the mean class size of the college can be calculated from the modified frequency.

13 – 18 15.5 21 325.5

19 – 24 21.5 16 344.0

25 – 30 27.5 9 247.5

31−36 33.5 2 67.0

48 984

Therefore, mean =

∑ fx = 984

∑ f 48

= 20.5

391

Solution Six

a)

Freq

150

100

50

Mode = 26.7

0 10 20 30 40 value

b) i)

x f fx x2 f

5 16 80 400

15 30 450 6750

25 34 850 21250

35 22 770 26950

45 10 450 20250

60 5 300 18000

80 3 240 19200

∑f = 120 ∑ xf = 3140 ∑ fx 2

= 112800

3140

x= = K 26.167 m

120

112800

σ = − (26.107) 2

120

σ = K15.978m.

392

ii) The mean salary five years ago was K18.95m whereas toady this has increased to

K20,166m, unfortunately, the variation around the mean has also increased from

K10.6m to K15.978m, clearly indicating increased variability in salary.

Solution Seven

IQ No. of x xf x2 f f x−x

children Mid

(f ) point

50 – 59 1 54.5 54.5 297.25 44.6

60 – 69 2 64.5 129.0 8320.5 69.2

70 – 79 8 74.5 596.0 44402.0 196.8

80 – 89 18 84.5 1521.0 128524.5 262.8

90 – 99 23 94.5 2173.5 205395.75 105.8

100 – 109 21 104.5 2194.5 229325.25 113.4

110 – 119 15 114.5 1717.5 196653.75 231.0

120 – 129 9 124,5 1120.5 139502.25 228.6

130 – 139 3 134.5 403.5 54270.75 106.2

∑f = 100 ∑ xf = 9910 ∑x 2

f = 1009365 ∑f x − x = 1358.4

9910

i) x= = 99.1

100

Mean deviation =

∑ f x−x

∑f

1358.4

= = 13.584

100

ii)

393

( xf )

∑ x f − ∑f

2

2

σ =

f

1009365 −

(9910)2

= 100

100

σ = 2772.84 = 16.52

c) The standard deviation is greater than the mean deviation. This is because the

standard deviation gives more prominence to extreme values. The mean

deviation, on the other hand gives equal weight to extreme items and items whose

deviation from the mean is small, so that the existence of several extreme items is

not adequately reflected.

Solution Eight

100 000 165 16500 000

150 000 190 28500 000

200 000 105 21000 000

250 000 92 23000 000

i) Mean = x =

∑ xf =

89 000 000

∑f 552

K161 231.88

ii) The modal value per order K150 since it has the highest frequency.

b)

x f fx x2 f

394

0 23 0 0

1 14 14 14

2 3 6 12

3 2 6 18

4 or more 0 0 0

∑f = 42 ∑ xf = 26 ∑x 2

f = 44

i) Mean =

∑ xf =

26

= 0.619

∑f 42

ii)

(∑ xf ) 2

∑x f − 2

σ2 = ∑f

∑f

44 −

(26)2

= 42

42

27.9047619

=

42

= 0.664

c)

x f xf x2 f

4-5 4.5 3 13.5 60.75

5- 6 5.5 7 38.5 211.75

6.7 6.5 2 13.0 84.50

7- 8 7.5 4 30.0 225.0

8- 9 8.5 6 51.0 435.5

9- 10 9.5 10 95.0 902.5

10 - 11 10.5 8 84.0 882.0

11- 12 11.5 4 46.0 529.0

12- 13 12.5 0 0 0

395

13 – 14 13.5 8 108 1458.0

∑f = 52 ∑ xf = 479 ∑x 2

f = 4787

i) Arithmetic mean = x =

∑ xf =

479

= 9.212

∑f 52

ii) Modal sales = 9.5

(∑ fx ) 2

∑x f − f

2

4787 −

(479) 2

=

∑ = 52

∑ 1 f − 51

S = 7.34653092

= 2.71

(mean − median)

iv) SK = 3

S

(9.212 − 9.5)

=3

2.71

≅ 0.106

CHAPTER 4

Exercise 1

1. a) 0.14 b) 0.06 c) 0.30

2. a) 0.16 b) 0.58 c) 0.3913

d) not independent

1 1

3. 4.

221 12

396

5. a) 0.2975 b) 0.2479 c) 0.4959

d) 0.5041

6. a) 0.2097 b) 0.0000128

Exercise 2

ii) a 7 − 7 a 6 + 21a 5b 2 − 35a 4b3 + 35a 3b 4 − 21a 2b5 + 7 ab 6 − b 7

iii) 81a 4 − 180a 3b + 1350a 2b 2 − 1500ab3 + 625b 4

iv) 32 s 5 − 80 s 4t + 80 s 3t − 40 s 2t 3 + 10 st 4 − t

v) 64 x18 − 192 x15 y 2 + 240 x12 y 4 − 160 x 9 y 6 + 60 x 6 y 8 − 12 x 3 y10 + y12 .

ii) 256r 4 + 1280r 3 s + 2400r 2 s 2 + 2000rs 3 + 625s 4

iii) 1 − 3x + 3 x 2 − x3

iv) 3125a 5 + 6250a 4b 3 + 5000a 3b 6 + 2000a 2b9 + 80ab12 + 32b15

81 54 3

v) 4

+ + 27c 2 + 9c 5 + c8

c c 2

e) 0.13824 f) 0.95904

6. a) 0.0000759 b) 0.9999

P(4) = 0.033, P(5) = 0.0044, P(6) = 0.0002

12. 0.9972

397

Exercise 3

e) 0.44

b) 55 ± 46.2

6. a) 0.492 b) 0.1685

EXAMINATION QUESTIONS

1.7 C 1.8 B 1.9 A 1.10 A

1.7 A 1.8 B 1.9 C 1.10 C 1.11 D 1.12 A

SECTION B (1)

Solution One

a) µ = 150, σ ≅ 100

Let X be the normal random variable standing for the number of items

398

170 − 150)

P ( X > 170) = P ( Z <

10

= P ( Z < 2)

= 0.5 + 4772

= 0.9772

of defectives is 0.02(400) = 80 defectives.

combination there is no attention given to the order of arrangement.

n!

ii) n

Cx =

(n − x)! x!

7!

7C5 =

(7 − 5)!5!

7(6)5!

=

2!5!

= 21 ways

Solution Two

a) Let X be the duration (days) required to shift operations completely from Mongu

to Lusaka.

Then X is approximately normally distributed with mean 300 days and standard

deviation 9 days.

399

280 − 300

i) P ( X < 280) = P Z <

9

=P ( Z < −2.22)

= 0.014

310 − 300

ii) P ( X > 310) = P Z >

9

=P ( Z > 1.11)

= 0.134

iii) P (280 < X < 310) = P <Z<

9 9

=P (−2.22 < Z <1.11)

= 0.853

X is poisson with λ = 4 orders

45 e −4

P ( X = 5) =

5!

= 0.156

≅ 0.16

P = 0 .3

P (at least 3 rejected ) = P ( X ≥ 3)

= 1 − [P ( X = 0) +P ( X = 1)+P ( X = 2)]

= 1 − (0.0576 + 0.1976 + 0.2965)

= 0.4483

≅ 0.45

c) This is a binomial question and we let P be the probability that the drug is

effective, i.e. P = 0.55, q = 0.45 and n = 6. And x the number of patients.

6 6

i) P ( x ≥ 5) = (0.55) 5 (0.45) + (0.55)6

5 6

= 0.1359 + 0.02768

400

= 0.16358

6

ii) P ( x = 0) = (0.45)

0

= 0.45

6 6

iii) P ( x = 1 or 3 = (0.55) (0.45) 5 + (0.55)3 (.45)3

1 3

= 0.06105 + 0.30318

= 0.3642

Solution Three

7.985 − 8 8.035 − 8

a) i) P <Z<

0.02 0.02

P (−0.75 < Z < 1.75)

0.2734 + 0.4599

= 0.7333

= 0.2667.

ii) 50% area under the normal curve minus 2% = 48% = 0.48 the Z value is

2.05

X −µ 8.035 − µ

Z= , i.e. 2.05 =

σ 0.02

= 7.994

b)

Defective 0.03 0.05 0.08

Non Defective 0.52 0.40 0.92

.55 .45 1.00

401

P( D / A) P( A)

P( A / D) =

P( D / A) P ( A) + P( D / B) P( B)

(0.03)(.55)

=

0.03(.55) + (0.05)(.45)

0.0165

=

0.0165 + 0.0225

0.0165

=

0.039

= 0.423

P = 0.08, q = 0.2 and n = 10.

P ( X ≤ 2) = P ( X = 0) + P ( X = 1)+P ( X = 2)

= C0 (0.8)0 (0.2)10 + 10C1 (0.8)1 (0.2)9 +10C2 (0.8) 2 (0.2)8

10

= 0.960

Solution Four

be a binomial r.v Then

402

ii) P ( X ≥ 1) = 1 − P (none) = 1 − 0.07776 = 0.92224

iii) P ( X ≤ 2)=P ( X = 0) + P ( X = 1) + P ( X = 2)

= 5C0 (0.4)0 (0.6)5 + 5C1 (0.4)1 (0.6) 4 + 5C2 (0.4) 2 (0.6)3

= 0.07776 + 0.2592 + 0.3456

= 0.68256

b) µ = 190, σ = 20

Let X be a normal r.V with

160 − 190

i) P ( X < 160) = P Z <

20

= P ( Z < −1.5)

= 0.5000 − 0.4332

= 0.0668

-1.5

210 − 190

ii) P ( X > 210) =P Z >

20

= P ( Z > 1)

= 0.5 − 0.3413

= 0.1587

403

The required number of journeys = 150 (0.1587)

= 23.805 ≅ 24

215 − 190

P ( X < 215 = P Z <

20

= P ( Z < 1.25)

= .5 + .3944

= 0.8944

1.25

λx e − λ

c) P(r ) =

r!

1.20 e −1.2

P ( 0) = = 0.3012

0!

1.21 e −1.2

P (1) = = 1.2(0.3012) = 0.3614

1!

1.2 2 e −1.2

P (2) = = 0.72(0.3012) = 0.2169

2!

1.23 e −1.2

P (3) = = 0.288(0.3012) = 0.0867

3!

1.2 4 e −1.2

P (4) = = 0.0864(0.3012) = 0.0260

4!

404

1.25 e −1.2

P (5) = = 0.020736(0.3012) = 0.0062

5!

1.26 e −1.2

P ( 6) = = 0.0041472(0.3012) = 0.0012

6!

1.27 e −1.2

P (7 ) = = (0.0007109)(0.3012) = 0.0002

7!

Solution Five

a) Using a tree diagram, where D stands for defective and G not defective

0.45(0.95) = 0.4275

P (New) = 0.55

0.5335

P(G) = 0.97 0.55(0.97) =

1.0000

Figure 1.0

405

P ( D) = 0..0225 + 0.0165 = 0.039

P (old ∩ D) 0.0225

P (old / D) = = = 0.5769.

P( D) 0.039

normal r.v, then ;

22 − 18

i) P ( X ≥ 22) = P Z ≥ = P ( Z > 0.62) = 0.2676

6.45

24 − 18

ii) P ( X ≤ 24) = P Z ≤ = P ( Z ≤ 0.93) = 0.5 + 0.2238 = 0.7238

6.45

1 3

c) This is a binomial distribution problem with n = 8, P=

and q = . Let X

4 4

be a binomial random variable i.e. standing for the number of errors.

i) P ( X > 2) = 1 − P ( X ≤ 2)

= 1 − [P ( X = 0)+P ( X = 1) + P ( X = 2)]

8 1 0 3 8 8 1 1 3 7 8 1 2 3 6

= 1 − C0 + C1 + C2

4 4 4 4 4 4

= 0.3214

ii) P ( X < 2) = P ( X = 0) + P ( X = 1)

= 0.1001 + 0.267

= 0.3671

Solution Six

a) 10R

9

5W P( R) =

14

406

90

P ( RR ) =

210

10 5

P( R) = P (W ) =

15 14

50

P ( RW ) =

210

10 50

P( R) = P (WR ) =

14 210

5

P (W ) =

15

4 20

P (W ) = P (WW ) =

14 210

50 50 100 10

The required probability is P ( RW )+ P (WR )= + = =

210 210 210 21

with λ = np = 0.02(140) = 2.8.

λx e − λ

P ( X = x) = , where x = 0,1,2,... where x is a Poisson r.v.

x!

(2.8) 2 e −2.8

i) P ( X = 2) = = 0.2384

2!

ii) P ( X < 2) = P ( X = 0) + P ( X = 1)

407

(2.8)0 e −2.8 (2.8)e −2.8

= +

0! 1!

= 0.0608 + 0.1703

= 0.2311

c) i) x=

∑ xf =

0 + 18 + 70 + 141 + 188 + 190 + 150 +98+ 56+ 27 + 10 + 11

∑f 240

959

=

240

≅4

λx e − λ

ii) P( X = x) = , where x = 0, 1, 2...

x!

4 e −4

P ( 0) = = 0.0183

0!

4e −4

P (1) = = 4(0.0183) = 0.0732

1!

4 2 e −4

P ( 2) = = 2(0.0183) = 0.0366

2!

43 e −4

P (3) = = 0.1952

3!

4 4 e −4

P ( 4) = = 0.3904

4!

4 5 e −4

P (5) = = 0.1562

5!

4 6 e −4

P ( 6) = = 0.1042

6!

4 7 e −4

P ( 7) = = 0.0595

7!

48 e −4

P (8) = = 0.0297

8!

49 e −4

P (9) = = 0.0132

9!

408

410 e −4

P (10) = = 0.0053

10!

411 e −4

P (11) = = 0.0192

11!

Exercise 4

1. K492,299.43 to K507,700.57

2. 91.31 to 96.69

3. 0.42 to 0.62

5. n = 280

6. n = 267

7. 106.57 to 133.43

8. 214.37 to 249.63

Exercise 5

7. tc = −0.6097; Accept H o

Exercise 6

409

3. Z c = −25.116; Re ject H o 4. Z c = −2.45; Re ject H o

5. Z c = 2.04; Re ject H o

SECTION B

Solution One

σ 100

Standard error, s.e of x = =

n 150

(X − µ ) = 1850 − 1800 = 3.54

σX 100

50

Z c = 3.54 > 2.33.

conclude that the claim is justified.

410

1310 − 1250

The test statistic: Z= = 1.62

185

25

We use a one tailed test since we are only interested in improved results. Z is not

significant at the 5% level. Thus, the statistical evidence as has been produced is

not convincing enough that the new material is producing stronger struts.

Solution Two

the sample mean may be used as a point estimate of the population mean. While

an interval estimate is a range within which we can be confident at a given level

of probability that the value of the population parameter lies. Example, the

average height of a male NATech student is 1.76m is a point estimate while the

average height of a male NATech student lies between 1.5 to 2.1 metres is an

interval estimate.

programmes through ZACB hour

185

P = sample proportion = 0.37

500

(0.37 − 1.96 )

0.37(0.63) 0.37(0.63)

0.37 − 1.96 ,0.37 + 1.96

500 500

(0.37 − 1.96(0.02159),0.37 + 1.96(0.02159)

(0.328, 0.412)

come to know about the institute’s programmes lies between 3.2% and

41.2%

411

Z α2 Pq

n= 2

d2

n=

(1.96 ) (0.37 )(0.63)

2

(0.01)2

n = 8954.7696

≅ 8955 students

Solution Three

σx

X ± ZZ

2 n

168.75 ± 2.58

(7.5)

100

168.75 ± 1.935

(166.815, 170.685). There is a 99% probability that the mean height of all

students is between 166.8 and 170.7cm.

α 0.05

ii ) σ = 0.05, error = d < 0.01, 1 − α = 0.95, = = 0.025

2 2

Z σ = Z.005 = 1.95

2

Zασ

d> Z

n

0.01 >

(1.96) (0.05)

n

n>

(1.96) (0.05)

0.01

(1.96 )(0.05)

2

n>

0.01

n > 96.04

n ≅ 97.

412

1 − α = 0.99 t0.005,9 = 3.25

σX

X ± tα

, n −1 n

2

0.06

4.38 ± 3.25

10

3.25(0.06 )

4.38 ±

3.16

4.38 ± 0.06

(4.32, 4.44)

H o : µ = 42,000

H a : µ > 42,000 t0.01, 6 = 3.143

tc = = = = 4.41

s 4500 1700.84

n 7

Reject H o if tc > 3.143. Therefore, we reject H o since 4.41 > 3.143. We can

conclude that there has been a significant increase in the weekly turnover.

d) H o : µ = K1,032,000

H a : µ ≠ K1,032,000

n = 6, ∑x 2

= 1.22223226 × 1013 , ∑ x = 6971400

x = 1161900, = 907992.6145

X − µ 1161900 − 1032000 129900

tc = = = = 0.35

S 907992.61 370686.4308

n 6

Accept H o and conclude that there is sufficient evidence to say that the mean

bank balance is K1,032,000.

413

Solution Four

σ

x ± Zα

2 n

130

20 > 1.48

n

1.48(130 )

n>

20

n > (9.62 )

2

n > 92.544

n > 93

ii) If n, the sample size, is too large it can be reduced by either increasing the

allowed error or decreasing the confidence interval or both.

want to detect when µ < 3.0. So that the null and alternative hypotheses

are:

ii) You wish to detect a situation leading to a profit when it occurs. Thus, the

null and alternative hypotheses are:

c) Matched pairs

Ho : µ A − µB = 0

Ha : µ A − µB < 0

Where µ B and µ A are the average scores before and after the course

respectively. Hence we compute the differences.

414

Student d d

1 -26 676

2 -6 36

3 0 0

4 16 256

5 1 1

6 -22 484

7 -26 676

8 1 1

9 2 4

10 15 225

11 9 81

∑ d = −32 ∑ d = 2440

2

Solution Five

they want to detect the decline if it has occurred. Hence, we have

H o : µ = 98

H1 : µ < 98

ii) In this situation, you would be more interested in whether or not your sales

are leading to a financial disaster, and if it is true, you want to detect that.

Hence, the hypotheses are:

H o : µ = 20

H1 : µ < 20

iii) Since, the process is out of control if and only if the mean diameter of the

machine bearings is different from 1.27cm, the hypotheses are:

H o : µ = 1.27

H1 : µ ≠ 1.27

415

d=

∑d =

− 32

= −2.91

n 11

(∑ d ) 2

(− 32)2

∑d − n

2

2440 −

11

Sd = =

n −1 10

= 15.32

d − 2.91

tc = = = −0.62999

Sd 15.32

n 11

accept H o . There is no sufficient evidence at the 5% level of significance to

conclude that the course has produced some learning.

Solution Six

= = = 0.80

Number sampled n 2000

The alternative hypothesis, H a : µ ≠ 200

Zc = = = = 2.19

σ 16 1 .6

n 100

Reject H o if Z o > Z 0.005 = 2.58 or Z c < −2.58. Hence accept H o

416

H o : µ = 5 .6

c)

H a : µ ≠ 5 .6

x−µ 5 − 5 .6

Zc = = = −2.35

σ 1 .4

n 30

improvement.

Exercise 7

a)

y

16

14

12

10

8 •

•

6 •

•

4 •

•

2 •

0

x

1 2 3 4 5 6 7 8 9 10 11 12 14 16

417

b) y

10

5 •

2 •

2 6 8 10 12 14 16 18 20 22 24 26 x

c)

x y x y

2 2 10 6

5 3 11 8

6 4 13 9

8 5 16 10

14 14 50 33

Total means x = 3.5 y = 3 .5 x = 12.5 y = 8.25

418

y

10

9 •

8

7

6

5

4

3 •

2

1

1 2 3 4 5 6 7 8 9 10 12 13 x

2.

a)

Sales

14

12 •

•

10 • •

•

8 •

419

b)

K’000s K’ms

230

280

310

350

400

430

∑ x = 2000 , ∑ y = 65.7

∑ x = 694800

2

, ∑ y = 722.43

2

∑ xy = 22093 , n=6

^ ^

y = 530 , y = 12.30 i.e K 12,300,000

^

3. y = 0.238 + 0.714 x

4.

a)

Communication

(y)

100

•

•

•

75 •

• •

• •

50

25

(x)

25 50 75 100 Mathematics

420

^

b) y = 13.16 + 0.696 x

^

Where x is mathematics and y = Communication.

^

c) y = 13.16 + 0.696(85) = 72.32 ≅ 72

65 = 13.16 + 0.696 x

d)

x = 74.48 ≅ 75.

5. a)

16

•

14 •

•

•

Birth 12 •

Rate •

10 •

Year

421

b)

1999 1 14.6

2000 2 14.5

2001 3 13.8

2002 4 13.4

2003 5 13.6

2004 6 12.8

2005 7 12.6

∑ x = 28 ∑ y = 225.8

∑x 2

= 140 ∑ xy = n=7

∑y 2

= 22115.72

^

y = 70.914 − 9.664 x

^

c) x = 11,

Exercise 8

1. a) r = 1 b) r = −1 c) r = 0.055

2. r = 0.987 3. r = 0.714

4. a) r = 0.754 b) r = 0.741

indictor for the price of company’s share.

422

EXAMINATION QUESTIONS WITH ANSWERS.

SECTION B

Solution One

n∑ xy − ∑ x∑ y

r=

[n∑ y 2

][

− (∑ y ) n∑ x 2 − (∑ x )

2 2

]

Where

= 17986 ∑y 2

= 10366, n = 11

11(13467 ) − 440(330 )

r= = 0.63

[11(10366) − (330) ] [11(117986) − (440) ]

2 2

b)

∑x = 3 ∑ y = 380

∑ x = 1 .1

2

∑ y = 17548

2

n = 10 ∑ xy = 137.4

The required equation is

^

y = 2.9 + 117 x.

423

c) Note: Profits depend on the amount spent on advertising therefore it is the

dependent variable X . Advertising expenditure is the independent variable X .

variables.

n ∑ xy − ∑ x∑ y

r=

[n∑ y 2

− (∑ y )

2

] [n∑ x 2

− (∑ x )

2

]

n = 6, ∑y 2

= 1142.87, ∑ y = 82.3, ∑ x 2

= 2.5819,

∑ x = 3.91, ∑ xy = 54.278

6(54.278) − (82.3) (3.91)

r=

[6(1142.87) − (82.3) ] [6(2.5819) − (3.91) ]

2 2

^

ii) y = 1.296 + 19.061x

∴ y = 1.296 + 19.06(0.8) = 16.5448

^

^

y = K16,544,800.

424

Solution Two

between the dependant variable and explanatory variable, e.g., in the

simple linear regression model,

y = a + bx;

a and b are the regression coefficients. b is the slope which indicates the

amount by which y changes for a given unit change in the value of x and

a is the intercept which indicates the value of y when x = 0.

assumed to cause the dependent variable to change. I.e., in the model

y = a + bx, the explanatory variable is x.

= 608580.

y = 398.06 − 1.28 x

Total imports – 78,060 tonnes

relationship between price and imports. The higher the price of apples, the

less the number of apples bought.

Solution Three

a)

x y log10 x log10 y

18 62 1.16 1.79

27 48 1.43 1.68

36 37 1.56 1.57

45 31 1.65 1.49

54 27 1.37 1.43

72 22 11.86 1.34

90 18 1.95 1.26

425

b) Let x = log10 x and y = log10 y

∑ x = 11&.44 ∑ y = 10.56 ∑ x 2

= 19.0436 ∑y 2

= 16.1396 ∑ xy = 16.989

B = −0.775 and A = 2.775

A is the log of a, so

log10 a = 2.775

a = 10 2.775

= 595 662 143.50

y = 595 662 143.50 x −0.775

y = 595 662 143.50(64 800 000) −0.775

x = 526.05% to 2 decimal places.

Solution Four

x y xy x2 y2

0 20 0 0 400

1 18 18 1 324

2 15 30 4 225

3 14 42 9 196

4 11 44 16 121

∑ x = 10 ∑ y = 78 ∑ xy = 134 ∑ x = 30 ∑ y = 1266

2

n=5

n∑ xy − ∑ x ∑ y

r=

[n∑ x 2

][

− (∑ x ) n∑ y 2 − (∑ y )

2 2

]

5(134) − 10(78)

=

[5(30) − (10) ][5(1266) − (7) ]

2 2

= −0.992

426

ii) There is an extremely strong negative correlation between the year of sale

and units sold. The value of r is close to –1, therefore a high degree of

correlation exists. This means that there is a clear downward trend in

sales.

iii) Since r = −0.992, then r 2 = 0.98. That is 98% of the changes in sales can

be explained by the charge in the number of years. 2% of the changes are

unexplained.

y = 20 − 2.2(5) = 9, i.e. 9000 units.

6∑ d 2

ii) r = 1−

n(n 2 − 1)

6(72.50)

r = 1− = 0.7465

12(144 − 1)

∑ x = 78, ∑ y = 11.18, ∑x 2

= 1018.5, ∑y 2

= 20.8378,

∑ xy = 145.49

r = 0.9339.

ii)

x y xr yr d d2

14.0 1.90 1.5 2 -0.5 0.25

14.0 1.91 1.5 1 0.5 0.25

13.5 1.86 3 3 0 0

12.5 1.84 4 4.5 -0.5 0.25

12.0 1.84 5.5 1 1 1

12.0 1.83 5.5 -0.5 -0.5 0.25

∑d2 = 2

427

6∑ d 2 6( 2)

rs = 1 − = 1− = 0.9429.

n(n − 1)

2

6(36 − 1)

Solution Five

Let TC = Total cost and Q = Units produced.

a) TC = 444.44 + 14.07Q

TC is in thousands

n∑ xy − ∑ x ∑ y

r=

[n∑ y ][ ]

c)

− (∑ y ) n ∑ x 2 − (∑ x )

2 2 2

∑x 2

= 26 550 ∑ y = 2800

∑ xy = 187 000.

Thus, we would expect about 19 defective surgical needles in a box inspected by

a worker with 6 weeks worth of experience.

Solution Six

= 732,∑ y 2 = 2156,∑ xy = 1069.

weeks experience and number of rejections.

yˆ1 = 24.892 − 0.988(1) = 23.904

428

b) i) Correlation is to do with the strength of the relationship between two or

more quantities such that a change in one of the quantities is accompanied

by a predictable charge in the other. Regression is to do with describing

mathematically the relationship between two or more quantities.

6∑ d 2 6(12 )

r = 1− =1 = 0.86

ii)

(

n n −1

2

) 8(64 − 1)

There is a strong, positive linear correlation between writing and reading ranks.

c) ∑ x = 36, ∑ y = 5088, ∑ x 2

= 204, ∑ xy = 24895

Solution Seven

6(10)

a) i) r = 1− = 0.822

7(99 − 1)

an increase in quality, the price goes up.

Solution Eight

n ∑ xy − ∑ x∑ y

r=

[n∑ y 2

][

− (∑ y ) 2 n ∑ x 2 − (∑ x )

2

]

8(1069) − 72(128)

r=

[8(732) − (72) ][8(2156) − (128) ]

2 2

− 664

=

(672)(864)

= 0.8714

and the number of weeks worth of experience.

c) x = 6 in the model in (c), we have y = 24.89 − 0.988(6) = 18.962.

429

430

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