CMA JANUARY, 2022 EXAMINATION

BUSINESS LEVEL
SUBJECT:GE03. FUNDAMENTALS OF BUSINESS MATHEMATICS

MODEL SOLUTION

Solution of the Q. No. 1

(a) The selling price without VAT would be £ 3.99 100/117.5 = 3.395745 =$3.40 (rounded).
Hence the new VAT amount is = 3.91 – 3.40 = $0.51. So, the VAT rate is
= (0.51/3.40) 100 = 15% (Answer).

(b) If Y = a + bX
Where Y = 14, X = 525, so 14 = a + 525b - - - - - - - (1)
Where Y = 18, X = 475, so 18 = a + 475b - - - - - - - (2)
(2) minus (1) gives 4 = - 50b, so b = - 0.08
Substituting into (1) gives 14 = a + 525 (-0.08) = 56
Hence, Y = 56 – 0.08X

Solution of the Q. No. 2

(a) Sample size is 100 companies. Number of large companies are 60. So, number of small
companies are 100 – 60 = 40. Of the 60 large companies 40 are slow payers. So, 60 – 40 =
20 are fast payers. But a total 30 companies are fast payers. So, 30 – 20 = 10 companies
are small but fast payers. And then of the total 49 small companies, 40 – 10 = 30 companies
are slow payers. Thus the following table can be set up:
Large Small Total
Fast Payers 20 10 30
Slow Payers 40 30 70
Total 60 40 100
So, P (Fast paying Small companies) = 10/100 = 0.1; Answer.
(b)
The expected value for each project is as follows.
Project A: (0.45 $4,000) + (0.55 $2,000) =$1,800 + $1,100 = $2,900
Project B: (0.64 $8,000) + (0.36 ($1,000)) =$5,120 – $360 = $4,760
Project B has a higher expected value of profit which means that it could offer a better return than
A,
So, Project B should be chosen (with an expected profit of $4,760).
(c)
IRR (Internal Rate of Return) of the investment can be calculated using the following formula –
IRR = LR + [ {NPVLR X (HR – LR)} / {(NPVLR - NPVHR)} ] %
= 10% + [ {12,000 X (18 – 10)} / {12,000 – ( - 4,000)} ] %
= 10% + [ 96,000 / 16,000 ] %
= 10% + 6%
= 16%

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Solution of the Q. No. 3
(a)
Ans. Normal Probability Distribution A normal probability distribution, when plotted, gives a bell-
shaped curve such that:
1. The total area under the curve is 1.0.
2. The curve is symmetric about the mean.
3. The two tails of the curve extend indefinitely.

Second Part: For this normal distribution, μ = 50 and σ = 8. The probability P(30≤ x≤ 39) is given
by the area from x =30 to x =39 under the normal distribution curve.
For x = 39: z = (39 – 50)/8 = 1.38
For x = 30: z = (30 – 50)/8 = 2.50
So, P(30≤ x≤ 39) = P(- 2.50 ≤ z ≤ - 1.38) = .0838 - .0062 = .0776
(b) Let x denote the time this worker takes to assemble a racing car. Then, x is normally
distributed with
μ = 55 minutes and σ = 4 minutes.
We are to find the probability that this worker can assemble this car in 60 minutes or less (between
4 and 5 P.M.). This probability is given by the area under the normal curve to the left of x = 60.
For x = 60: z = (60 – 55)/4 = 1.25
The required probability is given by the area under the standard normal curve to the left of z =
1.25, which is .8944 from the Z-Table. Thus, the required probability is
P(x≤ 60) = P(z ≤ 1.25) = .8944
Thus, the probability is .8944 that this worker will finish assembling this racing car before the
company closes for the day.

Solution of the Q. No. 4

(a)
Let, Mr. B receives Taka x
So the equation is, 2x + x + 0.5x = 91,000
Or, 3.5x = 91,000
Therefore, x = 26,000
So, Mr. A receives 2x = 2 X 26,000 = 52,000
Mr. C receives 0.5x = 0.5 X 26,000 = 13,000
(b)
P = 7,20,000
r = 0.2 for n = 1
r = 0.1 for n = 5
and r = 0.02 for n = 1
V = 7,20,000 X 0.081 X 0.95 X 0.981
= 3,33,319.80

Solution of the Q. No. 5

(a)
Weight Frequency Height of bar
0–5 83 83
5–10 105 105
10–20 160 80
20–40 96 24
40–100 108 9

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(b) Here, mean salary = 3140 ÷ 120 = 26.167 thousand =£26,167

So, the standard deviation of salary (to the nearest £100) is £16,000.
Co-efficient of variation = Standard deviation ÷ Mean = 15,978 / 26167 = 0.61.
Comments: Both the mean and the standard deviation have increased. The mean measures the
average level whilst the standard deviation measures variability. So, the standard deviations show
that salaries are now more variable than 5 years ago. And the means show that the average salary
has increased.

Solution of the Q. No. 6

(a) The IRR is calculated by equating the present value of costs with present value of benefits.
PV(costs) = 10,000
PV($7,000 in year 1) = 7,000/(1 + r)
PV($5,000 in year 2) = 5,000/(1 + r)2
Equating the present value of costs with the present value of benefits gives:

So, 10000 – 7000(1+r) – 5000 = 0

= > 10 – 7(1+r) – 5 = 0
=> 10r2 + 20r + 10 – 7 – 7r – 5 = 0
=> 10r2 + 13r – 2 = 0

Solving r = 13.90%.
So, the required IRR = 13.90%.
(b) Here the grades and scores are ranked, with the best scores given a rank of 1. Interviewees
K and M share the ranks 1 and 2 to give 1.5 each.
Interviewee Rank of interview grade Rank of test score d d2
K 1.5 4 2.5 6.25
L 3 3 0 0
M 1.5 5 3.5 2.25
N 4 1 3 9.0
O 5 2 3 9.0
36.50
Hence:

The high negative value (near to - 1) indicates that interview grades and exam scores almost
totally disagree with each other – good interview grades go with the lowest test scores and vice
versa.

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Solution of the Q. No. 7
(a)
Year Cash outflow Cash inflow D.F. P.V.
0 -1,00,000 1.00 - 1,00,000
1 -1,00,000 0.909 - 90,900
1 40,000
2 40,000
3 40,000
4.355 1,74,200
4 40,000
5 40,000
6 40,000
6 20,000 0.564 11,280
NPV -5,420

NPV = Present Value – Cash outflow

= 1,85,480 – 1,90,900
= -5,420
(b)
P.E. (Probable Error) = 0.6745 X (1 - / √N
= 0.6745 X (1 – 0.62) / √64
= 0.6745 X (1 – 0.36) / 8
= 0.6745 X 0.64 / 8
= 0.054
Therefore, the limit of r = 0.6 (+/-) 0.054 or 0.054 to 0.

Solution of the Q. No. 8

(a) (i) For the regression equation, here the independent variable (x) is the miles run and the
dependent variable (y) is the blood sugar level. To calculate the values of a and b of the equation y
= a + bx, the following table is formed:

x y x2 xy
2 136 4.00 272.00
2 146 4.00 292.00
2.5 131 6.25 327.50
2.5 125 6.25 312.50
3 120 9.00 360.00
3 116 9.00 348.00
3.5 104 12.25 364.00
3.5 95 12.25 332.50
4 85 16.00 340.00
4 94 16.00 376.00
4.5 83 20.25 373.50
4.5 75 20.25 337.50
39 1310 135.50 4035.50

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So, the regression equation of blood sugar level on the distance run is,

y = 191.6238 – 25.3714x.
(ii) Here, a = 191.6238 gives the predicted or mean value of y for x= 0 based on the regression
model estimated for the sample data. This means that when the mileage is zero, the blood
sugar level will be 191.6238 mg/dL. But here the value of x varies from 2 to 4.5. So, x = 0 is
out of this range and the prediction does not carry much credit.
The value of b = -25.3714 in a regression model gives the change in y (dependent variable)
due to a change of one unit in x (independent variable). That is if one more mole is run, then
the blood sugar level will reduce by 25.3714 mg/dL. The changes in x and y in this case are
in opposite directions. Such a relationship between x and y is called a negative linear
relationship.
(iii) When x = 3.1 miles, blood sugar level y = 191.6238 – 25.3714 3.1 = 112.9725 mg/dL.
(iv) When x = 10 miles, blood sugar level y = 191.6238 – 25.3714 10 = - 62.0905 mg/dL. This
value of y does not mean anything since the value of x = 10 miles is out of the range of the
sample data on which the model is designed.
(b) A simple regression model includes only two variables: one independent and one dependent.
The dependent variable is the one which depends on an independent variable, and the
independent variable is the one used to explain the variation in the dependent variable. A
(simple) regression model that gives a straight-line relationship between two variables is
called a linear regression model.

Solution of the Q. No. 9

(a)
Year Quarter t T Sales, Y Y/T
2001 1 1 30.8669 24.8 0.8034
2 2 33.1913 36.3 1.0937
3 3 35.5157 38.1 1.0728
4 4 37.8401 47.5 1.2553
2002 1 5 40.1646 31.2 0.7768
2 6 42.4890 42.0 0.9885
3 7 44.8134 43.4 0.9685
4 8 47.1378 55.9 1.1859
2003 1 9 49.4622 40.0 0.8087
2 10 51.7866 48.8 0.9423
3 11 54.1110 54.0 0.9979
4 12 56.4354 69.1 1.2244
2004 1 13 58.7599 54.7 0.9309
2 14 61.0843 57.8 0.9462
3 15 63.4087 60.3 0.9510
4 16 65.7331 68.9 1.0482

Year Q1 Q2 Q3 Q4
2001 0.8034 1.0937 1.0728 1.2553
2002 0.7768 0.9885 0.9685 1.1859
2003 0.8087 0.9423 0.9979 1.2244
2004 0.9309 0.9462 0.9510 1.0482
Total 3.3198 3.9707 3.9902 4.7138 Total
Average 0.8300 0.9927 0.9976 1.1785 3.9988
+ 0.0003 0.0003 0.0003 0.0003 0.0012
Comp. 0.8303 0.9930 0.9979 1.1788 4.0000

To two decimal places, the seasonal components are

0.83 0.99 1.00 1.18

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Solution of the Q. No. 10
(b)
C7=A7^2
D4=B4^2
E6=A6*B6
A9=SUM(A4:A8) or A9=A4+A5+A6+A7+A8
E9= SUM(E4:E8) or E9=E4+E5+E6+E7+E8
Pearson’s correlation coefficient,

= THE END =

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