BBA 1007

BUSINESS MATHEMATICS AND STATISTICS

TAN WAH TIONG

940928-14-5531
201565

DOUGLAS CHENG

NOVEMBER 2012
NO
1.0

DETAIL
Content

PAGE
1

Page 0 of 20

2.0

Introduction

2-3

3.0

Task 1

4-5

4.0

Task 2

6-10

5.0

Task 3

11-12

6.0

Task 4

13

7.0

Reference

14

8.0

Coursework

15-17

1.0 Content

Page 1 of 20

2.0 Introduction
Business math are mathematics used by commercial enterprises to record and
manage business operations. Commercial organizations use mathematics
in accounting, inventory management, marketing, sales forecasting, and financial
analysis. Mathematics typically used in commerce includes elementary arithmetic,
elementary algebra, statistics and probability. Business management can be made more
effective in some cases by use of more advanced mathematics such as calculus, matrix
algebra and linear programming.
In University level, "Business Mathematics" includes mathematics courses taken at
an undergraduate level by business students. These courses are slightly less difficult and
do not always go into the same depth as other mathematics courses for people majoring
in mathematics or science fields. The two most common math courses taken in this form
are Business Calculus and Business Statistics. Examples used for problems in these
courses are usually real-life problems from the business world.
An example of the differences in coursework from a business mathematics course
and a regular mathematics course would be calculus. In a regular calculus course,

Page 2 of 20

students would study trigonometric functions. Business calculus would not study
trigonometric functions because it would be time-consuming and useless to most
business students, except perhaps economics majors. Economics majors who plan to
continue economics in graduate school are strongly encouraged to take regular calculus
instead of business calculus, as well as linear algebra and other advanced math courses,
especially real analysis.
In school, another meaning of business mathematics, sometimes called commercial
math or consumer math, is a group of practical subjects used in commerce and everyday
life. In schools, these subjects are often taught to students who are not planning a
university education. In the United States, they are typically offered in high schools and
in schools that grant associate's degrees.
A U.S. business math course might include a review of elementary arithmetic,
including fractions, decimals, and percentages. Elementary algebra is often included as
well, in the context of solving practical business problems. The practical applications
typically include checking accounts, price discounts, markups and
markdowns, payroll calculations, simple and compound interest consumer and business
credit, and mortgages.

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Finally, The emphasis in these courses is on computational skills and their practical
application, with practical application being predominant. For instance, while
computation.

Page 4 of 20

3.0 TASK 1
A bonds coupon is the annual interest rate paid on the issuers borrowed money,
generally paid out semi-annually. The coupon is always tied to a bongs face or par
value, and is quoted as a percentage of pars. For instance, a bond with a par value of
1,000 and an annual interest rate of 4.5% has a coupon rate of 4.5% ( 45).
Say you invest in a six-year bond paying 5% per year, annually. Assuming you hold the
bond to maturity, you will receive 6 interest payments of 250 each, or a total of
1,500. Plus the par value of 1,000. This coupon payment is simple interest.
You can do two things with that simple interest-spend it or reinvest it. Determine the
total amount of money you will have after six years, assuming you can reinvest the
interest at 5% per annum.
Time ( years )
1
2
3
4
5
6
Total:
Final Total:

Cash Flow Received

250
250
250
250
250
1250
2500
2,500 + 200.49 = 2,700.40

Interest Earned at 5%
69.07
53.88
39.41
25.63
12.50
0
200.49

1st year compound interest = P ( 1 + i )n P

= 250 (1+0.05)5- 250
= 69.07

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2nd year compound interest = P ( 1 + i )n P

= 250 (1 + 0.05 )4 - 250
= 53.88
3rd year compound interest = P ( 1 + i )n P
= 250 ( 1+0.05 )3 - 250
= 39.41
4th year compound interest = P ( 1 + i )n P
= 250 (1+0.0.5)2 - 250
= 25.63
th
5 year compound interest = P ( 1 + i )n P
= 250 ( 1+0.05)1 - 250
= 12.50
6th year compound interest = P ( 1 + i )n P
= 250 ( 1+0.05)0 - 250 + 1000 (0)
=0

The total cash flow received is sum of the received 6% interest payments of 250 and

the par value of 1000.

The total interest earned is sum of the interest by using P ( 1 + i )n P formula and
calculate for 6 years.

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4.0 Task 2
So far, it has been assumed that compound interest is compounded once a year. In
reality interest may be compounded several times a year, e.g. daily, weekly, monthly,
quarterly, and semiannually or even continuously.
The value of an investment at the end of m compounding periods is:
r
1+
m( t)
Pt = P0 [
m ]
Where m is the number of compounding periods per year and t is the number of years.
Using this information, solve the following problem:
A) 1,000 is invested for three years at 6% per annum compounded semi-annually.
Calculate the total return after three years.
B) What would the answer be if the interest was compounded annually?
C) If the interest was compounded monthly is it true that the total amount after
three years would be less than 1195.00?
D) Using your answers to (a) (c) what can you infer about the frequency of
compounding and the size of the total return?
Therefore, the answer is:
A)

Pt = P0 [

1+

r
m

P 6 = 1000 [ 1+

] m( t)
0.06
] 2(5)
2

= 1194.05

B)

1st year compound interest : S = P ( 1 + i ) n

S = 1000 ( 1 + 0.06 )1
S = 1060

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2nd year compound interest : S = P ( 1 + i ) n

S = 1060 ( 1 + 0.06 )1
S = 1123.60
3rd year compound interest : S = P ( 1 + i ) n
S = 1123.60 ( 1 + 0.06 )1
S = 1191.02
Time ( years )
1
2
3

Principal
1000
1060
1123.60

Interest Earned
60
63.60
67.42

Total of the end of the period

1060
1123.60
1191.02

C) The interest was compounded monthly is false. The total amount after three years would
be more than 1195.00. While the total amount after three years would be 1196.70.

Page 8 of 20

Time ( months )
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36

Principal
1000.00
1005.00
1010.03
1015.08
1020.16
1025.26
1030.39
1035.54
1040.72
1045.92
1051.15
1056.41
1061.69
1067.00
1072.34
1077.70
1083.09
1088.51
1093.95
1099.42
1104.92
1110.44
1115.99
1121.57
1127. 18
1132.82
1138.40
1144.17
1149.89
1155.64
1161.42
1167.23
1173.07
1178.94
1184.83
1190.75

Interest Earned
5.00
5.03
5.05
5.08
5.10
5.13
5.15
5.18
5.20
5.23
5.26
5.28
5.31
5.34
5.36
5.39
5.42
5.44
5.47
5.50
5.52
5.55
5.58
5.61
5.64
5.66
5.69
5.72
5.75
5.78
5.81
5.84
5.87
5.88
5.92
5.95

Total at the end of the period

1005.00
1010.03
1015.08
1020.16
1025.26
1030.39
1035.54
1040.72
1045.92
1051.15
1056.41
1061.69
1067.00
1072.34
1077.70
1083.09
1088.51
1093.95
1099.42
1104.92
1110.44
1115.99
1121.57
1127. 18
1132.82
1138.40
1144.17
1149.89
1155.64
1161.42
1167.23
1173.07
1178.94
1184.83
1190.75
1196.70

Page 9 of 20

D) P ( 1 + i ) n
Compound Frequency
1
2
4
5
12
52
365
730
1460

Total at the end of period

1191. 02
1194. 05
1195. 62
1196. 41
1196. 68
1197. 09
1197. 20
1197. 21
1197. 21

While the value of m which is the compounding frequency is increasing the

value of the investment becomes larger, but never exceeds 1.197.21

Page 10 of 20

5.0 Task 3
Michael plans on retiring on her 60th birthday. She wants to put the same amount of
funds aside each year for the next twenty years, starting next year, so that she will be
able to withdraw $ 50,000 per year for twenty years once she retires, with the first
withdrawal on her 61st birthday. Michael is 20 years old today. How much must she set
aside each year for her retirement if she can earn 10% on her funds?
- 61~ 80 ( 20 years ) = each year withdraw $ 50,000
- 41 ~ 60 ( 20 years ) = did not withdraw money but interest increase
- 21 ~ 40 ( 20 years ) = every year he should save how much?
Therefore, the answer is:
In 61 80 year old, he should have how much?

A= R

1(1+i)-n
i

= 50000 [

1 (1+0.1)-20
0.1

= $ 425678 . 19

Page 11 of 20

Therefore, he should have $ 425678.19.

In 41 80 year old, the interest would be how much?
S = P ( 1 + i )n

P=$

425678.19
(1+0.01)20

= $ 63274.35
Therefore, the interest would be $ 63274.35.
He should save how much in every month within a year?

S=R[

(1+i) n 1
i

$ 63274 . 35 = R [

(1+0.1)20 1
0.1

R = $ 1104 . 75
Therefore, he should save $ 1104.75 in every month within a year.

Page 12 of 20

6.0 TASK 4
Kenny got a deal for you! If you lend Kenny $100,000 today , Kenny promise to pay
you back in twenty-five annual installments of $5,000 , starting five years from today
(that is , Kennys first payment to you is five years from today). You can earn 6% on
your investments. Will you lend Kenny the money?
A) In 25 year time, Kenny should have how much to pay me back? :
1 (1+i)n
S=R[
i]
i

= $ 5,000 [

1 (1+0.06)25
]
0.06

= $ 63916.78

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Therefore, Kenny should have $ 6391.78 to pay me back the money?

B) Will I lend Kenny the money?
S = P ( 1 + i )n

P=

P=$

S
( 1+i ) n

$ 63916.78
( 1+0.06 ) 4

P = $ 50628.08
Therefore, I will not borrow him the money.

Page 14 of 20

7.0 References

Oxford Fajar Business Mathematics for UiTM

www.goolge.com

http://en.wikipedia.org/wiki/Business_mathematics

Brechner, Robert. (2006). Contemporary Mathematics for Business and

Consumers, Thomson South-Western.

Page 15 of 20

Wegner, Trevor. (2010). Applied Business Statistics: Methods and Excel-Based

Applications, Juta Academic.

Page 16 of 20

8.0 Coursework
1) Find the future value of RM 1000 which was invested for
(a) 4 years at 4% compounded annually,
(b) 5 years 6 months at 14% compounded semi-annually
(c) 2 years 3 months at 4% compounded quarterly,
(d) 5 years 7 months at 5 % compounded monthly,
(e) 2 years 8 months at 9% compounded every 2 months,
(f) 250 days at 10% compounded daily.
Solution

a.

S=1000 ( 1+4 ) 4

b.

S=1000 1+

c.

S=1000 1+

d.

S=1000 1+

e.

9
S=1000 1+
6

= RM 1169.86
11

14
2

4
4

( )
(

5
12

= RM 2104.85
= RM 1093.69

67

= RM 1321.26

16

( )

= RM 1268.99

Page 17 of 20

S=1000 1+

f.

10
360

250

= RM 1071.90

2) A debt of RM 3000 will mature in three years time. Find

(a) The present value of this debt,
(b) The value of this debt at the end of the first,
(c) The value of this debt at the end of four years,
Assuming money is worth 14% compounded semi-annually.

Solution
Year

P
(a)

3000

(c)

(b)

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(a) From P= S(1+i)-n, we get

P= 3000(1+7%)-6
= RM1999.03
(b)

P=S(1+i)-n
P=3000(1+7%)-4
P= RM2288.69

(c) Here, we have to find S instead of P in the formula, S=P(1+i)n as the value of
debt to be determined is on the right side of the original debt.
From S=P(1+i)n, we get
S= 3000(1+7%)2
S= RM3434.70

Page 19 of 20