Sie sind auf Seite 1von 430

CHAPTER 1

ARITHMETIC

This Chapter provides the students with general awareness and understanding of basic
arithmetic used in the daily transactions.

The Chapter looks at:

• Operations on rational and real numbers


• Proportions
• Foreign currency conversion
• Weights and measures.

Pre – reading

Knowledge of O-level Mathematics is required.

1.0 Introduction

1.1 Operations On Rational And Real Numbers

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

A rational number can be defined as a terminating or repeating decimal.

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

Some of the examples of irrational numbers are:

1
= 0.142857142. . .
7
1
= 0.076923076 . . . non repeating decimals
13
1
= 0.058823529 . . .
17

Other examples are:

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.

{1, 2, 3, 4 . . . } Natural numbers, counting numbers, positive integers.

{0, 1, 2, 3, . . . } Whole numbers, nonnegative integers

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

{. . . , − 3, − 2, − 1, } Non positive 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.

Sequence of Arithmetical Operations

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

2) Multiplication and division must be done before addition and subtraction.


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

Evaluate the following expressions

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

11) 5 × 3 + 8 ÷ 2 − 3 × 7 − 25 ÷ 3 ` 12) (5 + 3)(9 + 2)

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

A ratio is a comparison between two similar quantities. If the length of a certain


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

Express the ratio 50n to K4 000 in its simplest form.


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

Divide K5.5m into two parts in the ration 3:7.


Total number of parts = 3 + 7 = 10

5 500 000
Amount of each part = = K 550 000
10

Amount of the first part = 3 × 550 000 = K1 650 000

Amount of second part = 7 × 550 000 = K3 850 000.

5
Exercise 2

1) Express the following ratios as fractions in their lowest terms:

2 1
a) 16:8 b) : c) 16:24 d) 27:9
5 3

e) K10 000 to K500

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.

We show this in the following examples.

Example 6

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

1) Using the unitary method:


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.

15 litres of water weigh 30 grams

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?

Here the amount is reduced

$ 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?

6 packet of salt cost K21 000

21 000
1 packet of salt cost = K 3 500
6
25 packet of salt cost 25 × 3 500 = K 87 500.

Exercise 3

1) If 9 kilograms of oranges cost K25 650, how much do 32 kilograms cost?

2) If 85 exercise books cost K112 500, how much do 17 cost?

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?

5) A car travels 250km on 15.625 litres of petrol. Ho far can it go on 25 litres?

6) 2.5kg of beef cost K150 000. Find the cost of 7.5kg.

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?

3) A bag contains sweets. When divided amongst 12 children, each receives


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?

1.3 Foreign Currency Conversion

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

Foreign Monetary Systems and Exchange rates 08/12/05

Country Currency 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.

686 kwacha = 1 SAR

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?

$ 500 = 500 × 6.37 rands = 3 185 rands.

Exercise 5

Where necessary give the answer to 2 places of decimals.

Using the exchange rate given above, find;

1) The number of British pounds equivalent to 2,350 SAR.

2) The number of Euros equivalent to 800 000 kwachas.

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:

a) The number of dollars received for the K5 000 000.

b) The total expenses in kwachas.

c) The number of dollars left after paying these expenses.

d) The amount in kwachas obtained from the dollars she had left.
(Give your answer to the nearest ngwee).

1.4 Weights and Measures

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

The meter (m) used to measure length


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 meter = 39.37 inches

1 yard = 36 inches

* To be exact, the gram measures mass and not weight. However, in


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.

454 grams = 1 pound

The Celsius Degree

The basic unit for measuring temperature in the metric system is the Celsius (often called
centigrade degree).

Boiling point of water 100oC = 212 oF


Normal body temperature 37 oC = 98.6 oF
Freezing point of water 0 oC = 32 oF

Changing units within the Metric System

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

1) Kilo means 1 000

Therefore, 1 kilometer (km) = 1 000 meters (m)


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

All the prefixes involve either a multiplication or a division by a power of ten.


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

Changing from larger units to small units involving kilo

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

* +3 move decimal three places to the right.

14
Example 15

Changing from small units to large units involving kilo

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

-3

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

-3

c) 52530g = 52. 5 3 0 kg = 52.55kg

-3

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

Example 16

Changing from small units to large units involving centi

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

* -2 move decimal two places to the left.

15
Example 17

Changing from large units to small units involving centi

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

Move decimal two places to the right.

Example 18

Changing from small units to large units involving milli.

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

Move decimal three palaces to the left.

16
Example 19

Changing from large units to small units involving milli

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.

1 cubic centimeter (cc) = 1 millilitre (ml).

Exercise 6

1) 1.5 km = …………m 2) 550g …………….kg

3) 55650g = ……………kg 4) 0.513kg …………….g

5) 3.5m …………………..cm 6) 4 560cm …………… m

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).

9) Chileshe’s height is 1.67 metres. Express his height in centimeters.

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

where F is the number of oF and C = number of oC.

Example 20

25 oC = ………... oF

9
F= (25) + 32
5
= 45 + 32 = 77

Therefore 25 oC = 77oF

Example 21

75 oF = …………. oC (Round answer to nearest degree)

9C
75 = + 32
5
= 375 = 9c + 160
215 = 9C
215
C= = 23.89
9

Therefore, 75 oF = 23.89 oC

18
Perimeter

The perimeter is the total distance round a given figure.

Example 22

Find the perimeter of the figure below.

10cm
3cm

8cm
5cm 6cm

4cm

Perimeter = 8cm + 10cm + 3cm + 6cm + 5cm + 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

Perimeter = 50 + 30 + 30 + 50 or 2(l + b) where l = length and b = breadth =


160m.

Total Cost = 10.50 (160)

= K1680.00

19
CHAPTER 2

ALGEBRA

2.0 ALGEBRA

2.1 Numbers

Numbers were discussed in Chapter 1. Here the emphasis is on the following


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

a) +15 + (+6) = + (15 + 6) = +21


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

To subtract a number, change the sign and add.

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

1) Perform the indicated operations

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

Powers, indices all mean exponents, when a.. a. a. a. a. a. is abbreviated to a 5 ,


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

If m and n are positive integers and a ≠ 0 , we have

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

Zero, Negative and Fractional Exponents

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

a n = n a , n a positive integer (9)

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).

Rules for Logs

Rule 1

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

logb M + log b N ⇔ log b MN

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

Given log2 = 0.3010 and log 3 = 0.477121; then

a) log12 = log(3 × 4) = log(3 × 2 2 )


= 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

d) log 3 0.81 = log(0.81) 3


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

Solve the following equations

a) log( x + 3) = 3.5 b) 2 ln x − ln( x + 2) = 0

c) ln( x + 3) = 1.86 d) 3x.3 x +1 = 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 .

Using a calculator to evaluate 103.5 , we have

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 multiplying both sides by x + 2

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

So to solve the quadratic using completing square method or formula


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

Taking logs of both sides, we have


(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

a) ln x = 0.52 b) ln x = −2.2 c) ln(1 + x) = 0.5

1  −1
d) ln  x − 2 = e) ln x = 2.5 f) ln(3 + x) = 5
2  2

g) ln x = −0.02 h) ln(1 − 0.2 x) = −0.85

27
2.3 Equations

Equations are statements of equality- a way of expressing a balanced relationship


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:

1) An Identity is an equation that is true for every permissible value of the


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.

2) A Conditional equation is an equation that is not true for every possible


real value replacement of the variable. For example,

x + 2 = 8, 4 y + 5 = 3 y − 7, and 6 z = 24 are conditional equations.

In this Manual, our main concern is to solve conditional equations – that


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.

Rules for Solving Conditional Equations

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.

2) Both sides of an equation can be multiplied (or divided) by any


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

Solve for x in the following equations

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.

c) x + 4 = 3 x − 8 + 6 x. Grouping the like terms together, we have


x − 3 x − 6 x = −8 − 4
− 8 x = −12
3
x= .
2

Quadratic Equations

A quadratic equation has the general form, ax 2 + bx + c = 0 . Where a, b, c are numbers


(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.

The solution to a quadratic equation ax 2 + bx + c = 0 is given by the formula.

− b ± b 2 − 4ac
x= (2.1)
2a

Example 10

Given the equation, 3 x 2 + 13 x − 10 = 0. Solve for x .

Using formula (2.1), a = 3, b = 13 and c = -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

Given the simultaneous equations

x + 5 y = 16
x + 2y = 7

a) Solve for x and y algebraically

b) Solve for x and y graphically

a) Method: Eliminate x from the systems of equation by subtracting


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 .

Step 2: Solve for x by substituting y =3 into either equation (1) or


equation (2).

X + 5(3) = 16 substituting y =3 into equation (1)


x=1

Step 3: Check the solution x = 1, y =3 by substituting these values


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

• Substitute x = 1, y =3 into equation (1)

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

31
1 + 15 = 16
16 = 16

So equation (1) balances and x = 1 and y =3 is a solution.


• 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

So equation (2) balances and x = 1 and y =3 is a solution.

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

Given the simultaneous equations

y = 3+ x (1)
y = 5+ x ( 2)

a) Solve for x and y algebraically

b) Solve for x and y graphically

a) y = 3+ x
y = 5+ x
subtracting the two equations
0 = −2

0 = -2 is impossible; therefore, there is no solution. Even from a purely


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?

Note: A false statement like 0 = −2 indicates a set of equations with no


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

Figure 2.2 No Solution

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

Given the simultaneous equations

y = 3− x (1)
2 y = 6 − 2x ( 2)

a) Solve for x and y algebraically

b) Solve for x and y graphically

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

Figure 2.3 Infinitely many solutions

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

Solve the equations

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

Solve the following simultaneous Equations.

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

Demand function : P = 200 − 0.75q (1)


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

Calculate the equilibrium price and quantity algebraically and graphically.

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 = 200 − 0.75(120) substituting q = 120 in equation (1)


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

110 • Eo (Goods market equilibrium)

20 p = 200 – 0.75q

-27 0 120 267 q

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.

Musonda’s plus Chipwende’s salary is K3 172 500

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

The demand function for a monopolist is given by the equation P = 50 − 0.5q.

a) Write down the equation of the total revenue function.

b) Graph the total revenue function for 0 ≤ q ≤ 100

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

a) Since P = 50 − 0.5q and total revenue (TR) = Price × quantity = P × Q ,


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.

Table 2.0 points for TR = 50q − 0.5q 2

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

1250 Maximum Revenue

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.

The roots of the TR functions are

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

Multiple Choice Questions

1) Mulenga made twice Chitalu’s salary last month. If there total earnings were
K1,903,500, how much did Mulenga make?

a) K643 000 b) K1 269 000 c) K951 750


c) K634 500

(Natech, 1.2 Mathematics & Statistics, November/December 2000)

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

a) (2,8) b) (0,0) c) (2,6)


d) none
(Natech, 1.2 Mathematics & Statistics, December 1999 (rescheduled)).

3) Evaluate 3 (27 / 125)

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

a) K605.50 b) K720.54 c) K756.87


e) K760.20
(Natech, 1.2 Mathematics & Statistics, June 2005)

6) If (2 x − 3)(3 x + 4) = 0, then the value of x is

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

10) One of the following is an irrational number. Which one is it?

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:

Demand function : P = 200 – 5Q


Supply function : P = 92 + 4Q

Calculate the equilibrium price and quantity algebraically.

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

c) Solve the 3 x 3 simultaneous equation below algebraically

3x − y + z = 5
2 x + 2 y + 3z = 4
x + 3 y − z = 11
(Natech, 1.2 Mathematics & Statistics, December 2003)

Q2. a) The cost equation of a company producing agricultural fertilizers in


Zambia is as follows:

C = x2 + 2 x + 6

where C represent total cost (K’million) and x represents the number of


tones in (hundreds), of fertilizer produced.

i) Construct a table of costs for x values ranging from 1 to 8


inclusive.

ii) Using the result in (i) above, plot the cost on output to produce a
scatter graph and interpret it.

iii) Calculate algebraically the level of output which would result in a


total of K25 million rounded to the nearest hundred tones.

(Natech, 1.2 Mathematics & Statistics, December 2004)

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.

3.2 Sources of Statistics

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:

CSO Journal, Bank of Zambia Journal, A – Z Business Journal etc.

3.3 Descriptive Statistics

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.

3.3.1 Frequency Distributions

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

Construct an array and also a frequency distribution.

The data array is as follows: The data is arranged in increasing order.

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

To construct a frequency distribution start with a tally chart.

46
Tally Chart

Data Value Tally Marks Total


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

Frequency Distribution Table

No. of Children No. of Children


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.

Salary Scale ‘K’000,000’ No. of Workers


5 and < 10 5
10 and < 15 6
15 and < 20 8
20 and < 25 3

Table 3.1 Frequency Grouped Distribution for Salary Scale.

3.3.2 Cumulative Frequency Distributions

A cumulative frequency distribution describes the number of items that have


values either above or below a particular level. Cumulative frequency
distributions come in two different forms:

i) “less than” distributions


ii) “more than” distributions.

Example 2

From Table 3.1, construct

i) “less than” distribution,


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

Here, a set of items values is listed (normally the class “upper


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.

Salary scale No. of Salary scale No. of workers


‘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

3.3.3 Results Presentation

One of the most effective ways of presenting information, particularly numerical


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.

However, a disadvantage of graphs may be that values may not be read


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.

Sales K’Billion K’Billion K’Billion


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

Show this as a bar chart.

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

20x3 20x4 20x5 year

Figure 3.1 Sales of Mukulumpe Plc.

Component Bar Charts

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.

i) Component bar chart (actuals).

In these charts the overall heights of the bars and the individual components
heights represent actual figures.

ii) Percentage component bar chart

In these charts the individual component lengths represent the percentage


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

i) component bar chart,

ii) percentage component bar chart,

For the data in Example 3

i) Component Bar Chart

Sales 200
(K’billion)

150

100

50

20x3 20x4 20x5 year

West Africa

East Africa

Southern Africa

Central Africa

51
ii)

100

80

Sales (%)
40

20

20x3 20x4 20x5


year

West Africa

East Africa

Southern Africa

Central Africa

Multiple Bar Charts

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

Show the above data as a multiple bar chart.

150
Sales
(K’billion)
100

50

20x3 20x4 20x5


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

The marks obtained by students in a NATech paper were as follows:

Percentage (%) No. of Students


25 – 29 10
30 – 34 15
35 – 39 12
40 – 44 20
45 - 49 3

Show this as a histogram

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

Figure 3.2. A Pie Chart showing turnover of Mukulumpe Plc.

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

1. Obtain a number of charts and graphs used to describe quantitative data.


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

construct a frequency distribution from this information.

3. A survey of 55 retail outlets in the Kitwe area gave the following


distribution of mango prices.

Price 250 200 150 100 275 185


(Kwach
a/g)
Number 2 2 7 23 15 6
of
stores

Construct a bar chart for the given distribution.

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.

Age of debt(days) 1-10 11-20 21-30 31-40 41-50 51-60


No. of accounts 24 28 22 16 6 4

5. The age distribution of a random sample of 500 people in Ndola is shown


below. Construct a histogram from this table.

Age (Years) Under 2 2- 5- 10- 30-


Number of people 98 107 170 75 50

56
6. Draw:

i) ‘less than’ distribution


ii) ‘greater than’ distribution

given the distribution of bonus payments made to 150 employees in a company


shown below.

Monthly bonus (Kwacha) 0- 10- 20- 30- 40- 50-


No. of employees 6 44 36 30 8 6

7. Draw a pie chart to illustrate the expenditure of a large company on a


number of advertising methods.

Method of R New Comp O


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

8. Use a bar chart to illustrate the number of workers employed in four


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

10. Draw a multiple bar chart to illustrate the performances of three


companies over a four year period.

Output (X K1, 000,000)


2000 2001 2002 2003
Company X 400 380 365 350
Company Y 285 340 355 340
Company Z 180 200 220 230

3.4 Measure of Central Tendency

This Section describes the most commonly used averages, the arithmetic mean,
median and mode.

3.4.1 Measure of central tendency for ungrouped data

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.

Arithmetic mean = Total value of items


Total number of items

It is easy to understand and a very effective way of communicating an answer. It


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.

K280 K275 K290 K310


K185 K195 K200 K225
K175 K200 K190 K195

What is the mean price?

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

We usually employ the symbol x (pronounced, ‘ x bar’) to represent the mean of a


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

x1 + x2 + x3 + . . . xn
x=
n

The short form is x =


∑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

In Example 8, find the mode of the given data set.

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

Calculate the median for the following data:

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

3.4.2 Measure Of Central Tendency For Grouped Data

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

Age Number of Employees


15 to 19 3
20 to 24 15
25 to 29 30
30 to 34 45
35 to 39 8

i) In a frequency distribution, the mean x =


∑ fx where x is the middle point of
∑f
the class interval.

61
We construct the following table for calculation of the mean

Age No. of Employees (f) Mid-class fx


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

Here ∑ fx = 2927 and ∑ f = 101

Therefore mean number of ages

x=
∑ fx
∑f
2927
=
101

= 28.98

ii) We use the median formula given by

 0.5 N − Fm −1 
Median = Lm +  Cm
 f m 

Where Lm = lower boundary of the median class interval

Fm −1 = cumulative frequency of class below the median class interval

f m = Actual frequency in the median class interval

Cm = Median class width

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.

Lm = 30; Fm = 48; f m = 45; Cm = 4

 0.5 N − Fm −1 
Thus, Median = Lm +  Cm
 fm 

 50.5 − 48 
= 30 +   ( 4)
 45 

= 30.2222

i.e median = 30.22 years (two decimal places).

iii) An estimate of the mode for a grouped frequency distribution can be


obtained using the formula

 b−a 
Mode = L+  G
 2b − a − c 

Where: L = the lower boundary of modal class interval


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

i.e mode = 31.15 (two decimal places)

Example 13

From Example 11, find

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

Age (years) No. of Employees


15-19 3
20-24 15
25-29 30
30-34 45
35-39 8

Table 1. Number of Employees

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

Table 2.0 Cumulative frequency of Employees

Percentage •
Number of 100
Employees •

80

60

50% point

40 •

• Median estimate = 30
20

19 24 29 34 39
Age upper boundary

Fig 1 Cumulative Frequency Curve ( orgive) of Example 11.

The points to remember are:

i) Form a cumulative (percentage) frequency distribution.

ii) Draw up a cumulative frequency curve by plotting class upper boundary,


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

iii) Read off the 50% point to give the median.

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

i.e. average value of all sales = K315 578.95


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

If the distribution is perfectly symmetric, all three measure will coincide.


Skewed Distribution.

68
The three measures will now spread out:

Mode - Correspond to the highest point

Mean - affected by extreme values, lies down the tail of the


distribution

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

Roughly: mode = mean – 3 (mean – median)

Exercise 2

1. Find the arithmetic mean of the following data sets.

a) 560, 520, 540, 720, 650, 470, 680, 600

b) 8.8, 9.3, 9.8, 7.9, 10.2, 8.5

c) 12.9, 13.4, 13.8, 14.3, 16.9, 17.1, 13.8,

d) 6, 25, -8, 14, -22, 33

e) -3, -4, -10, -18, -9

2. Find the mean of the following frequency distributions.

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.

5. Using the graphical method, estimate:

i) The median
ii) The mode of the distribution given below.,

x 0 1 2 3 4
f 25 28 6 3 3

6. The total price of units ordered from a warehouse of a certain commodity


is shown in the distribution below.

Cost of units ordered per day (Kwacha) No. of days


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

a) Compute the mean

b) Using both the graphical and formula method, estimate:


i) the median
ii) the mode

70
7. Estimate:

a) The arithmetic mean,


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

8. A survey of workers in a particular industrial sector produced the following table.

Income (Weekly ‘000’) Number


Under K100 180
K100 but under K150 235
K150 but under K200 210
K200 but under K250 150
K250 and over 100

Compute the mean, median and mode.

9. The number of new orders received by a company over the past 30


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

Determine the mean, median and mode.

71
10. Which measure of central tendency would most effectively describe?

a) The weight of a person?


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?

3.5 Measure of Dispersion

Having obtained a measure of location or position of a distribution, we need to


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

This is the simplest measure of dispersion available in statistical analysis. It uses


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

Find the range for the given data set.

1, 3, 4, 10.

The range is 10 – 1 = 9

The Quartile Deviation.

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.

The quartile deviation or semi-quartile range is half of the interquartile range.

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:

44, 76, 49, 52, 52, 48, 51.

We first arrange the data set in ascending order

44, 48, 49, 51, 52, 52, 76.

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

In the same formula for the media, we replace

1
Lm by LQ1 , .5 N by N, Fm −1 by FQi −1 and f m by f Q1 . Therefore, we
4
have

LQ1 = 4000, FQ1 −1 = 2, f Q1 = 4, CQ1 = 800

(.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

LQ3 = 5600, FQ3 −1 = 9, f Q1 = 8, CQ3 = 800

(.75 N − FQ3 −1 )
Q3 = LQ3 + CQ3
f Q3

(15 − 9)
Q3 = 5600 + (800)
8

Hence, Q3 = 6000.

Therefore, Quartile deviation

1
= (Q3 − Q1 )
2
1
= (6000 − 4600)
2

= 700

3.5.1 The Mean Deviation

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) Find the mean deviation of kilometers from the mean

b) Find also the mean deviation from the median

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

Given the following data, compute the mean deviation

Weekly Wage Number of Employees


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

3.5.2 The Standard Deviation

The standard deviation is the most widely used measure of dispersion,


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.

To calculate the standard deviation, we follow the following steps.

1) compute the mean x


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

3) Square the differences ( x − x) 2

4) Sum the squared difference i.e. ∑ ( x − x) 2

5) Take the average of the sum of the squared differences in (4) to find the
variance i.e.

S 2
=
∑ ( x − x) 2

for a sample and σ 2


=
∑ ( x − x) 2

for a population.
n −1 N
6) Square root of the variance gives the standard deviation

S=
∑ ( x − x) 2

for a sample and σ =


∑ ( x − x) 2

for a population.
n −1 N

79
Example 19

For the following sample of 7 observations, find the standard deviation.

4, 5, 10, 13, 9, 7 and 8

The calculations are shown in the table below.

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

= 3.055 (3 decimal places ).

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

Coefficient of variation calculates the standard deviation from a set of observation


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.

Monthly Output men’s Suits Number of Factories


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

Calculate the mean and standard deviation

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

This is grouped data and we use the following formulas.

mean =
∑ xf =
4625
= = 38.54(two decimal places )
∑f 120

( xf )
∑x f − ∑ f
2
2

Variance =

∑f

( xf )
∑x f − ∑ f
2
2

S tan dard deviation = σ =



∑f

185250 −
(4625)2
= 120
119

= 7.67(2 decimal places ).

82
Exercise 3

1. Explain the meaning of standard deviation to someone who doesn’t know


anything about statistics.

2. The number of new orders received by a company over the past 30


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

Determine the range, quartile deviation and standard deviation.

3. For the following results of I.Q test , estimate:

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

4. Using the figures given below, calculate:

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

5. For the given frequency distribution, find

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.

Number of rooms 1 2 3 4 5 6 7 8 or more


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

Multiple Choice Questions

1.1 What is the arithmetic mean of the following frequency distribution?

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

(NATech, 1.2 Mathematics & Statistics, June 2003)

1.2 What is the quartile deviation of the following set of data?

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, December 1998)

1.3 What is the variance of the following set of numbers? 4, 6, 8, 9, 13.

A) 2.4 B) 6.78 C) 9.2 D) 40


(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

A) 31years B) 21years C) 25years D) 26years


(NATech, 1.2 Mathematics & Statistics, December 2004)

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

15, 30, 19, 32, 10, 7, 12, 20, 12, 24, 4

What is the quartile deviation of the number of books read?

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.

A) K76 000 B) K85 000 C) K31 000 D) K76 667


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

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

Value (K’000) 100 150 200 250


No. of orders 165 190 105 92

A) K110 000 B) K161 000 C) K175 000 D) K180 000


(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.

What is the quartile deviation of the number of books read?

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:

A) A simple bar chart. B) A component part bar chart

C) A multiple bar chart D) A percentage bar chart


(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

(NATech, 1.2 Mathematics & Statistics, December 2001)

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.

18, 2, 5, 13, 4, 8, 11, 7

(NATech, 1.2 Mathematics & Statistics, June 2002)

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

Draw a pie chart using the above figures.

QUESTION TWO

a) An analyst is considering two categories of companies: X and Y, for possible


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.

Price – Earning Ratios Number of Category Number of Category


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:

Compute the standard deviations of these two distributions.

87
b) A College receives the following number of complaints per week.

Complaints per week 0 1 2 3 4


Number of weeks 5 12 7 2 1

What is the median value?

c) After receiving complaints from trade union representatives concerning


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.

He is given the following data:

Basic Wage (K’000) Number of Employees


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:

Access time in Milli seconds Frequency


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

i) Determine the mean access time for this program


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

a) The times, measured to the nearest second, taken by 30 students to


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.

ii) Which is the modal class of your distribution?


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

QUESTION FIVE

a) During the 1999/2000 session a college ran 70 different classes of which


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:

Size of Class No. of English No. of History


(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

No student belonged to more than one class.

i) Calculate the mean class size of the college.

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:

ii) had been transferred to the other classes.

iii) Had not be admitted to the college.


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

89
QUESTION SIX

a) Consider the grouped frequency distribution below.

At Least Value less than Frequency


0 10 0
10 20 50
20 30 150
30 40 100

You are required to estimate the mode graphically.

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:

Salary Number of Staff


(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:

Mean salary = K18.95m Standard deviation K106m


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

You are required to help with the analysis by

i) Calculating the mean and standard deviation of current salaries.

ii) Interpreting the statistics that you have calculated.

(NATech, 1.2 Mathematics & Statistics, December 2003)

90
QUESTION SEVEN

a) The following is a frequency distribution of I.Qs of 100 children at a primary


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

i) The mean deviation

ii) The standard deviation of the IQ scores

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 sales 0-4 5-9 10-14 15 – 19 20 – 24 25 - 29


No. of salesmen 1 14 23 21 15 6

Calculate:

i) The mean, and

ii) The standard deviation, of the number of sales.

(NATech, 1.2 Mathematics & Statistics, June 2003)

91
QUESTION EIGHT

a) Given the following data

Value Number of Orders


100 000 165
150 000 190
200 000 105
250 000 92

i) Find the mean, and


ii) The modal value per order

(NATech, 1.2 Mathematics & Statistics, December 1998)

b) The number of goals scored per game by a football player during 1997 –
1998 were as follows:

No. of goods, x 0 1 2 3 4 or more


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.

Weekly Sales (K’000) Number of Weeks


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:

Business Problem Uncertainty

Cars How many cars to stock Material prices


Economic demand

Accounting How many graduates to Employees turnover


Train for NATech Exams workloads
Exam pass rate

In such situations the uncertain factors can be measured or quantified using


probability.

In this Chapter, we describe the notion of counting, an experiment and events.


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?

Since m = 3 and n = 5, there are 3(5) = 15 ways.

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?

Since m = 10 and n = 3, there are 10(3) = 30 ways.

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.

Since m = 3 and n = 2, there are 3(2) = 6 permutations; they are

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

and in general n != n(n − 1)(n − 2) . . . 3.2.1.

In short form,

n!
n
Pr = → ( 2)
(n − r )!

Example 7

Find the number of ways in which 2 of 5 can be selected.

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

Permutations with Similar Items

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.

The arrangements become, where E are numbers as E1 and E2

SE1 E2 SE2 E1 E2 SE1 E1SE2

E1E2 S E2 E1S

The number of permutations are 3.2.1 = 6. The number of permutations is reduced to 3.


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

In how many ways can a committee of three A, B and C be selected?

The three persons A, B and C can be assigned to a three-person committee in 3! = 6


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).

For n = 5, and r = 3, we have

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?

For n = 45 and r = 3, we have

45! 45! 45(44)(43)


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.

A decision maker can be described as one of the following.

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

Historically, the oldest way of measuring uncertainties is the classical 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?

Therefore s = 4, “cards numbered five (5)” among the n = 52 cards, so we have

s 4 1
= = .
n 52 13

Example 14

What is the probability of rolling a 5 with a balanced die?

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.

In accordance with frequency concept of probability, we estimate the probability of an


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

An event is a subset A of the sample space S. A is a set of possible outcomes. In our


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

1) A ∪ B is the event “either A or B or both”


A ∪ B is called the union of A and B.

2) A ∩ B is the event “both A and B”.


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

3) A′ is the event “not A”.


A′ is called the complement of A

4) A ∩ B′ is the event “A but not in B.”

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}.

Some Important Theorems On Probability

1) For any event A,

0 ≤ P ( A) ≤ 1
i.e, a probability is between 0 and 1 inclusive.

2) For φ the empty set


P (φ ) = 0
i.e. , the impossible event has probability zero.

3) If A′ is the complement of A, then P ( A′) = 1 − P ( A)

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.

5) For any events A and B, P ( A) = P ( A ∩ B ) +P ( A ∩ B′) .

6) If A and B are mutually exclusive events then P ( A ∪ B ) = P ( A) + P ( B ) . This is


called addition rule for two mutually exclusive events.

7) Conditional Probability

Let A and B be two events such that P ( A) ≠ 0. Denote P ( B / A) the 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

If P ( B / A) = P ( B ), i.e, the probability of B occurring is not affected by the fact


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)

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

3 (3, 1) (3, 2) (3, 3) (3, 4) (3, 50 (3, 6)

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

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

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

Employee Type MMD (M) UPND (U) Independent Row Total


Executive (E) 10 35 10 55
Production Worker (PW) 65 22 8 95
Column Total 75 57 18 150

a) Compute P(M) and P(E)

number of MMD 75
P(M ) = = = 0 .5
number of employees 150

number of executive 55
P( E ) = = = 0.367
number of employees 150

b) Compute P(M/E) i.e. probability of M given E.

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 ) number of executives who are MMD


P(M / E ) = =
P( E ) number of executives

10
= ≅ 0.182
55

c) Are the event M and E independent?

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.

d) Compute P(M and E)

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

P ( M and E ) = P ( M ∩ E ).

106
Therefore.

number of executives are MMD


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

d) at least one of the jobs is finished on time.

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.

Then P(A) = 0.4 and P(B) = 1 – P(A) = 1 – 0.4 = 0.6.

a) The two events are independent hence

P(both finished on time)

= P ( A ∩ B ) = P ( A).P ( B )
= 0 .4 ( 0 .4 )
= 0.16

b) P(neither job finished on time)

= P( A ∩ B) = P( A) P( B)
= 0.6(06)
= .0.36

c) P(just one job finished on time)

= P( A ∩ B) +P( B ∩ A)
= 0 .4 ( 0 .6 ) + 0 .4 ( 0 .6 )
= 0.24 + 0.24 = 0.88

d) P(at least one job finished on time)

P( A ∩ B) +P( B ∩ A) + P( A ∩ B)
= 0.24 + 0.24 + 0.16 = 0.64, or

= 1 − P(neither job finished on time)


= 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:

a) less that K100 000 per week.

b) under K100 000 or over K150 00 per week.

108
30
P (over K150 000) = = 0.30
100

60
P ( K100 000 to K150 000) = = 0.60
100

a) P(under K100 000)

= 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%)

b) P(under K100 000 or over K150 000)

= P (under K100 000) + P (over K150 000)


= 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

If a customer is selected at random, find the following probabilities:

109
a) the customer is female and aged 25 – 40?

b) The customer is male.

c) If the selected customer is aged less than 25, what is the probability that
they are female?

d) Are the events female and aged 25 – 40 independent?

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

a) both counters are red?

b) the first is red and the second is blue?

c) the two counters are of different colours?

d) the two counters are of the same colours?

6. If 5 factories in a group of 25 factories in a certain community are violating


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

a) none of the violators will be selected for inspection?

b) all of the violators will be selected for inspection?

7. a) Explain what you understand by

i) Mutually exclusive events;

ii) Conditional probability;

iii) Independent events.

110
8. Two cards are drawn simultaneously from the same pack of 52 cards.
Find each of the following probabilities.

a) Both cards are picture cards.

b) Neither of the cards is a picture card.

c) Exactly one of the cards is a picture card.

4.2 Probability Distribution

Many probabilistic situations in business and commercial environments exhibit


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.

Quantitative variables are either continuous or discrete as defined in Chapter 3. A


random variable is a variable which assumes different values depending on the
outcomes of an experiment.

A discrete random variable has a frequency distribution just like a continuous


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)

iv) Var ( X ) = ∑ x 2 P( x) − [∑ xP( x)] 2

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.

In the long run, he is expected to win 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,

P( x1 ) = 0.25, P( x2 ) = 0.15, P( x3 ) = 0.22 and P( x4 ) = 0.38 int o E ( X )

= ∑ xP( x), we have

E ( X ) = 800 000 (0.25) + 500 000(0.15) + 400 000(0.22) − 600 000(0.38)


= 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?

The expected number is E ( X ) = 0(0.04) + 1(0.25) + 2(0.35) + 3(0.06) + 4(0.30) = 3.33

Example 9

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

Sales 0 50 100 150


Probability 0.01 0.28 0.37 .34

Calculate:

i) the expected sales,

ii) the standard deviation.

i) The expected sales = 0(0.01) + 50(0.28) + 100 (0.37) + 150(0.34) = 102

113
∑ x P( x) − (∑ xP( x) )
2
ii) The standard deviation = var iance = 2

Since ∑ xP( x) = 102 , from (1), we compute


∑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

Therefore standard deviation = 12050 − (102) 2 = 1646 = 40.57

The probabilities associated with values of the random variables can be computed
from a well-established equation.

The Standard Deviation: Measuring risk

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.

σ = s tan dard deviation = var iance

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

Stocks A and B have the following probability distributions of future returns

Probability A(K’000) B(K’000)


0.03 10 15
0.20 20 25
0.50 12 18
0.27 35 30
0.10 5 4

a) Calculate the expected return for each stock.

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.

a) E(A) = Expected return from Stock A = ∑ xP( x)


= 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

E(B) = Expected return from Stock B = ∑ xP( x)


= 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 = 406.25 − (18.25) 2 = 73.1875

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 = 448.35 − (19.95) 2 = 50.347531875

σ = 7.0956

σ 8555 7095.6
CVA = × 100 = × 100; CVB = × 100
µ 18250 19950

CVA = 46.9% ; CVB = 36.5%

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

If P is the probability of a “success’ in an individual trial, then in n independent trials


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

P ( x)= nC x P x (1 − P ) n − x

where x = 0, 1, 2, . . . , n . The number of successes has a mean np and standard


deviation = np(1 − p ) .

The features of a binomial experiment are as follows:

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

2) The n trials are independent and repeated under identical conditions.

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.

5) The main problem of a binomial experiment is to find the probability of x


success out of the n trials.

Alternatively, when we multiply out the power of a binomial bracket such as


(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

Let us now make some observations regarding the above expressions of (a + b) n


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.

2. the power of a is decreasing from left to right for example a 4 a 3 a 2 a1 .

3. the power of b is increasing from left to right for example b1 b 2 b 3 b 4

4. The numbers form a triangle.

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

Expand (3a+ 4b)3

We start with the line of Pascal’s triangle for n = 3 which gives us

1 3 3 1

we get

1(3a )3 + 3(3a )2 (4b) + 3(3a)(4b)b + 1(4b)3


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

Example 12

Expand (2a − 3b)5

We start with the line of Pascal’s triangle for n = 5 which gives us

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

The Binomial Expansion. The Binomial Theorem

A power of a binomial can also be expanded by means of the Binomial Theorem.

na n −1b n(n − 1)a n − 2b 2 n(n − 1)(n − 2)a n − 3b3


( a + b) n = a n + + + + .. .
1! 2! 3!

119
Example 13

Use the Binomial Theorem to expand (3a + 4b)3

3(3a ) 2 (b) 3(2)(3a)(4b) 2 3(2)(1)(4b)3


(3a + 4b)3 = (3a )3 + + +
1! 2! 3!

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

Use the Binomial Theorem to expand (2a − 3b)5

5(2a ) 4 (−3b) 5(4)(2a )3 (−3b) 2 5(4)(2)(2a ) 2 (−3b)3


(2a − 3b)5 = (2a )5 + + +
1! 2! 3!

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


+ +
4! 5!

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

5(4)(3)(2)(1)
You will notice that this time cancels out.
5!

The Binomial Theorem in Terms of Combinations

The Binomial Theorem can also be expressed in terms of combinations.

( a + b) n = nC o a n + C1a n −1b +
n
C2 a n − 2b 2 + nC3a n − 3b3 + . . .
n

120
Example 15

Use the Binomial Theorem to expand (3a+ 4b)3 .

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

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

= 27 a 3 + 108a 2b + 144ab 2 + 64b3

Which agrees with the answers obtained in example 11 and 13.

Example 16

Use the Binomial Theorem to expand (2a − 3b)5

(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

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

Example 17

If n = 3 and p = 0.4, use Binomial formula to find:

a) P(2),

b) P(0),

c) P(1)

a) P (2)= 3C2 (0.4) 2 (11 − 0.4)3− 2

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

c) P (1)=3C1 (0.4)0 (1 − 0.4) 2


3!
= (0.4)(1 − 0.6)1
0! 2!
P (1) = 0.432

Alternatively

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

Using the binomial expansion

(0.4 + 0.6)3 = (0.4)3 + 3(0.4) 2 (0.6) + 3(0.4) 2 (0.6) 2 + (0.6)3


= 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

Construct a Binomial distribution when n = 4 and p = 0.2

P (0)= 4C0 (0.2) 0 (0.8) 4 = 0.4096

P (1)= 4C1 (0.2)1 (0.8)3 = 0.4096

P (2)= 4C2 (0.2) 2 (0.8) 2 = 0.1536

P (3)= 4C3 (0.2)3 (0.8)1 = 0.4096

P (4)= 4C4 (0.2) 4 (0.8)0 = 0.0016

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:

a) all applicants pass the test,

b) only four applicants pass,

c) more than four applicants pass.

We have n = 6, p = 0.70.

a) P (6)= 6C6 (0.70)6 (0.30)0


6!
= (0.1176490)
6!0!
= 0.118 (11.8%)

b) P (4)= 6C4 (0.70) 4 (0.30) 2


6!
= (0.2401)(0.09)
04! 2!
= 15(0.2401)0.09)
= 0.324 (32.4%)

c) P(more than four) = P(5 or 6) = P(5) + P(6)

nowP (5)= 6C5 (0.70)5 (0.30)


= 6(0.70)5 (0.30) = 0.303

and P (6)= 6C6 (0.70)6 (0.30)0 = 0.118


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:

a) less than three

b) more than three

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

1
We have n = 6, P= = 0.20
5

a) P(less than three) = P(0) + P(1) + P(2)

Now P (0)= 6Co (0.20)0 (0.80)6 = 0.2621

P (1)= 6C1 (0.20)1 (0.80)5 = 0.3932, and

P (2)= 6C2 (0.20) 2 (0.80) 4 = 0.2458

Therefore P(less than three) = 0.2621 + 0.3932 + 0.2458 = 0.9011

b) P(more than three) = P(4) + P(5) + P(6)

= 1 – P(less or equal to three)

= 1 − [ P (0) + P (1) + P (2) + P (3)]

Now P (3)= 6C3 (0.20)3 (0.80)3 = 0.0819

Therefore P(more than three ) = 1 – [0.2621 + 0.3932 + 0.2458 + 0.0819]

= 1 – 0.983 = 0.017

124
Alternatively,

P (4)= 6C4 (0.20) 4 (0.80) 2 = 0.0154

P (5)= 6C5 (0.20)5 (0.80)1 = 0.0015

P (6)= 6C6 (0.20)6 (0.80)0 = 0.0001

Therefore (more than three) = 0.0154 + 0.0015 + 0.0001

= 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.

Fortunately another probability distribution the Poisson is available. This models a


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.

We have n = 200, P = 0.02, so λ = nP = 200(0.2) = 4

Using the Binomial formula we have:

P (0)= 200C0 (0.02) 0 (0.98) 200 = 0.0176

P (1)= 200C1 (0.02)1 (0.98)199 = 0.0718

P (2)= 200C2 (0.02) 2 (0.98)198 = 0.1458

P (3)= 200C3 (0.02)3 (0.98)197 = 0.1964 etc

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

An assembly line produces approximately 3% defective items. In a batch of 150 items,


find the probability of obtaining:

a) only two defective

b) less than two defectives

c) at least two defective

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!

b) p (less than 2) = p (0) + p (1).

127
e −4.5 (4.5)
o
Now P (0) = = 0.0111
0!

e −4.5 (4.5)
And P (1) = = 0.04999
1!

Therefore P(less than 2) = 0.0111 + 0.04999 = 0.0611

c) P(at least two defective ) = 1 − P(none )


= 1 − P(0 )
= 1 − 0.0111 = 0.9889

Example 24

On average, 5 boys are absent from school each day. Find:

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

1) Use the Pascal’s triangle to expand the following expressions:

i) ( a + b) 5 ii ) ( a − 7) 7 iii) (3a − 5b) 4

iv) (25 − t )5 v) (2 x 3 − y 2 )6

2) Use the Binomial Theorem to expand

i) (2c + 3d )5 ii ) ( 4r + 5 s ) 4 iii) (1 − x)3

4
 3 c2 
iv) (5a + 2b ) 3 5
v)  + 
c 2 

3) If n = 6, and p = 0.4, use the Binomial formula to obtain the following


probabilities:

a) P(0) b) P(2) c) P(less than 4)

d) P(at least 4) e) P(4) f) P(at most 4 )

4) If λ = 3.5, use the poisson formula to obtain the following probabilities:

a) P(0) b) P(at most 2) c) P(less than 2)

d) P(more than 2)

5) An assembly line produces approximately 5% defective items. In a sample of


seven items, find the probability of obtaining:

a) No defectives b) only one defective

c) More than one defective d) at least one defective

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:

a) none of the cars is speeding?


b) at least one is speeding?

7) If 25 per cent of the packages produced by an automatic machine are defective,


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

a) one is defective, b) three are defective

c) at most three are defective

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:

a) no patients b) at least one patient

c) two patients d) four patients

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

Many business and accounting applications involve continuous or near enough


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

• Weight measurements
• Time measurements
• Interest rates
• Financial ratios
• Income levels
• Exchange rates.

The main characteristics of the distribution are:

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.

b) It is unimodel, i.e., the normal distribution peaks at a single value.

c) It approaches the horizontal axis on either side of the mean. In other words, the
normal distribution is asymptotic to the x – axis.

Consider a Normal distribution with mean = µ and standard deviation = σ as shown


below.

µ x

The area shaded can be obtained from tables of the Normal distribution by finding the
standardized unit.
x−µ
Z=
σ

Note: the total area under the Normal Curve = 1.

131
Example 1
Given a Normal distribution with mean = 20 and standard deviation = 3.5, find the areas
under this Normal Curve.

a) above 30 b) below 23 c) above 12


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.

The shaded area = 0.5000 – 0.4979 = 0.0021


b)

µ = 20 x = 23

23 − 20 3
Z= = = 0.86
3 .5 3 .5

The Normal tables give the area from 0 to 0.86 = 0.3061.

The shaded area = 0.5000 + 0.3061 = 0.8061.

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.

The shaded area = 0.5000 + 0.4890 = 0.9890

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) over K123, 500 per week,

b) between K95, 000 and K133, 000.

a)

µ = 104 500 123 500

123 500 − 104 500


Z= = 1.33
14 250

The required probability = 0.5000 − 0.4062


= 0.0938

134
b)

95 000 µ = 104 5000 133 000

95 000 − 104 500 133 000 − 104 500


Z= Z= = 2 .0
14 250 14 250
= 0.67

The required probability = area shaded


= 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.

a) Compute the probability of the number of branches who can be expected to


process more than 775 transactions per week.

b) What is the probability that the number of transactions expected to be processed


are between 705 and 795?

135
a)

µ = 750 775

775 − 750
Z= = 1.19
21

The required probability is 0.5000 – 0.383 = 0.117. Hence, 11.7% of the


branches process more than 775 transactions per week.

b)

705 µ = 750 795

705 − 750 795 − 750


Z= = −2.14 Z= = 2.14
21 21

The required probability is 0.9676 or 96.8%.

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?

b) From past performances it can be seen that approximately 25% of employees


obtain unsatisfactory gradings. What is the minimum ‘satisfactory grade?

136
a)

µ = 65 85

85 − 65
Z= = 1.54
13

The required area = 1.5000 – 0.4382 = 0.0618. Therefore in a group of 500


employees: 500 (0.0618) = 30.9. Hence approximately 31 employees obtain over
85 marks.

b)

25%

µ = 65

X is the minimum satisfactory grade. From tables

X − 65
= −0.66
13

X − 65 = −8.58

X = 56.42

Therefore the minimum grade = 56.

137
Exercise 3

1. Given a Normal distribution with mean = 70 and standard deviation = 20.

a) over 80 b) under 72 c) over 64

d) between 72 and 82 e) between 65 and 90

2. A population is Normal with µ = 55 and σ = 28 .

a) If one item is taken at random from this population, find the probability
that it is:

(i) greater than 70

(ii) less than 47

(iii) between 40 and 65.

b) Find the 90% confidence limits for this item.

3. The lengths of the fish received by a certain cannery have a mean of 5.62cm and a
standard deviation of 0.28cm.

(i) What percentage of all these fish is longer than 6.00cm?

(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:

a) less than 13 minutes

b) 17 to 22 minutes

c) more than 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:

a) more than 31 sales

b) fewer than 26 sales.

7. On the college soccer team, the mean weight of men is 65.6kg and a standard
deviation of 0.95kg.

a) What is the probability that a certain man weighs over 63kg?

b) Below what weight will 35% of the men weigh?

c) What is the probability that he weighs between 63kg and 66kg?

d) Above what weight will the heaviest 5% of the men be?

Normal Approximation To The Binomial

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.

The Binomial Distribution is a discrete distribution. It is the distribution of integers or


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 = 3 is replaced by 2.5 < x < 3.5


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 

P( x = 8) = P(7.5 < x < 8.5)

 7 .5 − 7 .5 8.5 − 7.5 
= P <Z< 
 1.936 1.936 

7.5 8.5

= P(0 < Z < 0.52 )


= 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

Multiple Choice Questions No. 1

1.1 In the normal curve of a distribution, what is the approximate area enclosed by
one standard deviation either side of the mean?

A. 68.27% B. 75.84% C. 95.45% D. 99.73%

(NATech, 1.2 Mathematics & Statistics, December 1998)

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?

A. 5% B. 4.9% C. 2.5% D. 0.025%

(NATech, 1.2 Mathematics & Statistics, December 1998)

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

(NATech, 1.2 Mathematics and Statistics, December 1998)

1.4 A student is asked to do five questions from an exercise containing eight


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)

1.7 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 equated 5 days. What percentage of the invoice were paid
within 15 days of receipt?

A. 20% B. 34.13% C. 15.87% D. 84.13%

(NATech, 1.2 Mathematics and Statistics, December 2002)

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?

A. 228 B. 167 C. 477 D. 100

(NATech, 1.2 Mathematics and Statistic, June 2003)

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?

A. 0.12 B. 0.3 C. 0.6 D. 0.18

143
(NATech, 1.2 Mathematics and Statistics, December 1999 Rescheduled)
Multiple Questions No. 2

What is the third term of the binomial expansion (0.5 + 0.5) ?


5
1.1

5 5 5 5
A. B. C. D.
32 16 8 4

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

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))

1.3 HIV/AIDS vaccine is administered to 35 subjects and found to be effective in 7


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.

A. 0.2039 B. 0.9793 C. 0.385 D. 0.0204


(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:

A. 0.8944 B. 0.3944 C. 0.1056 D. 0.5398

(NATech, 1.2 Mathematics and Statistics, December 2001)

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?

A. 0.2266 B. 0.6622 C. 0.2626 D. 0.6226

(NATech, 1.2 Mathematics and Statistics, December 2004)

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?

A. 0.70 B. 0.56 C. 0.20 D. 0.45


(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

(NATech, 1.2 Mathematics and Statistics, December 2003)

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?

A. 40% B. 0.4525 C. 0.048 D. 1.667

(NATech, 1.2 Mathematics and Statistics, December 2003)

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

(NATech, 1.2 Mathematics and Statistics, June 2001)

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?

A. 0.677 B. 0.5 C. 0.02 D. 0.133

(NATech, 1.2 Mathematics and Statistics, June 2001)

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?

c) i) What is the major difference between a combination and a permutation?

ii) In how many ways can number five question be selected out of a total number
of seven questions?

(NATech, 1.2 Mathematics and Statistics, December 2003)

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:

i) Less than 280 days


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)

ii) If the probability of rejecting an order is 30%, determine the probability


that at least three (3) out of eight (8) orders in a specific month made will
be rejected. (To two decimal places).

(NATech, 1.2 Mathematics and Statistics, December 2004)

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.

(NATech, 1.2 Mathematics and Statistics, June 2005)

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:

i) None will graduate.


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.

i) The probability that there will still be money in 22 months in a savings


account opened with the said bank by a depositor?

ii) The probability that the account will have been closed before two years?

(NATech, 1.2 Mathematics and Statistics, November/December 2000)

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.

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

QUESTION SIX

a) An urn contains 10 red and 5 white balls. What is the probability of drawing 2
balls, one of each colour?

b) An assembly line produces approximately 2% defective items. In a batch of 140


items, find the probability of obtaining:

i) Only two defective;


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

i) Calculate to 3 significant figures, the arithmetic mean number of errors per


interval.

ii) Given that this distribution is possonian, calculate the poisson distribution
with the mean found in (i), above.

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

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

i) Over K130, 000 per week;


ii) Between K100, 000 and K140, 000 per week.

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

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?

(NATech, 1.2 Mathematics and Statistics, June 2003)

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:

i) no patients are admitted to the hospital?

ii) More than two patients are admitted to the hospital?

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?

(NATech, 1.2 Mathematics and Statistics, June 2003)

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:

i) The probability that in any minute, the number of minibuses passing is 0,


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:

(i) All the three compulsory questions set;

(ii) Exactly two of the three compulsory questions set assuming that all
combinations were equally likely to be selected.

(NATech, 1.2 Mathematics and Statistics, December 2002)

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?

(NATech, 1.2 Mathematics and Statistics, December 2002)

b) A quality product undergoes a strength test (S) and a reliability test (R). 100
products examined yield the following results.

45 pass S and pass R

16 pass S and fail R

19 fail S and pass R

20 fail S and fail R

Find:

i) The probability of a component chosen at random passing the strength


test.

ii) The probability of a component, chosen at random, passing both the


strength test and the reliability test.

c) If X is normally distributed variable with a mean of 100 and a standard deviation


of 15, translate the following interval into an interval of Z scores.

70 < X < 130

(NATech, 1.2 Mathematics and Statistics, December 1998)

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?

(NATech, 1.2 Mathematics and Statistics, December 1998)

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;

ii) Exactly 3 customers.

(NATech, 1.2 Mathematics and Statistics, June 2001)

QUESTION FOUR

a) Three fair cubical dice are thrown. Find the probability that:

i) The sum of the scores is 5; and

ii) None of the three dice shows a 6.

b) From past experience it is known that approximately 60% of applicants pass in


initial assessment test. In a group of five applicants, find the probability that:

i) All applicants pass the test;

ii) Only three applicants pass; and

iii) More than three applicants pass.

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

a) Two fair dice are thrown. What is the probability that:

i) The total score is 2; and

ii) The total score is 4?

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:

i) No sets are in use; and

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

a) According to The Journal of Nutrition, the mean mid-arm muscle circumference


(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.

i) Find the probability that there will be 0, 1, 2, 3, 4, 5, … babies born in the


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.

(NATech, 1.2 Mathematics and Statistics, December 1998)

c) A Non-Governmental Organization (NGO), that provides counseling services to a


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.

Results of AIDS Test Person’s HIV Status


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:

i) Actually has HIV if it is known that he tested HIV positive; and

ii) Tested HIV positive if it is known that he actually has HIV.

(NATech, 1.2 Mathematics and Statistics, December 1996)

155
4.3 Methods of Sampling and Survey Design

Sampling is a process of examining a representative number of items (people or


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.

c) The extent of variability in 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.

Simple Random Sample


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.

Stratified Random Sampling


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:

i) it can lead to reduced sampling error; and


ii) it ensures a large enough sample in each stratum (class) for study of the particular
strata.

As an example, we may be planning a survey to determine the profitability of offering a


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.

In general, population units may be stratified on any number of characteristics common


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.

Hypothesis testing is the process of establishing theory or hypothesis about some


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

There are four properties of a good estimator

a) Unbiasness. An estimator is said to be unbiased if the mean of the sample


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.

b) Consistency. An estimator is said to be consistent if, as the sample size


increases, the accuracy of the estimate of the population parameter also
increases.

c) Efficiency. An estimator is said to be efficient than any other if, it has


the smallest variance among all the estimators.

d) Sufficiency. An estimator is said to be sufficient if it utilizes all the


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

Consider a population with mean = µ and standard deviation = σ . Samples of size n


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

µ x = 500 538Sample means

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?

We have µ = 7500 and σ = 500. The population of sample means is approximately


σ 500
Normal (since n is large) with µ x = µ = 7500 and σ x = = = 44.72
n 125

σ x = 44.72

7400 µ x = 7500 Sample means

7400 − 7500
Z= = −2.24
44.72

P ( Samplemean < 7400) = area shaded


= 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.

The following confidence intervals hold for the normal curve

X ± 1.96 σ x = 95% confidence Interval


X ± 1.65 σ x = 90% confidence Interval

In general the (1 − α )% confidence interval is given by X ± Z α σ x where


2

X is the sample mean


α
Z α is the critical po int whose area to the right is .
2 2

σ x is the s tan dard error

Example 3
Find the 95% confidence limits for the average daily output over 125 days given in
Example 2.

We have µ = 7500 and σ = 500. Also µ x = 7500, σ x = 44.72. The 95%


confidence limits for a sample mean are:

x ± 1.96σ x = 7500 ± 1.96(44.72)


= 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

Round up to the next whole number

Finite Population Correction Factor (FPC)

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

5% of N = .05(1200) = 60. Therefore

1200 − 120
fpc = = 0.949
1200 − 1

σ N −n 9
σx = = (0.949) = 0.7797cm
n N −1 120

Estimation of Population Proportions


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

where p̂ is the sample proportion, P is the population proportion and q = 1 − p.

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.

a) We have p = 0.05, and n = 500

∴ mean = µ pˆ = P = 0.05

P (1 − P )
S tan dard deviation = σ pˆ =
n
0.05(0.95)
= = 0.00975
500

b) Assuming Normal distribution for the proportion of defectives in a sample, the


95% confidence limits are given by:

µ pˆ ± 1.96 = 0.05 ± 1.96(0.00975)


= 0.05 ± 0.01911
= 0.03089 to 0.06911

Thus the 95% confidence limits for the proportion of defectives in a


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

Assuming a normal distribution the 99% confidence limits are:

µ pˆ ± 2.58σ pˆ = 0.68 ± 2.58(0.0241)


= 0.68 + 0.0622
0.6178 to 0.7422

The 99% confidence limits are 61.78% to 74.22%.

Estimation From Small Samples.

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

Where tα is student’s t distribution value and n − 1 is the degree of freedom.


, n −1
2

x is the sample mean


S the s tan dard deviation of the sample mean

∑x
2
2
− nx
S=
n −1

the t variable is defined by the following formula

167
x−µ
t= S
n

where x is the mean of a random sample of n measurements, µ is the population mean


of the x distribution, and S is the sample standard distribution.

The characteristics of the t-distribution are:

i) It is an exact distribution which is symmetrical and mould shaped.

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%

confidence limits for the population mean height.

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.

4) A study of a sample of 125 customers at the college bookstore indicated


20% preferred new books while 80% wanted used ones.

a) Estimate the standard error of a proportion for those favouring new


books. What is the standard error of a proportion for those
favouring old books?

b) Construct a 99% confidence interval for the proportion of the


population favouring new books.

c) Construct a 95.5% confidence interval for the proportion of the


population favouring new books.

5) A group of college student is trying to determine the appropriate sample


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?

6) Past experience has indicated that the salaries of factory workers in a


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%?

7) The length of time required for persons taking a Mathematics test is


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.

4.5 Hypothesis Testing

Hypothesis testing or significance testing is in many ways similar to the process


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.

A hypothesis is some testable belief or opinion and hypothesis testing is the


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.

Table 1.1 Type I and II Errors

Our Decision

Truth of Ho Accept Ho Reject Ho

Ho is true Correct decision Type I error

171
Ho is false Type II error Correct decision

To investigate the significance of sampling mean we evaluate

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.

α .05 .025 .01 .005


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.

Assumption: population mean = µ = 150. Alternative mean µ ≠ 150. We write

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.

We are given that α = 30, n = 24 and x = 168, now

x−µ 168 − 150


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) K35 000, and

b) more than K35 000

We are given α = 50 000, n =12 and x = 300 000

a) H o : µ = 35 000
H1 : µ ≠ 35 000

this is a two-tailed test. We have

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

Now a significant value of Z at the 5% level is 1.96. i.e. we reject H o if Z value is


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

This is a one-tailed test. We have

x−µ 300 000 − 350 000


Z= =
σ 50
n 12

= −3.46

174
5%

0 1.65 Z

Therefore, our value of Z(= -3.46) is not significant. We accept H o . We thus


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.

We are given S = 7, n =12 and x = 50

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

Now, a significant value of t at the 5% level (two tailed ) with n –1 = 12 = 11 is 2.201.


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

From the tables, a significant value of t at 5% level with n – 1 = 7 – 1 = 6 is 2447.


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

We write: H o : µ = 250 000


H a : µ > 250 000

This is a one tailed test. Now

x − µ 350 000 − 250 000


t= =
S 160 000
n 25

t = 3.125

From the tables, a significant value of t at the 5% level with n – 1 = 24 is 1.111.


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.

Hypothesis Testing of Proportion


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

If n is ‘large’ the sample proportion are approximately Normally distributed. The


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)

We have pˆ = 0.42, n = 250

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

A significant value of Z at the 1% level (one-tail) is –2.33. Therefore, our value of Z = -


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%.

We have P = 0.06, n = 500, Pˆ = 0.75 , α = 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).

3) Monthly salaries in a company are normally distributed with a standard deviation


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).

5) A sample of 28 items from a normal population is found to have a mean of 550


with a standard deviation of 69. At the 5% level test the assumption that the
population has a mean of 520.

6) From a random sample of 95 Zambian companies, it is found that 36 companies


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

S1 = Standard deviation of sample 1, size n1 .

S2 = Standard deviation of sample 2, size n2 and the Z score is calculated thus:

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 1: mean time x1 = 12.5 min; standard deviation s1 = 2.6 min


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.

Hypothesis Testing of the Difference Between Proportions

In a similar manner it may be required to test the difference between the proportions of a
given attribute found in two random samples.

The following symbols will be used.

Sample 1 Sample 2

Sample proportion of successes 1 P̂ P̂2


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 )

But under the null hypothesis H : P1 = P2 , hence (1) is reduced to:

( Pˆ1 − Pˆ2 )
Z=
σˆ ( P1 − P2 )

Example 3

The following results have been recorded from random samples of candidates taking two
Institute examinations.

Examinations No. of candidates sampled No. of passes


Communication 50 35
Mathematics 85 42

Use the 1% level of significance to examine whether there is a significant difference in


the proportions of candidates passing the two examinations.

Let Communication be sample 1 and mathematics be sample 2

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

0.7(50) + 0.49(85) 76.65


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.

Year Proportion of A grades Number of students


2002 0.70 120
2003 0.50 110

Let 2002 results be sample 1, and 2003 results be sample 2

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

This is a one tailed test. The critical Z value is –1.65.

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

1) A quality inspection of two production lines gave the following results

Production line Sampling size No. of defectives


X 45 4
Y 35 9

Use a 5% significant level to test the claim that line A is more reliable than line B.

2) In a survey of voting intentions prior to a local government elections, 45% from a


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

At a 0.05 confidence level, do we have adequate reason to believe that graduate of


School Y have equal starting salaries?

4. A calculator Company was trying to decide between two brands of batteries to


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?

Battery Mean life (hr) Standard Sample size


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

Sample of size n1 = 30 and n2 = 30 are planned to test this null hypothesis.


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

Multiple Choice Questions

1.1 A simple random sample of size 25 is drawn from a finite population


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?

A. 5.0 B. 2.1 C. 1.45 D. 1.92

(Natech, 1.2 Mathematics and Statistics, June 2003)

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?

A. H o : µ = 90, H1 : µ < 90 B H o : µ ≠ 90, H1 : µ > 9.0

C. H o : µ > 9.0, H1 : µ < 9.0 D H o : µ ≠ 9.0, H1 : µ = 9.0

(Natech, 1.2 Mathematics and Statistics, June 2001)

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?

A. 20% B. 34.13% C. 15.87% D. 84.13%

(Natech, 1.2 Mathematics and Statistics, December 2002)

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:

A. Forecasting B. Hypothesis C. inferential statistics

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:

A. 0.0016 B. 0.04 C. 0.4 D. 0.6


(Natech, 1.2 Mathematics and Statistics, December 2001)

1.6 Which of the following does not require a sampling frame?

A. Cluster sampling B. Quota sampling

C. Stratified sampling D. Random sampling


(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:

A. X is infinite. B. N is finite. C. n is finite

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:

A. 0.025 B. 0.05 C. 0.10 D. 0.95

1.9 Type I error refer to the error of:

A. Accepting a true null hypothesis


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:

A. Sample statistics B. Test statistic

C. Null hypothesis C. Alternative hypothesis

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.

b) The mean breaking strength of the cables supplied by a manufacturer is 1,800


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)

c) A company manufactures support struts which have a mean breaking


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

a) Distinguish between a point estimate and an interval estimate.

b) ZACB, a training Institution runs a number of promotional activities for their


programmes, one of which is called “ZACB hour”.

In order to ascertain the effectiveness of this promotional activity, a sample of 500


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:

i) Compute a 95% confidence interval for the population proportion of


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.

ii) In measuring the reaction of individuals, a psychologist estimates that the


standard deviation of all times is 0.05 second.

Required:

Calculate the smallest size necessary in order to be 95% confidence that


the error in the estimate will not exceed 0.01 seconds.

(Natech, 1.2 Mathematics and Statistics, December 2003)

b) A sample of 10 measurement of the diameter of a marble gave a mean of 4.38 mm


and a standard deviation of 0.06mm.

Construct a 99% confidence interval of the population diameter.


(Natech, 1.2 Mathematics and Statistics, June 2005)

c) A weekly turnover of a small retail company is Normally distributed with an


average of K42 000 per week.

Following an advertising campaign a seven-week period produced an


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.

(Natech, 1.2 Mathematics and Statistics, December 1998)

190
d) A random sample of six (6) bank accounts showed balances equal to

K232,200; K2,752,000; K843,200; K1, 376,000; K421,600; K1,346, 400.


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.

i) Find the required sample size.

ii) Suppose the sample size is greater than his fleet of coaches, what steps
should be taken?

(Natech, 1.2 Mathematics and Statistics, December 2001)

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 .

(Natech, 1.2 Mathematics and Statistics, June 1977)

QUESTION FIVE

a) Formulate the appropriate null and alternative hypotheses in each of the following
situations.

i) A large mining company has a mean level of absenteeism of 98 workers


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.

iii) When it is operating correctly, a metal lathe produces machine bearing


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

a) From a recent survey conducted on environmental issues, out of 200 persons


sampled. 1600 favoured more strict environmental protection measures. What is
the estimated population proportion?

b) It is known that the distribution of efficiency ratings for production employees at


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

This section introduces regression analysis which is a method used to describe a


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.

Regression analysis is concerned with the estimating of one variable (dependent


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 .

The Regression Equation


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

a = the y − int ercept when x = 0


b = slope = the amount that y changes with a unit change in x

The linear function is useful because it is mathematically simple and it can be


shown to be reasonably close to the approximation of many situations.

The first step to establish whether there is a relationship between variables is by


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.

Daily High Temperature Number of Units


(x) oc (y)
27 5
35 6
18 2
20 1
46 6
36 4
26 3
23 3

Draw a Scatter diagram for the data.

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

Daily High temperature (oc)

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.

The procedure for obtaining the y on x regression line is as follows:

Step 1

Sort the data into size order by x - value.

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).

Lower half of Data Upper half of data


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

Method of Semi-average for Example 1.

Figure 2.0

Step 3

Calculate the mean point for each group

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.

Least Square 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

a = y − b x where n is the number of data po int s

The values of ‘ a ’ and ‘ b ’ are then substituted into equation yˆ = a + bx

least squares line



ei


yi

x
Figure 3.0

The least squares line with the error term ei .

Example 3

Fit the least squares line to the data in Example 1.

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

giving the equation for the regression line of y = 2.38 + 0.0258 x

Forecasting Using the Regression Line

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

1. For the following data

x 2 5 6 8 10 11 13 16

y 2 3 4 5 6 8 9 10

a) Draw a scatter diagram

b) By eye, fit a straight line to the data (ensuring it passes through the mean
value)

c) Fit the equation of the line by the method of semi-averages.

2. The following data have been collected regarding sales and advertising
expenditure.

Sales Advertising expenditure


(K’ms) (K’ 000s)

10.5 230
11.2 280
9.9 310
10.6 350
11.4 400
12.1 430

a) Plot the above data on a scatter diagram.

b) Fit the regression line using the method of least squares.

c) Estimate the sales if K530 000 is spent on advertising expenditure.

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.

a) Graph the data

b) Fit a least-squares line

c) If a student receives a grade of 85 in Mathematics, what is her expected


grade in Communication?

d) If a student receives a grade of 65 in Communication, what is her expected


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

year 1999 2000 2001 2002 2003 2004 2005

Birth rate per 1000 14.6 14.5 13.8 13.4 13.6 12.8 12.6

a) Graph the data.

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.

4.7 Correlation Analysis

Correlation analysis is used to determine the degree of association between two


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.

The following scatter diagrams illustrate certain values of the correlation


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.

Weekly Wage (K’ 000) 79 81 87 88 91 92 98 98 103 113

Income Tax (K’ 000) 10 8 14 14 17 12 18 22 21 24

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

y 143 141 144 149 148

The PPMCC is calculated in the Table below.

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

The Coefficient of Determination

The coefficient of determination is the square of the coefficient of correlation r. In


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.

Spearman’s Rank Correlation Coefficient.

An alternative method of measuring correlation is by means of the Spearman’s rank


correlation coefficient obtained by the formula.

6∑ d 2
r = 1−
n(n 2 − 1)

where d = difference between rankings.

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

The differences in rankings are shown below.

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 .

Ranking the employees in each test we have

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

3. In a job evaluation exercise an assessor ranks eight jobs in order of increasing


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

Calculate the rank correlation coefficient for this information.

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

(words /min) Shorthand 97 84 95 96 107 98 117

Calculate the degree of correlation between the two skills by:

a) the PPMCC, and

b) the rank correlation coefficient.

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.

EXAMINATION QUESTIONS WITH ANSWERS

Multiple Choice Questions

1.1 If ∑ d 2 = 10 and n = 8, the Spearman’s rank correlation coefficient to 3 decimal


places will be?

A. 0.188 B. 0.841 C. 0.821 D. 0.881

(Natech , 1.2. Mathematics & Statistics, December 2004)

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?

A. -0.9 B. -0.2 C. +0.8 D. 0

(Natech , 1.2. /B1Mathematics & Statistics, December 1999 (Rescheduled))

1.5 If ∑ x = 216, ∑ y = 555, ∑ x 2 = 10436, ∑ y 2 = 46075, ∑ xy = 19635 and n


=8, then the value of r, the coefficient of correlation to two decimal paces, is

A. 0.79 B. 0.62 C. 1.01 D. 1.02


(Natech , 1.2. Mathematics & Statistics, December 2001)

211
1.6 The Scatter diagram below shows


• •

• •

A. High positive correlation B. Very high correlation

C. Very high negative correlation D. Perfect correlation.


(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.

A. 145 B. -65 C. 25 D. -650


(Natech , 1.2. Mathematics & Statistics, June 2005)

1.8 In regression analysis, the variable whose value is estimated is referred to as the:

A. Simple variable B. Independent variable

C. Linear variable D. Dependent variable

1.9 The value of the coefficient of determination is interpreted as indicating

A. The proportion of unexplained variance


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)

(Natech , 1.2. Mathematics & Statistics, June 2001)

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.

Monthly Imports (I) Average Monthly Prices (P)


(‘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.

(Natech , 1.2. Mathematics & Statistics, December 2004)

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

a) Plot, on separate Scatter diagrams.

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.

c) Estimate the percentage of annual income spent on food by a family with an


annual income of K64,800,000.
(Natech , 1.2. Mathematics & Statistics, December 2001)

QUESTION FOUR

a) Sales of product A between 0 and 4 years were as follows:

Year Units sold (‘000s)

2000 20
2001 18
2002 15
2003 14
2004 11

Required:

i) Calculate the correlation coefficient r.


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)

From the data given above:

i) Construct a scatter diagram


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:

i) The product moment coefficient of correlation.


ii) The coefficient of rank correlation.

Month Jan Feb Mar Apr May Jun


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

(Natech , 1.2. Mathematics & Statistics, Nov/Dec 2000)


QUESTION FIVE

a) The following table shows the number of units of a good product and the total
costs incurred.

Units Produced 100 200 300 400 500 600 700


Total Costs (K) 40 000 45 000 50 000 65 000 70 000 70 000 80 000

Draw a scatter diagram

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.

c) State the fixed costs of production.

216
d) Calculate r and explain how much of the variation in the dependent variable is
explained by the variation of the independent variable.

(Natech , 1.2. Mathematics & Statistics, June 2002)

QUESTION SIX

a) A sample of eight employees is taken from the Production Department of an


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)

i) Draw a Scatter diagram of the data.

ii) Calculate a coefficient of correlation for these data and interpret its value.

iii) Find the least squares regression equation of rejects on experience.


Predict the number of rejects you would expect from an employee with
one week experience.

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

b) i) Distinguish between ‘regression’ and ‘correlation’.

ii) A experiment was conducted on 8 children to determine how a child’s


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

Calculate the coefficient of rank correlation and interpret the results.


(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.

ii) Find the equation of the regression line of y on 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

i) Determine Spearman’s rank Correlation coefficient.


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.

Observation Inspection costs per Number of defective


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

Putting inspection costs = x and number of defectives = y

You are required to:

i) Represent these pairs of observations on a scatter diagram.

ii) Find the regression line of y on x.

(Natech , 1.2. Mathematics & Statistics, December,1997)

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 (in weeks) x 4 5 7 9 10 11 12 14

Defective (Per 1,000) y 21 22 15 18 14 14 11 13

You are required to:

a) Draw a scatter plot of y against x

b) Calculate the coefficient of correlation ad interpret its value.

c) Find the least squares regression equation of the number of defectives on


experience.

d) Estimate the number of defectives in a box inspected by a worker with 6 weeks of


experience.

(Natech , 1.2. Mathematics & Statistics, December 1996)

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.

5.1 Arithmetic Series

An arithmetic series is the sum of the terms of an arithmetic sequence, such as 3,


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.

Table 5.1 Arithmetic Sequence

Sequence a a+d a + 2d . . . a + (n − 1)d


Term number T1 T2 T3 . . . Tn

Each element of a sequence an be identified by reference to its term number.

Example 1

In the sequence 3, 7, 11, 15, 19, . . .


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

In the above example, the value of 15th term is

a + (n − 1)d = 3 + (4 − 1)(4)
= 3 + 12 = 15

The sum of the n terms, S n , of an arithmetic series is given by the formula

Sn =
n
[2a + (n − 1)d ] → (5.2)
2

Formula 5.2 can be rewritten as:

a + a + (n − 1)d 
n 
Sn =  
2
 Tn 

Note that Tn = a + (n − 1)d . Hence S n =


n
[a = Tn ] → (5.3) where ‘a’ is the first term
2
and Tn is the nth term of an arithmetic series.

Example 3

Find the sum of the first 20 terms of the series

40 + 36 + 32 + 28 + . . .

This is an arithmetic series since a = 40, n = 20, and d = 36 – 40 = – 4. Using formula


(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.

We have a = 6, and d = 5 with n = 15

T15 = a + 14d = 6 + 14(5) = 78

Here the sum is S15 =


15
[6 + 76] = 615.
2

5.2 Geometric Series

A geometric series is the sum of the terms of a geometric sequence, such as 2, 6,


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.

Table 5.2 Geometric Sequence

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.

The 7th term is T7 = 3(3)7 −1 = 3(3) 6 = 2187.

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

1. Find the 15th terms of the series 2, 7, 12, . . .

2. Find the 7th term of the series 6, 13, 20, . . .

3. Find the number of the term which is 43 in the series 3, 8, 13, 18 . . .

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.

9. Find the 8th term of the series 4, 12, 36, . . .

1 1 1
10. Determine the sum of the infinite G.P series 1 + + + +. . .
4 16 64

11. Determine the sum of the infinite G.P series

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.

5.3 Time Series

Introduction

This section defines a time series and describes the structure within which time series’
movements can be explained and understood.

Definition of a time series: Any variable that is measured overtime in sequential


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).

The model may be additive in its components Y = T + S + I + C or multiplicative


in its components Y = T × C × S × I . The movements of a time series may be
classified as follows:

1. A trend (also known as a secular trend) is a long-term relatively smooth


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.

2. A cycle is a wavelike or oscillatory pattern about a long-term trend that is


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.

Business Forecasting is concerned with estimating the future value of some


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:

• Method of semi averages


• Least squares method.

Here we show an example of 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.

Year 1984 1985 1986 1987 1988 1989 2000


Sales (K’000 000’) 32 26 27 22 21 21 30

The data is plotted on graph

• • •
30 • •
Sales • •
20

10

1984 1985 1986 1987 1988 1989 2002 year

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.

Calculations for Example 1

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:

a) three-point moving averages,

b) five-point moving averages.

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

The moving averages are calculated as follows:

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.

Calculations for 3 and 5 Moving Averages for Example 2

Year Profit Three-Point Moving Five-Point Moving


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).

Year Quarter Sales 4MT 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.

By the addition model this is equal to:

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.

4-quarterly Trend figures Deviations (S)


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 

Therefore the forecasted seasonal variations (s) are: 1: -11 2: -8 3: 28 4: -9

Note that if you were required to find the seasonally adjusted figures or deseasonalised
figures. For the additive model, we have:

Seasonally adjusted values = Original values – Seasonal variations

The results are shown in the table below:

Seasonal Adjusted Sales (Y-S)


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:

1st quarter 39.4 2nd quarter 39.7

3rd quarter 40.1 4th quarter 40.4

Combining the trend and seasonal variations we have:

1st quarter: 39.4 – 11 = 28.4


2nd quarter: 39.7 – 8 = 31.7
3rd quarter: 40.1 + 28 = 68.1
4th quarter: 40.4 – 9 = 31.4

Therefore, the forecasted sales in the 5th year are:

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.

This can be done in two ways:

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.

The forecast value = Trend Value Extrapolated × Seasonal Indices

Using (1) again we plot as graph a in the Example 2. Combining the trend and seasonal
variations, we get:

1st quarter 39.4 (0.69) = 27.2


2nd quarter 39.7 (0.77) = 30.6
3rd quarter 40.1 (1.84) = 73.8
4th quarter 40.4 (0.73) = 29.5

Therefore the forecasted sales in the 5th year would be:

Quarter 1st 2nd 3rd 4th

Sales K27, 000 K31, 000 K74, 000 K30, 000

Exercise 2

1. The sale of Local Authority houses to existing tenants over a four-year period is
tabulated below.

No. of Houses Sold


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.

Total Production (Thousand Units)


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.

2000 2001 2002


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?

Sales (X K 000 000)


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

a) Construct a graph of this data.

b) Find a centered four-point moving average trend and place it on your


graph.

c) Calculate the seasonal variations using additive model.

240
EXAMINATION QUESTIONS WITH ANSWERS

Multiple Choice Questions

1.1 What is a seasonal variation?

A. The square of the standard deviation of a series.


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.

(Natech, 1.2 Mathematics and Statistics, December 1998)

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:

A. -1.4 B. +1.4 C. -0.8 D. +0.8

(Natech, 1.2 Mathematics and Statistics, December 2003)

1.3 The components associated with conventional time series are all:

A. Long-run factors B. Causative factors


B. Short-run factors D. Time-related factors

1.4 The time series component most useful in long-term forecasting is the

A. Trend B. Seasonal C. Cyclical D. Irregular

1.5 The time series component most useful in short-term forecasting is the:

A. Trend B. Seasonal C. Cyclical D. Irregular

1.6 A seasonal index number would never be computed by:

A. Year B. Week C. Quarter D. Month

241
1.7 A seasonal index of “65” for a particular month indicates that the level of values
for that month generally is:

A. 35 percent higher than the monthly average for the year;


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:

A. Week B. Quarter C. Month D. Year

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

a) Index of output of coal mining in Zambia 1998 – 2000 (1995 = 100).

Quarters
Year 1 2 3 4
1998 99 92 84 73
1999 95 82 71 87
2000 91 82 67 87

By means of a moving average, estimate the trend and seasonal movements.

(Natech, 1.2 Mathematics and Statistics, December 2001)

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?

(Natech, 1.2 Mathematics and Statistics, June 2003)

243
QUESTION TWO

a) The sales of M & G Limited are given below:

Centered Moving Seasonal Variation


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).

(Note: Do not adjust, round to 2 decimal places).

(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).

(Natech, 1.2 Mathematics and Statistics, December 2003)

b) The characteristics movements of a time series include:

(i) Long-term movements


(ii) Cyclical movements
(iii) Seasonal movements

244
Explain what is meant by these movements.

Natech, 1.2 Mathematics and Statistics, November/December 2000)

QUESTION THREE

a) The following are the sales figures for Moonga Brothers Engineering Limited for
the fourteen years from 1991 to 2004:

Year Sales (K’m)


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.

(Natech. 1.2 Mathematics and Statistics, June 2005).

b) With which movement of a time series would you mainly associate each of the
following?

(i) A fire in a factory delaying production for 3 weeks.

(ii) An increase in employment during the rainy season.

(iii) A recession.

(iv) A need to increase maize production due to a constant increase in


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)

d) The daily revenue of a department store is tabulated below over a three-week


period.

Daily Revenue (K’000)


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

You are required to;

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)

5.4 Simple Index Numbers

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.

The formulas are as follows:

246
Pi
Simple Price Index = × 100
P0

qi
Simple Quantity Index × 100
q0

Where: Pi is the price of the item at time i (current year).


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:

Weighted average of price relatives

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.

Price per tonne (k)


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

The weight average of price relatives is:

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 crop prices have increased by 63.56% of its 2003.

Changing the Base

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

Year Index A Index B


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.

Laspeyres Price Index = Lp =


∑ q P × 100
0 1

∑q P
0 0

or Laspeyres quantity index = Lq =


∑ 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

or Paasche quantity index = Pq =


∑ 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:

Share Prices (K) No. of Shares Sold


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

160(6 000 ) + 255(21 000 ) + 395(42 000 )


= × 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

160(10 000 ) + 255(26 000 ) + 395(62 000 )


= × 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.

Four main considerations to be borne in mind when constructing an index number.

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.

Chain Index Numbers


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.

Pr ice / Quantity at time n


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.

Year 2000 2001 2003 2004


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.

Year 2000 2001 2002 2003 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.

No. of Units Produced Cost of Units (K)


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

EXAMINATION QUESTIONS WITH ANSWERS

Multiple Choice Questions

1.1 Prices have been as follows (million kwacha)

Year 1990 1991 1992 1993 1994


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

(Natech, 1.2 Mathematics and Statistics, December 2003)

1.2 The paasche price index is:

A. Relating the cost of buying current period quantities at current period


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.

C. Relating the cost of buying current period quantities at current period


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.

(Natech, 1.2 Mathematics and Statistics, June 2002)

1.3 The following table shows index numbers for the period 1994 – 1998, with 1994
as base year.

Year 1994 1995 1996 1997 1998


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.

Year 1998 1999 2000


Chain Index No. 100 107 108

What is the 2000 index, to the nearest whole number, using 1998 as base?

A. 100 B. 116 C. 108.00 D. 115.56

(Natech, 1.2 Mathematics and Statistics, December 2002)

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

(Natech, 1.2 Mathematics and Statistics, June 2001)

1.6 An index number represents a comparison with respect to:

A. Quantity B. Price C. Value

D. Any of the above can be involved.

1.7 A simple price relative can be computed by using the formula:

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:

A. Complex B. Component C. Simple D. Composite

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:

A. K0.15 B. K0.67 C. K1.50 D. K15.00

SECTION B

QUESTION ONE

a) Calculate the chain-base index numbers of the following series:

Year 1995 1996 1997 1998 1999


Value 46 52 62 69 74

(Natech, 1.2 Mathematics and Statistics, June 2005)

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

Calculate using 2001 as the base year:

(i) Simple price index.

(ii) Weight mean of price relatives.

c) Distinguish between a simple index and a weighted index.

(Natech, 1.2 Mathematics and Statistics, December 2004)

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)’.

(Natech, 1.2 Mathematics and Statistics, December 2001)

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

You are required to:

i) Construct a price relative index using quantity weights 200 = 100 (base
year).

ii) Interpret the result.

Natech, 1.2 Mathematics and Statistics, December 2003)

c) The following table gives the index number for different groups together with
their respective weights for the year 2000 (base year 1995).

Group Food Clothing Electricity Rent Miscellaneous


&
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.

Share Price Share Price No. of Shares No. of Shares


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

(Natech, 1.2 Mathematics and Statistics, December 1995 (Rescheduled))

b) The following relate to ADB (Z) Limited’s Sales in a 5 month period:

Month Sales (Kwacha)


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.

(Natech, 1.2 Mathematics and Statistics, December 1998)

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.

6.1 Simple Interest

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%.

a) Calculate the simple interest paid in any one year.

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.

a) Start by writing down any information given in the question.

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

A3 = 25 000 000(1 + .15(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.

At 36 250 000 36 250 000


P= = =
1 + rt 1 + 0.15(3) 1.45

= K 25 000 000.

6.2 Compound Interest

In the modern business environment, the interest on money borrowed (lent or


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

K1 million is invested at an interest rate of 12%. What is the value of the


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

= 1 000 000 (2.773078757)

= K 2 773 078.76

Example 3

a) Calculate the amount owed on a loan of K5 000 000 over 4 years at an


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

b) Musenge places K25 000 on deposit in a bank earning 5% compound


interest per annum. Find the amount that would have accumulated:

i) After 1 year
ii) After 2 years
iii) After three years.

The final amount accumulated (terminal value), S = P (1 + r ) n

Where P = Principal
r = Interest rate per annum
n = time.

i) S = 25 000 000 (1.15) = K 287 500 000

ii) S = 25 000 000(1.15) 2 = K 3 3062 500

iii) S = 25 000 000 (1.15)3 = K 38 021 875.

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:

A: K25,000,000 at 5% inter per annum


B: K30,000,000 per annum

Which would we prefer (assuming both require the same initial outlay)?

On Project A, we have to compound each flow by adding on interest at 5% pa for


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

Year 1 25 000 000(1.05)3 = 28,940,625

Year 2 25 000 000 (1.05) 2 = 27,562,500

Year 3 25 000 000(1.05) = 26,250,000

ear 4 25 00 000 25,000,000

K107,753,125
=========

Project B

Year 120,000,000 = 120,000,000

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:

Year Cash flow Compound factor Terminal Value

0 (15 000 000) (1.05) 4 (18 232 593.75)


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

Find the terminal values of the following investment

a) An initial outlay of K500 000 which will generate the following cash flows.

Year Cash flow

1 30 000
2 20 000
3 40 000
4 50 000

The annual interest rate available for deposit is 7.5%.

b) An initial outlay of K5 000 000 which will generate the following cash flows:

Year Cash flow

1 2 500 000
2 2 000 000
3 -
4 5 000 000

The annual interest rate available for deposits is 10%.

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

The net terminal values are calculated as follows:

a) Year Cash flow Compound factor Terminal value


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)

So the project would be rejected.

265
b) Year Cash flow Compound factor Terminal value

0 (5 000 000) × (1.10) 4 (7 320 500)


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

So the project would be accepted.

c) Year Cash flow Compound factor Terminal value

0 (3 000 000) × (1.085) 4 (4 157 576.10)


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)
=========

So the project would be rejected.

266
6.4 Other Applications of the Compound Interest Formula

In the Compound Interest Formula, there are four variables, At , P, r and t. If


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

dividing throughout by P, we get

At
= (1 + r )t
P

then take the t th root on both sides


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?

a) Calculate r when given

A5 = 25 000 000, P = 15 000 000, and t = 5

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%.

An interest rate of 10.8% is required if this investment is to be doubled in


value over a period of 5 years.

b) When At = 25 000 000, P = 15 000 000 and r = 13.5%. Direct from


compound interest formula (6.4),

25 000 000 = 15 000 000(1 + .135)t


1.667 = (1.135)t

taking natural logarithms or common logarithms on both sides gives us

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.

A5 = K 25 000 000, r = .125, t = 5 years . Using formula (6.6)

25 000 000
P=
(1.125)5

P = K13 873 223.93

6.6 Nominal and Effective Rates

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 = P1 +  → ( 6 .7 )
 m

where n = m × t = total number of conversion periods


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

Assume a year has 365 days.

i) P = 25 000 000, r = 12.5% = .125, t = 5 and m = 12. Using formula


(6.7) the total value after three years with n = m × t = 12 × 5 = 60
conversion periods is calculated as:

mt
 r
Pt = P1 + 
 m
60
 .125 
P5 = 25 000 0001 + 
 12 
= 25 000 000 (1.01041666)60
= K 46 555 402.11

ii) P = 25 000 000, r = 12.5%, t = 5, m = 365, n = m × t = 365 × 5 = 1825


m×t
 r
P5 = P1 + 
 m
1825
 .125 
= 25 000 0001 + 
 365 
= 25 000 000(1.868)
= K 46 700 000

When working with problems involving interest we use the term payment
period as follows:

Annually Once per year


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.

Let us consider formula (6.7)

mt
 r
At = P1 +  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

making APR subject of the formula, we have

m
 r
APR = 1 +  − 1 → (6.8)
 m

Example 7

Interest on a savings account is payable semi-annually at a (nominal) rate of


12.5% per annum. What is the effective rate of interest?

R = 0.125 and m = 2 because interest is payable twice yearly, so

2
 0.125 
APR = 1 +  −1
 2 
= 0.1289

The effective rate of interest is 12.89%

271
Example 8

a) A finance company advertises money at 25% nominal interest, but compounded


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?

a) r = .25, and m = 4 because interest is payable 4 times a year, so

4
 0.25 
APR = 1 +  −1
 4 
= 0.274

The effective rate of interest is 27.4%.

b) Bank X pays interest of 12.5% compounded monthly

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.

6.8 Investment Appraisal

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.

Year Cash Flow

1 5 000 000
2 400 000
3 200 000

NPV = cash inflows – cash outflows


(Revenue) (cost)

= 5 000 000(1.125) −1 + 400 000(1.125) −2 + 200 000(1.125) −3 − 100 000 000


= 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%.

6.9 Internal Rate Of Return

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.

a) Graphically. Excel is ideal at this point. Since calculation of NPVs


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.

Summarising points already calculated.

Points A B C D E

r 0.05 0.08 0.10 0.20 0.24

NPV 154.9905 119.8091 98.53835 −18.2821 −13.8113

i) From points C and D

275
r1 × NPV2 − r2 × NPV1
IRR =
NPV2 − NPV1

0.10 × (−18.2821) − 0.20 × (98.53835)


IRR =
− 18.2821 − 98.53835

− 21.53586
=
− 116.82045

= 0.1843

Therefore, IRR = 18.43%.

ii) From points B and E,

r1 × NPV2 − r2 × NPV1
IRR =
NPV2 − NPV1

0.08 × (−13.8113) − 0.24 × (119.8091)


=
− 13.8113 − 119.8091

− 29.859088
=
− 133.6204

= 0.22346

Therefore, IRR = 22.346%

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.

The advantages of NPV method is that :

i) It gives results in cash terms


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

The net cash flow for two projects, A and B, is as follows:

K’000, 000

Year 0 1 2 3 4

Project A -45.0 -13.5 18 27 36


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.

b) Calculate the IRR of each project. Which project would now be


considered more profitable?

277
Project A

Net Flow Discount Factor


Present
at Value
Discount factor
Present
at Value
8% 12%
1.0000 1.0000 45.00

0.9259 12.50 0.8929 12.05

0.8573 0.7972

0.7938 0.7118

0.7350 0.6355

− r2 × NPV1 + r1 × NPV2
IRR =
NPV2 − NPV1

− .12(5.82) + (−10, = .08)(−0.6)


=
− 0.6 − 5.82

− 0.6984 − 0.048 − 0.7464


= =
− 6.42 − 6.42

= +0.116

278
Project B

Net Flow Discount Factor


Present
at Value
Discount factor
Present
at Value
8% 12%
1.0000 1.0000 22.50

0.9259 0.8929 8.04

0.8573 0.7972 3.59

0.7938 0.7118 9.61

0.7350 0.6355 14.30


3.04

r1 × NPV2 − r2 × NPV1
IRR =
NPV2 − NPV1

0.08(−3.04) − .12(0.29)
=
− 3.04 − 0.29

− 0.2432 − 0.0348 − 0.278


= =
− 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?

2) Find the amount of:

a) K 2 160 000 compounded at 13.5% for 3 years.

b) K5 580 000 compounded at 8.5% for 10 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

a) four times per year


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.

Discount rate (%) NPV (K’million)


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.

13) Find the terminal value of the following compounded deposits.

a) K15 000 000 deposited for 3 years at an annual interest of 8.5%.

b) K30 000 000 deposited for 5 years at an annual interest rate of 12%.

c) K4 800 000 deposited for 4 years at an annual interest rate of 25%.

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

6.11.1 Amount of an Annuity and their Present Values

An annuity is a sequence of payments made at fixed periods of time over a given


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.

The amount of an annuity is found using the following formula:

 (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 

where A is the amount of an ordinary annuity


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?

R = 4 500 000, r = 0.10, n = 5 and n ≠ 6

 (1.10)5 − 1
A = 4 500  
 0.10 

= 4 500 000(6.1051)

= K 27 472 950.00

Alternatively, we reason as follows:

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

Notice the pattern

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 

= 4500 000(6.1051) = K 27 472 950.

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

= K14 686 731.77

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

450 000 450 000 450 000


+ 2
+ . . . +
1.0054 (1.0054) (1.0054)36

This is a geometric series with

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 
 

6.12 Equation of Value

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

This equation is called an equation of value. We find that

x = 452975.32 + 234359.52 = K 687 334.84

Year

0 1 2 3 4 5

Single
Payment x 500 000 300 000

Present 500 000 (1.025)-4 4 periods


Value of
Dents
300 000(1.025)-10 10 periods

Replacing two future payments by a single payment now for Example 13

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

2500 000(1.05)6 + 7500 000(1.05) 2 + x


= 15 000 000(1.05) −1

286
Year

0 1 2 3 4 5 6 7

2500 000 7500 000 x 15 000 000

7500 000 (1.05)2

2500 000(1.06)6

15 000 000 (1.06)-1

Time values of payment for Example 15

3546297.78 + 8268 750 + x = 14285714.29

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 = 11 250, r = 0.0325; then

A 11250
PV = = = K 346 153.85
r 0.0325

6.14 Amortization of Loans

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

Alternatively, there will be 15 × 12 = 180 . Monthly repayments of K2 500 000. The


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 
 

= K192 556 750.80

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.

Using formula (6.11)

1 − (1 + r ) − n 
P = R 
 r 
0.075
where P = 11 250 000, n = 4(12) = 48, r = = 0.00625
12

Substituting these values in the above formula

1 − (1.00625) −48 
11 250 000 = R  
 0.00625 

and making R the subject of the formula

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

i) Principal outstanding at the beginning of the period


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

A debt of K22 500 000 with interest at 6% compounded semi-annually is amortized by


equal payments for the next 2 years.

a) Find monthly payment


b) Construct an amortization schedule.

a) Using formula (6. 11)

0.06
P = 22 500 000, r = , n = 2× 2 = 4
2
1 − (1.03) − 4 
22 500 000 = R  
 0.03 

22 500 000 = R (3.717098403)

R = K 6 053 108.52

The monthly repayments must be K6 053 108.52

290
b) The Amortization Schedule is shown in Table 1.0

Period Principal Outstanding


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

The final payment is adjusted to offset rounding errors. Note that:

1) Principal repaid = payment made + interest paid

2) Outstanding principal at beginning of period = principal outstanding


(current)

At beginning of period (previous) – principal repaid at end of period (previous)

6.16 Sinking Fund

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 

Sinking funds are commonly used for the following purposes:

a) repayments of debts

b) to provide funds to purchase a new asset when the existing asset is fully
depreciated.

c) To pay for future school fees or a pension.

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

Using formula (6.10),

 (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.

a) What is the monthly sinking fund deposit?

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 

where A equal the amount to be accumulated namely,


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 
 

13 500 000 = R(8.97161647)

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

= K2 517 245 55 each month.

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 

0.185 x + 0.026824239 x = 900 000 000

0.211824239 x = 900 000 000

x = K 4 248 805 526.00

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:

a) Find the annual deposit into the fund,


b) Find the amount in the fund at the end of 4 years,
c) Prepare a depreciation schedule.

a) Original cost – Scrap value = 18 – 1.8 = 17.2


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 0 2 504 479.51 2 504 479.51 15 495 520.49

2 504 479.51 152 522.80 2 657 002.31 5 084 093.41 12 915 906.59

2 504 479.51 232.232.87 2 889 235.18 7 741 095.72 10 258 904.28

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.

a) K24 million due in 15 years at 5% compounded annually.


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.

a) K25 million repaid by four equal yearly payment interest at 15%


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?

5) Find the monthly payment of a 6-year loan for K31.5million if interest is at


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?

8) A debt of K500 000 000 compounded at 18.5% is to be discharged over 4 years


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

MULTIPLE CHOICE QUESTIONS

(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?

a) K80 581 061.25 b) K3 037 500 c) K125 542 668.70


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?

a) K1 659 727.08 b) K1 576 740.73 c) K11 610 000


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%.

a) K25 608 b) K24 606 c) K50 000


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%

(Natech, 1.2 Mathematics & Statistics, June 2002)

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.

a) K24 000 000 b) K17 982 015 c) K28 800 000


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?

a) K45 061.12 b) K48 500.50 c) K13 300


d) K13 604.89
(Natech, 1.2 Mathematics & Statistics, December 1998)

1.8) If a boy undertakes to deposit K100 on September 1, K200 on September 2, K400


on September 3, K800 on September 4, and so, how much will be deposit from
September 1 to September 15, inclusive?

a) K32 767.00 b) K327 670.00 c) K3 276 700.00


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.

a) K96 200.00 b) K192 400.50 c) K100 407.05


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?

a) K380 000 b) K240 000 c) K342 000


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?

a) K15 778.35 b) K284 112.30 c) K157 500.00


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?

a) K180 000 b) K518 000 c) K699 000


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%?

a) K472 813.70 b) K28 500.00 c) K427 500.00


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?

a) K32 million b) K40 million c) K42 million


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:

a) K15 million b) 21.5 million c) K25 million


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:

a) 7.5% b) 9.0% c) 10.8%


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?

a) 18% b) 17% c) 16% d) 15%


(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?

a) 5 months b) 6 months c) 5.8 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?

a) K39 935 215.14 b) K50 707 126.36 c) K450 000.00


d) K40 000 000.00
(Natech, 1.2 Mathematics & Statistics, December 2001)

1.10) Rearranging the compound interest formula S = P (1 + r ) n , where P is the original


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%.

c) What lump sum would ha e to be invested at 14% , compounded quarterly, to


provide an annuity of K1 250 000 a quarter for four years?

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

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

Assume an interest rate of 5% compounded Semi-annually.

i) Find the net present value of the cash flows.


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?

c) i) Find the amount of an annuity consisting of payments of K180,000 at the


end of every 3 months for 3 years at the rate of 6% compounded quarterly.

iii) Also find the compounded interest.


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?

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

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.

A is estimated to yield an annuity of K20 million at the end of each year


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,

i) Evaluate the two (2) investment opportunities using Net Present


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?

(Natech, 1.2 Mathematics & Statistics, June 2001)

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

7.0 Business Mathematics Techniques

7.1 Explanation of Usefulness of Computer Packages and Relations with


Business Decision Making

Computer packages such as computer Stat, MINITAB, Microsoft Excel or other


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.

7.2 Matrix Algebra

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.

7.2.1 Matrices: Definition

Matrices are rectangular arrays of numbers or symbols. The dimension of


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.

It is important to keep each element in its correct position in the matrix.


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 

where the superscript T indicates that the matrix is to be transposed.

7.2.2 Definition of Matrix Addition and Subtraction

To add matrices, add the corresponding elements, for example,

 1 3  1 0   1 + 1 3 + 0   2 3 
  +   =   =  
 2 0  1 2   2 + 1 0 + 2   3 2 

To subtract matrices, subtract the corresponding elements, for example,

 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

Given the following matrices

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

b) Why is it not possible to calculate B + C or B – C? Hence, state the


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 

b) When attempting to add the corresponding elements of the


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 

No corresponding element to add.

The same problem arises when attempting to subtract matrices B and C:


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

An ordinary number: 1, 2, -3, 4, etc., is called a Scalar hence matrix multiplication by a


number is sometimes called Scalar multiplication. And when scalar
multiplication is performed, each element in the matrix is multiplied by the scalar:

Example 2

a) Given the matrix

 3 1
B =   calculate 3B.
 2 5

b) Calculate 2I, where I is the 2 x 2 unit matrix.

 3 1  9 3 
a) 3B = 3  =  
 2 5   6 15 

 1 0  2 0
b) 2I = 2  =  
 0 1  0 2

7.2.4 Matrix Multiplication

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 same, so multiplication is possible

The ‘inside’ numbers are the same, therefore multiplication is possible. The ‘outside’
numbers give us the dimension of the product.

308
Example 3

Given the matrices

 2 1 1 0   3 1 1
A =  , B =  , C =  
 3 5   1 1   0 1 2 

Calculate: (a) AC (b) CA (c) AB (d) BA

Compare your answers for (a) and (b)

 2 1  3 1 1
a) AC =    
 3 5  0 1 2

Dimension: 2 × 2 × 2 × 3 = 2 × 3

Same, multiplication possible

 2(3) + 1(0 ) 2(1) + 1(1) 2(1) + 1(2 ) 


=  
 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

Not same, multiplication not possible

 2 1  1 0 
c) AB =    
 3 5  1 1 

2 × 2 × 2 × 2 = 2 × 2

Same multiplication possible

 2(1) + 1(1) 2(0 ) + 1(1)   2 + 1 0 + 1   3 1 


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

Same, multiplication possible

1(2 ) + 0(3) 1(1) + 0(5)  2 1


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. .

7.2.5 Find the Inverse

Solving Ax = b when A is a square matrix. The dimension of the matrix x is an


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.

Since A is a square matrix, it has an inverse called A−1 such that


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

Using the following elementary row operations:

1. The interchange of any two rows of a matrix.

2. The replacement of any row of a matrix by a non-zero constant multiple of


itself.

3. The replacement of any row of a matrix by the sum of itself and a constant
multiple of some other row.

Which will lead to an equivalent matrix.

1 2 1 0
 
2 3 0 1 

original identity matrix


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

Multiply row by –1 to get the new row 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

We have managed to get the identity matrix in the original position.


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

An alternative method of finding and inverse was determinants. A determinant of


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.

7.2.6 Solving Simultaneous Equations by Matrix Algebra

Matrix algebra can be useful for solving simultaneous equations.

Example 5

Solve, using matrix algebra, the following simultaneous equations.

3 x + 2 y = 22
a)
x + 3 y = 19

P = 22 − 2q
b)
P = 11 + 3q

a) Write the system as:

 3 2   x   22 
    =  
 1 3   y   19 

313
Method 1
Using elementary row operations, we have

3 2 22 
 
1 3 19 

matrix of matrix of constants


coefficients

Step 1

Interchange row 1 and row 2 to get

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).

Table 7.1 Number of Television Sets Sold in Each Shop

Sharp Sony Phillips


Shop X 50 300 150
Shop Y 85 425 213
Shop Z 90 30 28

The cost price of each model is:

Sharp K900,000, Sony K1.0 million, Phillips K1.2 million.

The retail price of each model in each of the three shops is given in Table 7.2.

Table 7.2 Selling Price of Television Sets in Each Shop

Sharp Sony Phillips


(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

Use matrix multiplication to calculate:

a) The total weekly cost of television sets to each shop.


b) The total weekly revenue for each model for each shop.
c) The total weekly profit for each shop.

a) The numbers sold from Table 7.1 may be written as a matrix, Q:

Television Sets Sharp Sony Phillips


Shop X  50 300 150 
 
Q = Shop Y  85 425 213 
Shop Z  90 30 28 

Write the cost of each type of television set as a column matrix:

 0.9  Sharp
 
C =  1.0  Sony
 1.2  Phillips
 

Total cost of television sets to each shop:

Q ⋅ C = Total Cost

Dimension 3×3 3×1 =3 × 1

 50 300 150   0.9   50(09 ) + 300(10 ) + 150(1.2 )   525 


      
 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 
      

Cost to Shop X = K525 million, Shop Y = K757.1 million, Shop Z = K144.6


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:

 1.2 1.5 1.1  − price of Sharp


 
P =  1.85 1.80 1.95  − price of Sony
T

 2.10 1.85 2.00  − price of Phillips


 

The required total required is obtained by multiplying.

Sharp Sony Phillips


Shop X  50 300 150 
 
Q × P = Shop Y  85 425 213
T

Shop Z  90 30 28 

price of sharp  1.2 1.5 1.1 


 
X price of sony  1.85 1.80 1.95 
price of phillips  2.10 1.85 2.00 

 50(1.2 ) + 300(1.85) + 150(2.10 ) X 


 
= 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.

We solve the two equations

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
   

Calculate: (a) A + B (b) A – B (c) AB

 1 4 3
−1
 
2) Find A when A =  0 1 1 
 7 4 0
 

3) a) State the general rule for two matrices X and Y to be multiplied.

 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 
   

Which of the following matrix multiplication are possible?

AB AC AD BA BB CD CB CA CD DC

Indicate the dimension of the product matrix where possible.

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.

6) Compute the following if possible:

 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.

a) What is the dimension of the product of two matrices (r × c ) × (w × x ).

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)

8) a) Solve the following equations for x and y using matrix algebra.

45 x + 25 y = 115
16 x + 30 y = 62

0 7  1 5
b) If A =   and B =  
 5 2  6 6

Find (i) AB and (ii) BA.

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.

Units Sold Units Profit (Kwacha)


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

Use matrix multiplication to determine.

a) The profit for each product.

b) The profit for each shop.

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

Multiple Choice Questions

Answer all sub-questions

1.1 The inverse of the following matrix

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

(Natech, 1.2 Mathematics and Statistics, Nov/Dec 2000)

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).

1.3 Find the product AB of the following set of matrices:

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 

A. C12 = 15 B. C11 + C12 + C21 +C22 = 74

C.. C12 + 3 = 0 D. C11 +C12 = 33

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

ATTEMPT ANY FIVE QUESTIONS IN THIS SECTION.

QUESTION ONE

a) Using the matrices P and Q below

 4 2 − 3 1 
P =   ; Q =  
 − 2 1  3 − 4

Solve the following equations:

i) X +P=Q

ii) Y + Q = 4P

b) A square matrix A is the inverse of the square matrix B if and only if


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 

(Natech, 1.2 Mathematics and Statistics, June 1997).

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:

Mumba Daka Besa Moonga


 8 7 6 8  Vehicle
 
 6 9 11 5  Life
A= 
4 3 2 0 Fire / Riot
 
 0 
 2 1 3  Household

If S = (1 1 1 1) , find the product SA and interpret its elements.

1 2  4 2
b) Given that A =   and B =  
3 3  3 1

Find C, the product of the two matrices, A and B.

(Natech, 1.2 Mathematics and Statistics, December 1997)

QUESTION THREE

 1 1 6
  0 1 3  
a) A =  3 , B =  , C = 3 0
 5  − 2 1 0  − 2 2
   

Determine each of the following, if possible

i) A+C (ii ) BT +C (iii ) BA iv) AT B T v) BT AT

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

Use matrix multiplication to determine

i) the profit for each product


ii) the profit for each shop

QUESTION FOUR

a) Given for the following matrices

 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

b) Determine the following if possible

i) AD ii ) AC iii ) DCC T iv) DC

329
c) The percentage of voters who will vote for party candidate A, B, and C is given in
the following table.

% votes for party candidates


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

a) Which of the following matrices do not have an inverse? Give reasons.

 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
 

b) Use the INVERSE MATRIX method to solve the following equations.

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 

i) A ii ) B iii ) A+B iv) AB .

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) A −B and B − A. Which general rule does this prove?

ii) Find AB and BA. Which general rule does this apply?

b) Solve the following equations for x and y using matrix algebra:

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:

MMD UPND Other Undecided


Candidate Candidate Candidates
MMD 550 100 60 8
UPND 200 450 80 3
Independents 50 100 15 100

i) Write the corresponding matrix.

ii) How many MMDs were interviewed?

iii) How many voters preferred the UPND candidate?

iv) How many independents were undecided?

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.

7.3.2 Feasible Regions

Several business production constraints can be graphically demonstrated


using their separate respective inequalities to produce a feasible region of
operation.

In a linear programming problem, the function to be maximized or minimized is


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

Maximize 10 000 x + 15 000 y


where x = number of units of X produced
y = number of units of Y produced

Note that X and Y produced are sometimes called decision variables.

A factory requires three types of processing. The length of time for


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

Process III 8 4 480

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

Pr ocess III 8 x + 4 y ≤ 480

In addition, a general limitation applicable to all maximizing problems is that it is not


possible to make negative quantities of a product, i.e

x ≥ 0, y ≥ 0.

These non-negativity constraints exclude any possibility of negative production levels


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

Process III constraint


8 x + 4 y ≤ 480
70

A(0, 50)
B Process II constraint
3 x + 6 y = 300
(140 80)
, (40, 30)
3 2

Feasible Process I constraint


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.

Corner Point Objective value function

10 000 x + 15 000 y

A(0, 50) 10 000(0) + 15 000(50) = 750 000

 140 80   140   80  2600 000


B ,  10 000   + 15 000   = = 866 666.67
 3 3  3   3 3

C(60, 0) 10 000 (60) + 15 000(0) = 600 000

D(0, 0) 10 000(0) + 15 000(0) = 0

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.

We classify the constraints of a linear program as either binding or non binding.

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

 140   80  1120 320 1440


Pr ocess II 8  + 4  = + = = 480
 3   3 3 3 3

On the other hand, a nonbonding constraint represents an abundant resource. A


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

The linear programming problem is now

Maximize Z = 10 000 x + 15 000 y


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

0 D(60, 0) (65, 0) (100,0) x

Point B is the point of intersection between Process I and process II is


 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

A(0,50) K 750 000.00

 260 60 
B ,  K 809 090.91
 11 7 

 390 60 
C ,  K 685 714.29
 7 7 

D(60, 0) K 600 000.00

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.

Process I Process II Process III

260  260   260   260 


units of X 12   3  8 
11  11   11   11 

420  420   420   420 


units of Y 13  6  4 
11  11   11   11 

Hours used 780 300


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

Maximize the objective function Z = 5 x + 2 y subject to the constraints.

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

Figure 7.1 A, B, C and D are corner points of Feasible Region.

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:

A linear function defined on a non-empty bounded feasible region has a maximum


(minimum) value, and this value can be found at a corner point.

The coordinates of A, B D are obvious on inspection. To find C we solve the equations


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

Figure 7.2: The feasible region is empty.

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

Figure 7.3 A, B, C and D are corner points of feasible region.

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

Evaluating C at these points, we obtain

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

Thus C has a minimum value of 3.0 when x = 0 and y = 3.

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.

Product Labour Material Testing


(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

Since x and y are numbers of products of A and B, then

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,

 100 440   240 600 


A(10, 65), B , , C  , , D(10, 52.5)
 7 7   13 13 

A P = 50 000(10 ) + 70 000( ) = K 5,050,000.00


 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.

a) How many of each kind should be raised for maximum profit.

b) What is the maximum profit?

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:

Forks Spoons Maximum


(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

Given these circumstance, you are required to:

a) State the constraints of the model.

b) Determine the coordinates of the corner points of the feasible region.

c) Find the optimal strategy by evaluating the objective function at each


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

Radio 160 180


__________________________________________________

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:

Process Time (Hours)


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.

You are required to:

i) State the objective function; and

ii) State the constraining factors for this situation with a view to deciding which
processing mix will maximize the total contribution to profit.

(NB: No graphing required).


(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.

Material Alpha Omega


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.

Company’s policy is to earn maximum profit by maximizing contribution.

i) Determine the linear programme model using the above details.

ii) Graphically, estimate the optimum production mix and hence calculate the
maximum contribution earned.

iii) State the binding constraints and the redundant constraint(s).

(Natech, 1.2 Mathematics and Statistics, December 2004)

QUESTION THREE

For the following linear programming problem:

i) Graph the constraints;

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.

(Natech, 1.2 Mathematics and Statistics, June 2001)

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:

CHEMICAL REQUIREMENTS AND AVAILABILITY

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

Given these circumstances, you are required to:

i) State constraints of the model.

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.

(Natech, 1.2 Mathematics and Statistics, December 1998)

350
QUESTION FIVE

A small Copperbelt-based biscuit-making factory makes two brands of biscuits. To make


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.

You are required to:

i) Formulate this as a linear programming problem.

ii) Determine by graphical means how many batches standard biscuits and special
biscuits the factory should produce each day in order to maximize profit.

(Natech, 1.2 Mathematics and Statistics, June 2003)

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:

Product Foundry Machining Finishing


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.

Foundry 420 hours


Machining 300 hours
Finishing 240 hours

Given these circumstances, you are required to:

i) State and graph the constraints of the model.

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.

(Natech, 1.2 Mathematics and Statistics, December 2002)

351
7.4 INTRODUCTION TO DIFFERENTIAL CALCULUS

1. Introduction

This Chapter covers elementary calculus. The field of calculus is a large


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.

Contrary to (often popular) belief, that calculus is a difficult area of study,


NO, it is not especially when one follows:

i) a few simple rules which will be given;


ii) an understanding of some relevant applications.

Differentiation could be used to find the maximum or minimum points of


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.

Integration is the process of reversing differentiation. It can be used to


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:

y = a + bx where y = total cost, the dependent variable. x =


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.

b = the slope of the line which


represents the marginal cost
Costs

a = fixed cost

activities x

Graph of a simple linear cost function.

Figure 1

2) Quadratic Functions

The other common function found in business and accounting is a quadratic


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.

Rule and Notation For Differentiation

Differentiation can be thought of as a process, which transforms one function into


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

Thus, for example,

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

Using the above rule find the following derivatives.

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

Derivatives where the function is a product.

dy
If y = ( x 2 + 5 x)( x + 2), find .
dx

Consider y as a product of two functions

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

Derivative Derivative of first


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

b) If y = (3 x 3 + 5)( x 2 + 7); then = (3x 3 + 2)( x 2 ) + ( x 2 + 5)(9 x 2 )


dx 2
3 72 1 5

= x + x 2 + 9 x 2 + 54 x 2
2

Derivates where the function is a quotient

x+5 dy
If y = , find
x+2 dx

Consider y as a quotient provided the denominator is not zero. Then:

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

Derivatives Functions of A Function

Consider the function y = (2 x − 5) 4 where the expression in the brackets is a


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

Using the Chain Rule

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

b) If y = 1 − 2 x, find . Here, we let u = 1 − 2 x, then y = u 2 . Then by chain rule


dx

dy dy du 1 1
= . = u 2 .(−2)
dx du dx 2

dy −1 1

= −u 2 = −(1 − 2 x) 2
dx

Second Derivative of A function

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

The Practical use of Differentiation

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.

Revenue K ( R ) = 350Q − 5Q 2 and cost K (C )= Q 2 + 20Q + 60 where Q is the number of


units sold. The firm wishes to maximize profit and wishes to know

a) What quantity should be sold?


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.

Alternatively From basic economic theory it will be recalled that profit is


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

point of profit maximization is when

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

27.5 units will be sold for 5843.75 kwachas.

5843.75
The price will be = K 212.50
27.5

c) Total Profit = revenue - Cost

revenue from above = K5 843.75 from above and

Cost = (27.5) 2 + 20(27.5) + 60


= 756.25 + 550 + 60
= K1366.25

Therefore profit = K5 843.75 – K1 366.25


= K4 477.5.

Procedure for identifying the turning points of a curve.

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

As mentioned earlier, integration can be regarded as the reverse process to differentiation.


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

Find the integrals of functions

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

a) Determine the total revenue function R;

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

Differentiate each of the following functions

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

8) The cost function is c = q 2 − 15q + 500 where q = quantity of units produced.


Find the point of minimum cost.

9) If c = 0.005q 3 − 0.04q 2 + 6q + 12 000 us a total cost function, find the marginal


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.

a) Derive an expression for the total profit (P).

b) Calculate the level of activity that maximizes profit and the amount of
profit at this level.

c) What is the profit situation when 500 units are produced.

366
EXAMINATION QUESTIONS WITH ANSWERS

MULTIPLE CHOICE QUESTIONS

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)

1.2. Find the gradient of y = 3 x 2 + 2 x 2 + 4 x − 8 at x = 1 .

a) 17 b) 1 c) 27 d) -17

(Natech, Mathematics and Statistics; December 2004)

1.3. A firm’s output is given by Q = 120 L2 − 2 L4 , where L is the number of labour


hours in thousands. How many labour hors maximize output?

a) 30.0 b) 8.0 c) 24.0 d) 5.5

(Natech, 1.2 Mathematics and Statistics; June 2003)

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.

a) 20 000 b) 500 c) 0.0125 d) -0.025

(Natech, 1.2 Mathematics and Statistics; December 2002)

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

1.6. Find the derivative of the function Y = ( x 2 − 4) 2

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

A. 8(4 x 3 − 15 x 2 )7 B. (4 x 3 − 15 x 2 )8 C. (12 x 2 − 30 x)(8)

D. 8(12 x 2 − 30 x)(4 x 3 − 15 x 2 )7

(Natech, 1.2 Mathematics and Statistics; December 1997)

1 5

1.8 If y = −12 x 2 − 3 x 2 , then which one of the following statements is true?

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

1.9 The total profit from selling x pencils is P ( x) = 20 x 2 − 7 x − 35 . The marginal


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.

i) What amount spent on advertising will yield maximum profit?


ii) What is the maximum profit?

(Natech, 1.2 Mathematics and Statistics; June 2001)

2) Find the relative maximum and minimum values of the following function
f ( x) = − x 3 + 3x 2 + 9 x + 5

(Natech, 1.2 Mathematics and Statistics; December 1998)

3) a) Differentiate the function y = ( x 2 − 2 x + 1)100 with respect to x and


simplify your answer as much as possible.

b) A manufacturer knows that if x (in hundreds) products are demanded in a


particular week, the total cost function is 14 + 3 x and the total revenue
function is 19 x − 2 x 2 .

i) What is the total profit function?


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:

i) the values of R(0) and R(3)


ii) the value of x, correct to nearest whole number, for which R(x) is
maximum.

(Natech, 1.2 Mathematics and Statistics; December 2002)

6) a) The revenue and cost function of product x have been identified as:

Total revenue (K’000) = − x 2 + 20 x

Total Cost (K’000) = 6 x + 21 were x = sales in units.

i) Determine the profit-maximizing price and quantity.

ii) Compute the maximum profit based on the results in (i) above.

b) Find the first derivative of:

− x 2 + 20 x
i) y=
6x

ii) y = (4 x 2 − x + 10)5

(Natech, 1.2 Mathematics and Statistics; December 2004)

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

What value of q will minimize this expression?

b) Examine the following expression for maximum and minimum values


using the second derivation method y = x(12 − x) 2 .

(Natech, 1.2 Mathematics and Statistics; November/December 2000)

5
9) Differentiate the function given by y =
3 x4 + 2

(Natech, 1.2/B1 Mathematics and Statistics; December 1999 (Rescheduled))

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

1) K91 200 2) 22 500 3) K825 4) K1 350 000


5) 400km 6) 416 7) K712 500 8) $91
9) 15 hours 10) K6 000 000

Exercise 4

1) 4 hours 2) 24 days 3) 4 sweets 4) 24 days

2
5) 2 days
7

372
Exercise 5

1) 11.51 SAR 2) 147.77E 3) 2,228,571.43 SAR


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

2) a) 27.621 b) 105.382 c) 12.2497 d) 20.967

3) a) 1.682 b) 0.1108 c) 0.6487 d) 5.213


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

EXAMINATIONS QUESTIONS WITH ANSWERS

Multiple Choice

1.1 B 1.2. A 1.3 B 1.4 B 1.5 A 1.6 D

1.7 A 1.8 A 1.9 A 1.10 C

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

when Q = 12, P = 200 − 5(12) = 200 − 60 = 140

c) 3x − y + z = 5 → (1)
2 x + 2 y + 3z = 4 → ( 2)
x + 3 y − z = 11 → (3)

Equation (1) add to reaction (3) to eliminate z.


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

Substituting this value of y in equation (4),

4 x + 4 = 16
4 x = 12
x=3

Finally, substituting x = 3, y = 2 in equation (1),

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

100 150 185 200 250 277

price (Kwacha/g)

377
4) 28

24

21

18
Number
of Accounts 15

12

0.5 10.5 20.5 30.5 40.5 50.5 60.5

price (Kwacha/g)

5)

200

150
Number
of people

100

50

0 2 5 8 11 14

378
Age (years)

6) i) ‘less than’ distribution

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

Monthly Bonus (Kwacha)

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

Monthly Bonus (Kwacha)

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

Unskilled Semi-skilled Skilled

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

2) a) 24.5625 b) 4.918 c) 47.385 d) 28.058


e) 45.894

3) K345 833.33
4) i) 9.681 ii) 1.55 iii) 1.2

383
5) i) 1 ii) 1

6) a) 169.643 b) i) 186.765 ii) 176.667

7) i) a) 5.21875 median = 5.333 Mode = 5.167


ii) a) 241.216 b) 21.071 c) 21.667

8) Mean = 155.857 median = 156.429 Mode = 184.375

9) Mean = 3.267 median = 3 Mode = 3 and 4

10) a) mean b) mode c) mean d) mean


e) mode f) mode

Exercise 3

2) range = 6 Q1 = 2, Q3 = 5 QD = 1.5 σ = 1.692

3) a) 99.517 b) 10.286 c) 9 d) 10.34%

4) a) 64 b) 35 c) 30 d) 17
e) 50 f) 16.5 g) 98.163 h) 0.061

5) i) 6.148 ii) 6 iii) 5 iv) 7.308

6) Year 1

µ = 13.5 σ = 11.554 cv = 85.6

Year 2

µ = 13.5 σ = 10..308 cv = 76.4

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

1.1 B 1.2 D 1.3 C 1.4 C 1.5 C 1.6 B


1.7 B 1.8 C 1.9 C 1.10 C

SECTION B

Solution One

a) Arrange the data in decreasing order 2, 4, 5, 7, 8, 11, 13, 18

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

Pie chart for five distant geographical market.

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

S = 27.7504 = 5.27(2 decimal places )

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

Thus, the standard deviation is:

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

* Approximate lower boundary and upper boundary.

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

ii) Standard deviation

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

i) Class Interval Tally Frequency(f)

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

ii) The modal class frequency is 45 – 49 .

390
Solution Five

a) i) The mean class size of the college can be calculated as follows:


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.

Size Mid-point x No. of classes ( f ) fx


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

Value x No. of workers f xf


100 000 165 16500 000
150 000 190 28500 000
200 000 105 21000 000
250 000 92 23000 000

∑f = 552 ∑ xf = 89000 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

iii) σ = 0.6644 = 0.8151

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

iii) Standard deviation

(∑ 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

7. a) 0.0498 b) 0.5882 c) 0.36199

Exercise 2

1. i) a 5 + 5a 4b + 10a 3b 2 + 10a 2b3 + 5ab 4 + b 5


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 .

2. i) 32c 5 + 240c 4 d + 720c 3d 2 + 1080c 2 d 3 + 810cd 4 + 243d 5


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

3. a) 0.0467 b) 0.31104 c) 0.8208 d) 0.4557


e) 0.13824 f) 0.95904

4. a) 0.0302 b) 0.3209 c) 0.1359 d) 0.6791

5. a) 0.6983 b) 0.2573 c) 0.0444 d) 0.3017

6. a) 0.0000759 b) 0.9999

7. a) 0.4219 b) 0.0469 c) 0.9961

8. P(0) = 0.178, P(1) = 0.356, P(2) = 0.2966, P(3)=0.1318


P(4) = 0.033, P(5) = 0.0044, P(6) = 0.0002

9. 0.9991 10) 0.1404

11. a) 0.0821 b) 0.9179 c) 0.2566 d) 0.1336

12. 0.9972

397
Exercise 3

1. a) 0.3085 b) 0.4602 c) 0.6179 d) 0.1859


e) 0.44

2. a) i) 0.2946 ii) 0.3859 iii) 0.346


b) 55 ± 46.2

3. i) 0.0869 ii) 0.5299

4. 0.1711 5) a) 0.9738 b) 0.509 c) 0.2879

6. a) 0.492 b) 0.1685

7. a) 0.9969 b) 65.23 c) 0.6597 d) 67.1675

EXAMINATION QUESTIONS

Multiple Choice Questions (Section 1)

1.1 A 1.2 C 1.3 A 1.4 A 1.5 A 1.6 C


1.7 C 1.8 B 1.9 A 1.10 A

Multiple Choice Questions (Section 2)

1.1 B 1.2 C 1.3 A 1.4 B 1.5 C 1.6 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

b) EV = nP (assuming the distribution follows a binomial distribution). The number


of defectives is 0.02(400) = 80 defectives.

c) i) In a permutation there is attention give to the order of arrangement. In a


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

 280 − 300 310 − 300 


iii) P (280 < X < 310) = P <Z< 
 9 9 
=P (−2.22 < Z <1.11)
= 0.853

b) i) Let X = number of orders rejected.


X is poisson with λ = 4 orders
45 e −4
P ( X = 5) =
5!
= 0.156
≅ 0.16

ii) X is binomial with n = 8 orders


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

Therefore probability = 1− 0.7334


= 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

Therefore, mean = 8.035 – 2.05 (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

c) Let X be the number of rejects. Assuming X is a binomial r.v where


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

= 0.434 + 0.378 + 0.148


= 0.960

Solution Four

a) This is a binomial distribution problem where P = 0.4, q = 0.6, n = 5. . Let X


be a binomial r.v Then

i) P (0)=5C0 (0.4)0 (0.6)5 = 0.07776

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

iii) 3 hours 35 minutes is 180 × 3 + 35 = 215 minutes. Hence


 215 − 190 
P ( X < 215 = P Z < 
 20 
= P ( Z < 1.25)
= .5 + .3944
= 0.8944

The true percentage figure is 89.44%

1.25

The required number of journeys = 150 (0.1587)

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

P(D) = 0.05 0.45(0.05) = 0.0225

P(Old) = 0.45 P(G) = 0.95


0.45(0.95) = 0.4275

New P(D) = 0.03 0.55(0.03) = 0.0165

P (New) = 0.55

0.5335
P(G) = 0.97 0.55(0.97) =
1.0000
Figure 1.0

Therefore, from 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

b) This is a normal distribution problem with µ = 18 and σ = 6.45. Let X be a


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  

= [0.1001 + 0.267 + 0.3115]

= 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

b) P = 0.02, n = 140. n is large and P is small. We use the Poisson distribution


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

4. (a) 0.0358, 00358 (b) 0.108 to 0.292 (c) 0.128 to 0.272

5. n = 280

6. n = 267

7. 106.57 to 133.43

8. 214.37 to 249.63

Exercise 5

1. Z c = −0.2; Accept H 0 2. Z c = 2.44; Re ject H 0

3. Z c = 3.81; Re ject H 0 4. tc = 0.5199; Accept H 0

5. tc = 2.301; Re ject H o 6. Z c = −1.37; Accept H o

7. tc = −0.6097; Accept H o

Exercise 6

1. Z c = −2.25; Re ject H o 2 Z c = 3.699; Re ject H o

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

EXAMINATION QUESTION WITH ANSWERS

Multiple Choice Questions

1.1 D 1.2 A 1.3 C 1.4 B 1.5 B

1.6 B 1.7 B 1.8 A 1.9 B 1.10 C

SECTION B

Solution One

a) H o : µ = 25,000; H 2 : µ > 25,00

b) H o : µ = 1800, H 2 : µ > 1800 (one − tailed test )

X = 1850, µ = 1800, σ = 100 and n = 50

σ 100
Standard error, s.e of x = =
n 150

The test statistic, Z =


(X − µ ) = 1850 − 1800 = 3.54
σX 100
50
Z c = 3.54 > 2.33.

Hence, we reject the null hypothesis at 1% or 0.01 level of significance and


conclude that the claim is justified.

c) Null hypothesis: H o ‘the trial has not produced stronger struts’.

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

a) A point estimate is a single number which estimates a population parameter e.g.,


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.

b) i) Let π = population proportion of students who knew the intitute’s


programmes through ZACB hour

185
P = sample proportion = 0.37
500

n = sample size (500 )

95% confidence interval is given by

(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)

There is a 95% probability that the population proportion of students who


come to know about the institute’s programmes lies between 3.2% and
41.2%

ii) Sample Size

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

a) i) n = 100, X = 168.75 and σ X = 7.5cm

The 99% confidence interval is given by

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.

b) n = 10, X = 4.38mm, σ X = 0.06mm

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)

c) Mean = µ = 49,500, n = 7, X = 49,000 and s = 4500. α = 1%

H o : µ = 42,000
H a : µ > 42,000 t0.01, 6 = 3.143

X − µ 49,500 − 42,000 7500


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

Reject H o if tc > t0.005,5 = 4.032 or tc < −t0.005,5 = −4.032.

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

a) i) The confidence limits are given by

σ
x ± Zα
2 n

The error must not exceed 20 kilometres, thus

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.

b) i) You wish to detect a situation leading to a loss when it occurs. Thus, we


want to detect when µ < 3.0. So that the null and alternative hypotheses
are:

H o : µ = 3.0; H1 : µ < 3.0

ii) You wish to detect a situation leading to a profit when it occurs. Thus, the
null and alternative hypotheses are:

H o : µ = 3.0; H1 : µ > 3.0

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

a) i) The company wishes to determine whether absenteeism has declined and


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

Reject H o if tc < −t0.05,10 = −1.895. Since –0.62999 is greater than –1.895, we


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

a) The sample proportion is given by

Number of successes in sample x 1600


= = = 0.80
Number sampled n 2000

80% of the population favour more strict measures.

b) The null hypothesis, H o : µ = 200


The alternative hypothesis, H a : µ ≠ 200

This is a two-tailed test.

X −µ 203.5 − 200 3.5


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

Reject H o if Z c > 1.65 or Z c < −1.65


x−µ 5 − 5 .6
Zc = = = −2.35
σ 1 .4
n 30

Since Z c = −2.35 < −1.65, we regret H o . Hence there is a significant


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 •

100 200 300 400 Advertising expenditure

419
b)

x (Advertising expenditure) y (Sales)


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 •

1999 2000 2001 2002 2003 2004 2005


Year

421
b)

Year ( x ) Code Birth Rate ( y )


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

y = 70.914 − 9.664(11) = −35.39


^
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

5. r = 0.227. The coefficient of correlation is too low to be a reasonable


indictor for the price of company’s share.

422
EXAMINATION QUESTIONS WITH ANSWERS.

Multiple Choice Questions

1.1 D 1.2 A 1.3 C 1.4 C 1.5 A 1.6 A

1.7 B 1.8 D 1.9 B 1.10 C

SECTION B

Solution One

a) The product moment correlation coefficient is given by


n∑ xy − ∑ x∑ y
r=
[n∑ y 2
][
− (∑ y ) n∑ x 2 − (∑ x )
2 2
]
Where

n = 11, ∑ xy = 13467 ∑ x = 440 ∑ y = 330 ∑ x 2


= 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 .

i) A scatter diagram is used to show that there is a relationship between two


variables.

Another method is to find the product moment correlation coefficient r.

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

= 0.938, a very high deg ree of correlation.

^
ii) y = 1.296 + 19.061x

K800,000 is taken to be x = 0.8


∴ y = 1.296 + 19.06(0.8) = 16.5448
^

^
y = K16,544,800.

424
Solution Two

a) i) Regression coefficient is the number which quantities the relationship


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.

ii) The explanatory/independent variable is the variable in regression model


assumed to cause the dependent variable to change. I.e., in the model
y = a + bx, the explanatory variable is x.

b) Let y = imports and x = prices. Then

i) ∑ x = 2699, ∑ y = 1322, ∑ xy = 2995372, ∑x 2


= 608580.

y = 398.06 − 1.28 x

When x = 250, y = 398.06 − 1.28(250) = 78.06


Total imports – 78,060 tonnes

ii) A correlation coefficient of –0.95 implies a strong negative linear


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

c) If x = 64 800 000, then


y = 595 662 143.50(64 800 000) −0.775
x = 526.05% to 2 decimal places.

Solution Four

a) i) Let 2000 to 2004 be years 0 to 4

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.

b) i) yˆ = 20 − 2.2 x. Sales for 2005 implies x = 5. Therefore


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)

c) i) Using the product moment coefficient of correlation.

∑ 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)

y = 595 662 143.50 x − 0.775

Solution Five
Let TC = Total cost and Q = Units produced.

a) TC = 444.44 + 14.07Q
TC is in thousands

b) When Q = 0, TC = fixed costs = loss of K444, 444.44.

n∑ xy − ∑ x ∑ y
r=
[n∑ y ][ ]
c)
− (∑ y ) n ∑ x 2 − (∑ x )
2 2 2

where ∑ xy = 187000, ∑ x = 420


∑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

a) ii) ∑ x = 72, ∑ y = 128, ∑ x 2


= 732,∑ y 2 = 2156,∑ xy = 1069.

r = −87.1. There is a strong negative linear relationship between the of


weeks experience and number of rejections.

iii) yˆ = 24.892 − 0.988 x


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

The required equation of regression is y = −327.80 + 47.60 x.

Solution Seven

6(10)
a) i) r = 1− = 0.822
7(99 − 1)

ii) A value of 0.822 indicates a strong positive correlation. Generally, with


an increase in quality, the price goes up.

b) The required regression line is y = 63.94 − 65.20 x.

Solution Eight

a) Using the formula

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

There is a strong negative linear relationship between the number of defectives


and the number of weeks worth of experience.

b) The required least squares equation is y = 24.89 − 0.988 x.


c) x = 6 in the model in (c), we have y = 24.89 − 0.988(6) = 18.962.

429
430