BUS220 Module

COURSE TITLE: CALCULUS FOR BUSINESS STUDENTS

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COURSE CODE: FBA 120

COURSE UNIT: THREE

LEVEL: YEAR TWO (ACCOUNTING AND BUSINESS STUDENTS)

LECTURERS: MRS. C. O. REJU

PROF. C. O. A. AWOSOPE

DR. T. O. AKINBULIRE

MR. M. ODEKUNLE

MR. M. S. LADAN
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CONTENT
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MODULE ONE: DIFFERENTIATION AND INTEGRATION

1. Study Session 1: Definition of Differentiation: Rules for Differentiation

2. Study Session 2: Second – Order Derivative

3. Study Session 3: Application of Differentiation to Marginal Cost and Revenue

4. Study Session 4: Functions of Two or More Variables

5. Study Session 5: Application of Differential Calculus

6. Study Session 6: Definition of Integration

7. Study Session 7: Basic Integral Formulae: Rule 1

8. Study Session 8: Basic Integral Formulae: Rules 2 and 3

9. Study Session 9: Rule 4 and Method of Partial Fraction

MODULE TWO: APPLICATION OF INTEGRATION,

VECTORS, MATRICES AND MATHEMATICS OF FINANCE
1. Study Session 1: Methods of Integration

2. Study Session 2: Definition of Vector

3. Study Session 3: Vector Algebra

4. Study Session 4: Definition of Matrix

5. Study Session 5: Types of Matrices

6. Study Session 6: Basic Operations with Matrices

7. Study Session 7: Sequence, Series and Progression

8. Study Session 8: Special Sequence

MODULE THREE: APPLICATION OF MATHEMATICS OF

FINANCE AND BASIC PROBABILITY
1. Study Session 1: Definition and Basic Concepts of Mathematics of Finance

2. Study Session 2: Present and Future Values

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3. Study Session 3: Nominal and Effective Interest Rates

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4. Study Session 4: Concept of Probability as a Numerical Measure

5. Study Session 5: Generalising Coin and Die Experiments

6. Study Session 6: The Use of Set Theory in Explaining Basic Probability Concepts

7. Study Session 7: Probability Viewed as a Finite Fraction

8. Study Session 8: The Concepts of Mutually Exclusive and Independent Events

9. Study Session 9: The Concepts of Ordering, Permutations and Combinations

LIST OF REFERENCES

APPENDIX: Solutions to Self Assessment Questions (SAQs)

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General Introduction
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Business Mathematics, as the name implies, is the basic mathematical knowledge you need
in the day-to-day activities in your organization. It involves direct application of
Mathematics to business and economics because it enhances reasoning power, problem
solving skills and the ability of the students to think.

This work has three modules comprising nine Study Sections in Module One, eight Study
Session in Module Two and nine Study Sessions in Module Three. You are expected to
study each of the study sessions carefully.

How to Study this Module

You should read each Study Session of the module very carefully and make sure you
understand a step before you go further. You should pay attention to the solved examples,
In-Text Questions (ITQ) and attempt all the Self-Assessment Questions (SAQ). If you
encounter any difficulty, contact your course lecturers. You should note that references of
authors are included for your further studies. All the answers to the SAQ are at the back of
this booklet.

You should also note that:

§ Used to indicate In-Text Questions

□ Used to indicate In-Text Question Solution

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MODULE ONE
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DIFFERENTIATION AND INTEGRATION

Learning Outcomes for Module One

At the end of this module, you should be able to:

1. State the rules of differentiation and apply the in solving deferential problems

2. Solve problems using second order derivatives

3. Apply differentiation to marginal cost and revenue

4. Solve problems using functions of two or more variables

5. Apply differential calculus to solve business problems

6. Use general rules of integration to solve mathematical problems

7. Use basic integral formulae in solving problems of mathematics

8. Solve integration problems using partial fraction

 BUS220 Module

Study Session 1: Definition of Differentiation: Rules for

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differentiation

Introduction
Concept and meaning of differentiation: The concept of differentiation is important as it has
a lot of applications in many areas of human activities. Differential calculus is given a
special attention because of its use in finding critical values such as marginal revenue and
point of maximum profit or minimum cost. In this study session, you will learn how to
actively differentiate using some basic rules.

Learning Outcomes for Study Session 1

At the end of this study session, you should be able to:

1.1 Define differentiation

1.2 Identify the rules of differentiation

1.3 Solve problems using the rules of differentiation

1.1 Definition
Formally, differentiation is the process of finding the derivation of a function.

We start by demonstrating the principle of obtaining derivatives from the first

principles approach.
Given y = axn …………………… (i)
Let y + ΔY= a(x + Δx)n …………………… (ii)
Then, Y + ΔY – Y = a(x + Δx)n - axn
Δy = axn {{1 + Δx}n – 1}
x
Δy = axn{1 + n (Δx) + n (n-1) (Δx)2 + …. - 1}
x 2 x
ΔY = a(nx n-1) Δx + n (n-1) xn-2 (Δx)2 + …. }
2!
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Equation (iii) is the derivative of Y = axn.

Hence, if y = axn, the derivative of y with respect to variable x

Example:

Obtain the derivative of the following:

i) X4 ii) 3 x5
Solution:
i) Let y = x4

ii) y =3x5

1.2 Rules for Differentiation and Solved Examples

Rule I
Example:
i. 2x3 + 4x5 – 5x6
ii. 3x2

Solution:
i. y = 2x3 + 4x5 – 5x6

ii. y = 3x2
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= 6x – 5x–3

= 6x

Rule II: Product of Functions

If a product Y = UV where u and v are functions of x, then

Example:

Find the derivative of the function:

y = (3x + 2) (4x2 + 3x)

Solution:

Here let U = 3x + 2 ;

V = 4x2 + 3x ;

= (3x + 2) (8x + 3) + (4x2 + 3x) 3

= 24x2 + 16x + 9x + 6 + 12x2 + 9x

36x2 + 34x + 6

Rule III: If quotient, Y = U/V

State the rule:

where u and v are functions of X, then

Example:

Differentiate the following with respect to X:

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i) y = 2 + x3 ii) 3 + 4x
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4x x3 + 2x + 6

Solution:
i) Y= 2 + x3
4x

= 12x3 – 4x3 – 8
16x2
= (8x3 – 8)/ 16x2
(ii) y = 3 + 4x
x3 + 2x + 6

Rule IV: Function of a Function

Example:
Differentiate the following
i) Y = (x - 2)5 ii) Y = (3X3 - 4)4

Solution:
i) y = (x - 2)5
Let u = x – 2 ; =1

then
Y = U5 ; = 5U4
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= 5U4 = 5 (x-2)4

ii) y = (3x2 - 4)4

Let U = 3x2 – 4 ; = 6x

then y = U 4 = 4u3

= 4 (3x2 – 4)3 . 6x
= 24x (3x2 – 4)3
Rule V: Implicit Function
Example:
Differentiate the following implicitly:
i) x3 + y2 = 8 ii) 4 y2 – 3x2y2 + 2y = 0

Solution:

i) x3 + y2 = 8

Differentiate the function, term by term, with respect to variable X, then

3x2 + 2y

2y = - 3x2

then

4y2 – 3x2y2 + 2y = 0
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Rule VI: Exponential Function

Example:

Differentiate the following:

i) y= 2x2 + 3

ii) Y = X3e2x
Solution:
i) Y=

Let t = 2x2 + 3 ; dt =

dx
then y = et ; dy = et
dt

= et . 4x
e

ii) y = X3e2x
dy = X3 (2e2x) + e2x (3x2)

= 2x3 e 2x + 3x2e 2x

§ Differentiate the following:

1. x5 –x4 + 3x2

2. x2 (2x3 – 5)

3.
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□ 1. y = x5 – x4 + 3x2
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□ 2. y = x2 (2x2 – 5)

= 4x4 – 10x + 6x4

= 10x4 – 10x

□ 3. y =

Summary of Study Session 1

You have just learnt the definition of differentiation and the basic differentiation formulae.

Self Assessment Questions (SAQs) for Study Session 1

SAQ 1.1 (tests Learning Outcome 1.1)

Apply definition of differentiation in differentiating 4x5 - x 4 3x 2 – 1

SAQ 1.2 (tests Learning Outcome 1.2 and 1.3)

Solve the following problems below using the rules of differentiation:

1. (x5 – 4x) (2x3 – 5)

2.

3. Loge(2x + 3)
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Study Session 2: Second – order derivative

Introduction
Having learnt the rules of differentiation in session 1. You will now learn that the second-
order derivative which is one of higher derivatives where successive differentiations are
carried out. The process of differentiating a function more than once is called successive
differentiation.

Learning Outcomes for Study Session 2

At the end of this session, you should be able to:
2.1 State the first and second order derivative of a function

2.2 Solve problems involving them

2.1 First and Second Order Derivatives

If y = f(x), dy/dx is also a function of x. The second derivative of y with respect to x is
d/dx (dy/dx). The expression d/dx (dy/dx) is called the second-order derivative of Y with
respect to x, and is denoted by d2y/dx2. It is useful when determining the turning point of a
function.

Example:

Find the first and second derivation of the following:

i) y = 4x6
ii) y = 3x4 – 2x3 + 2x2 – 5
Solution:
i) y = 4x6
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= 24x5 for the second derivative, d2y/dx2

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= 120x4

(ii) Y = 3x4 – 2x3 + 2x2 - 5

d/dx = 12x3 – 6x2 + 4x

second derivative,

§ Find the second derivative of the following:

1. 2x5 – 3x4

2. x6 + 4x2

3. 6x3 + 4x2 + 5

□ y = 2x5 – 3x4

□ y = x6 + 4x2

□ y = 6x3 + 4x2 + 5
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Summary of Study Session 2
In this study session, you have learnt how to find the second derivative of a function from
its first derivative.

Self Assessment Questions (SAQs) for Study Session 2

SAQ 2.1 (tests Learning Outcome 2.1 and 2.2)

Find the second derivative of the following functions:

x8 2. 3x5 + 4x3 – 2x 3. 12x3 – 6x2

Study Session 3: Application of Differentiation to Marginal Cost

and Revenue

Introduction
The focus here is on the business areas of application such as marginal cost and revenue,
points of maximum profit or minimum cost, and elasticity of demand. You will also learn
about the maximum and minimum values of a function such as maximizing profit or
minimizing cost.

Learning Outcomes for Study Session 3

At the end of this session, you should be able to:

3.1 Determine the minimum and maximum values of a given function

3.2 Find marginal cost and revenue function

3.3 Solve problems involving elasticity of demand

3.1 Applications to Maximum and Minimum Values

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We have the following procedure for the determination of maximum and minimum values
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of a function, y = f(x) if it exists.

Step 1: Obtain the first derivative and set it equal to zero, i.e dy/dx = 0

Step 2: From the dy/dx = o, determine the turning point;

Step 3: Compute d2y/dx2 at these turning points.

If , the turning point is a maximum point, and if , the turning point is a

minimum point.

On the other hand, if d2y = 0, higher derivative (the second) can be used to divide. This is
called point of inflexion.

§ A manufacturing company planning to have a new product in the market came up

with the following total sales function: S = -1000p2 + 10000p and the total p and c are
respectively the price and cost (in Naira) of the new product. Determine the optimal
price for the new product.

Profit = Total sales – Total cost

∏=S–C

Were ∏ = ... S = ... and C = ...

∏ = - 1000p2 + 10000p – (-3000p + 40000)

∏ = -1000p2 + 10000p – 40000

= -2000p + 13000

at turning point, d∏ = 0, then

dp

– 2000p + 13000 = 0
P = 13000 = 6.5
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2000
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But = –2000 (which is less than zero)

hence, P = 6.5, gives a minimum point

Therefore, the optimal price is N6.50

3.2 Applications to Marginal Cost and Revenue

For cost analysis;

Let t = Total cost

q = quantity demand

Then, the average cost (AC) = and the marginal cost (MC) =

For revenue analysis:

Revenue = price x quantity

i.e R = pq

When p = price and q = quantity

This price is also called demand

Then,

Average Revenue (AR) = r/q

And the

Marginal Revenue (MR) =

Example:

Determine the minimum average cost if the cost function is given by C = 72 x – 20x2 + 4x3.
Also obtain the marginal cost at the point of minimum average cost when x is the number
of units produced.
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Solution:
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Given C = 72x – 20x2 + 4x

AC = = 72 – 20x + 4x2

For maximum or minimum d/dx (o/x) = 0

i.e -20 + 8x = 0

x = 20/8 = 5/2

(c) = 8, which is greater than zero

Hence, X = 5/2 is at minimum point.

The minimum average

Cost = 72 – 20 (5/2) + 4 (5/2)2 = 47

For the MC, we have

MC = dc = 72-40x + 12x2

MC at x = 5/2 is equal to 72-40 (5/2) + 12 (5/2)2 i.e. MC = 47

Example:

Determine the maximum profit of a company with revenue function

R = 200x-2x2 and the cost Function C= 2x3-57x2. Where x is the number of units produced
and disposed.

Solution:

Profit (ii) = Revenue – cost

= 200x-2x2- (2x3-57x2)

i.e II = 200x + 55x2-2x3

at the turning point, d∏/dx = 0

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dII = 200 + 110x-6x2 = 0

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2
dx = 100 + 55x – 3x = 0

using

Where a = –3 , b= 55, c = 100

X = 20 or –5/3

But = 110 – 12x

at x = 20 d2 II = 110 – 240 = -130<0

Hence, at x = 20, we have the maximum profit.

The maximum profit = 200 (20) + 55 (20)2 – 2 (20)3=
= 10,000

3.3 Application of Differentiation to the Elasticity of Demand

The price elasticity of demand is the rate of change in response to quantity demanded due to
the change in price. Therefore, the price elasticity of demand is given by
ed =

Where p = price and x = quantity demanded

When ed > 1, the demand is elastic and
ed < 1, the demand is inelastic
There is also income elasticity of demand. This is an elasticity of quantity demanded in
response to change in income. It is denoted by ey and defined by ey = where x is the

quantity demanded and y is the income.

Example:
Given a demand function
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P = 10-x-x2, determine its elasticity of demand.

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Solution:

P = 10-x-x2

P = 10-x-x2

but

Summary of Study Session 3

You can now apply differentiation in order to solve management problems.

§ The price of a product is given by 155 – 3x and the cost function is given by C = 100 +
5x + 10x2, where x is the number of units produced and sold. Find the revenue function.

§ The revenue and cost function of a company are given as Revenue (R) = 370x – 2x2 and
Cost (C) = x2 + 10x + 40 , where x is the number of units produced. Find the marginal
revenue when 10 units are sold.

□ Price (P) = 155 – 3x

Cost (C) = 100 + 5x + 10x2

Revenue = Price x quantity

= (155 – 3x) x

= 155x – 3x2

□ Revenue (R) = 370x – 2x2

Cost (C) = x2 + 10x + 40

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Marginal Revenue, = 370 – 4x

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when x = 10,

Marginal Revenue = 370 – 4 (10)

= N330

Self Assessment Questions (SAQs) for Study Session 3

SAQ 3.1 (tests Learning Outcome 3.1)

lf the revenue function for the production of a commodity is given by 315q – 5q2, find the
production level that will yield maximum revenue.

SAQ 3.2 (tests Learning Outcome 3.2 and 3.3)

Determine the profit of a company with revenue function

(R) = 200q – 2q2 and the cost function (c) = 2q3 – 57q2 at 10 units level of activities.
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Study Session 4: Functions of Two or More Variables 22

Introduction
You have learnt about functions in your BUS 210. You will learn about the function containing two
or more variables called Multivariable function in this session. You will also learn how to apply this
multivariable function in real life situations.

Learning Outcomes of Study Session 4

At the end of this session, you should be able to:

4.1 Give the meaning of multivariable

4.2 State different formulae that can be used to find limit of a function

4.3 Solve different problems involving multivariable functions

4.1 Definition
A variable y is said to be a function of one variable, following there exists a rule that
assigns to each real number x in a set a unique real number y or f(x). x = independent
and y = dependent. Therefore f(a) = is the value of y or f(x) at point a.

A variable z is said to be a function of two variables x and y following. There exists a

rule that assigns to each ordered pair (x, y) of real numbers in some set, a unique real
number z or f(x, y). x and y are independent variables while z is dependent variable.
Functions containing two or more variables are called multivariable.

The domain (region) of function f(x, y) is the set of all ordered pairs (x, y) of real
numbers for each variable f(x, y) that can be evaluated.

Some of the formulae that can be used in multivariable are as follows:

i) f(x, y) = ex (x2 + 2xy2), x2 – y2/x2 + y2, x2 + xy + 2y2

f(x, y, z) = 5xyz; √(x2 + y2 + 2z2); 2x2 –yz/y3 + z2 + 4

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ii) S.I. = PRT/100, where P= principal, R = interest rate per annum, T = period of time.
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iii) Amount, A = P + PRT/100 = P(1 + RT/100)
iv) Compound interest, CI = P (1 + R/100)n – P
v) Amount = P (1 + R/100)n
vi) Mean (arithmetic) = ∑ni=1 Xi/n
vii) Mean (geometric) = n√(XiX2……Xn)

Example:

Find: f(1, -2) of (3x2 + 5y)/(x – y) by substitution

Solution:

f(1, - 2) = (3- 10)/(1 + 2) = -7/3

In order to have a better understanding of multivariable, recollect single-variable

functions.

4.2 Limits
The limits of f(x) as independent variable x tends to point a equals f(a) = L.

For example, = limx→3 (2x3 + 6x2 + 10)

= 2(33) + 6(9) + 10 = 118

In general,

1. = ± .
2. = k where k is a constant
3. =K .
× or ÷ g(x) = × or ÷
a/b
4. =[ ]a/b

Limits can be obtained by

1. Direct substitution
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2. Cancellation
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3. Rationalization
4. L’Hopital’s rule

Examples:

1. f(x) = x2 + x – 1 and g(x) = x2 – 5x + 2

=
= (22 + 2 – 1) (22 – 10 + 2) = 5 × (-4) = -20
2. find x2 + 2x – 3)
direct substitution gives % => indeterminable. However, the denominator can be
factorized i.e. (x+ 3) (x – 1)
= = 1/4
2
3. Find + 4) – 2/x2
Therefore, the numerator is rationalized, that is
2
+ 4) – 2/x2 multiplied by [√(x2 + 4) + 2]/[√(x2 + 4) + 2]
2
+ 4) + 2] = 1/4
2
4. – 25)

When finding the limit of a function as independent variable x→∞, action is taken such that
∞/∞ or ∞/a is not obtained.

For example,

3
– x/(2x8 + 3x + 5); divide through by x8

3
/x8) - (x/x8)]/[2 + (3x/x8) + (5/x8)]

[0 – 0]/[2 + 0 +0] = 0/2 = 0

6
– 5x2 + 2)/x3 = 6
(4 – 5x-4 + 8x-6)]/x3 = = 2.

4.3 Use of L’Hopital’s Rule

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The rule is used in solving = 0/0

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n
Applying the rule gives (x)/gn(x) = L

2
For example, – 25) =

where,
F(x) = 2 – (x – 1)1/2 f1(x) = -1/2(x – 1)-1/2
G(x) = x2 - 25 g1(x) = 2x

-1/2
/2x

= 1/40

= = f1(x)

This is the definition of the gradient, slope y of a line. Therefore the slope of the tangent at
point (x, f(x)) of the curve of f(x) is the derivative of f(x) at x, that is:

Slope = = = fi(x)

This is also referred to as the rate of change of f(x) or y with respect to x.

In general,

1. If y = f(x) = axn
Then = fi(x) = naxn – 1

For example, f(x) = 4x3 + 3x1/3 – x + 5

2. If y = aef(x)
Then = a. f1(x).ef(x)

For example, y = 3e5x2 – 6x + 1

3. If y = loge f(x) = ln f(x)
Then = f1(x)/f(x)

For example, y = ln (x3 + 3x – 4)

= [3x2 + 3]/[x3 + 3x – 4]
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4. If y = g[f(x)], that is y = function of a function

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Then = ×

For example, y = √(x2 + x – 1)

U = x2 + x – 1 and y = √u = u1/2
= . = 1/2u-1/2.(2x + 1)

[2x + 1]/[2√(x2 + x – 1)]

5. If y = U.V

Then =V +U

For example, y = √(x + 5). (5x2 – 2x + 1) = U.V

U = (x + 5)1/2, U1 = ½(x + 5)-1/2
V = 5x2 – 2x + 1, V1 = 10x – 2
Therefore, = [5x2 – 2x + 1]/[2√(x + 5)] + √(x + 5). (10x – 2)

6. If y = U/V

Then =

For example, (5x – 7)/(x – 2) = U/V

U = 5x – 7, U1 = 5
V = x – 2, V1 = 1
= [(x – 2). 5 – (5x -7). 1]/(x – 2)2 = -3/(x – 2)2

7. Higher derivatives
y = f(x), y1 = = f1(x)

yn = dny/dxn = fnx
8. Differentiation of Implicit Functions
These are functions in which its x and y are not separable, that is, y cannot be
expressed explicitly as a function of x.
for example, Find of 5x2y – 2xy2 = 3

= (5x2y) - (2xy2) = (3) = 0

= y(10x) + 5x2 – (y2(2) + 2x. 2y ) = 0

(5x2 + 4xy) = 2y2 – 10xy

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Therefore, = [2y2 – 10xy]/[5x2 + 4xy]

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Summary of Study Session 4

In this session, you have learnt about the multivariable functions.
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Study Session 5: Application of Differential Calculus

` Introduction

In this session, you will learn the steps of applying multivariable functions to real life
situations. You will learn higher order derivatives, higher order partial derivatives and
application to business in this session.

Learning Outcomes for Study Session 5

At the end this session, you should be able to:

5.1 State the formulae of differential calculus

5.2 Solve problems involving higher order derivatives

5.3 Solve problems on higher order partial derivatives

5.4 Apply differential calculus in business

5.1 Differential Calculus

It is used to find the stationary points, that is max, min and inflexion

Max inflexion: y = f(x)

= 0 = stationary point and the corresponding y = stationary value

Turning point = stationary point + value

= 0, d2y/dx2< 0.
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Min inflexion: y = f(x), = 0, d2y/dx2> 0

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Steps to be used:

1. Given y = f(x), find ;

2. Set = 0 and find value(s) of x called the stationary points;

3. Substitute the value(s) obtained in 2 above in f(x) to obtain y called stationary

value(s);
4. Test for max, min or inflexion by finding d2y/dx2 and substitute the values of x in
step 2.
If d2y/dx2> 0 at x = xi, xi is min
d2y/dx2< 0 at x = xj, xj is max
d2y/dx2 = 0 at x = xk, xk is inflexion
For example, find stationary points of y = x3 – 3x2 + 2
y1 = 3x2 - 6x = 0
x = 0 or 2
y11 = 6x – 6
x = 0, y11 = -6 < 0 max
x = 2, y11 = 6 > 0 min
When x = 0, y = 2
x = 2, y = -2

In business, many terms are in regular use

a. Total revenue = price × quantity.

R = pq
R = total revenue, p = unit price, q = quantity sold or produced.
b. Marginal revenue, MR =

R = revenue function
c. Fixed cost (The company budget is fixed regardless of whether the company
produces or not, that is, overhead, rent interest on loan and so on).
d. Variable cost ( This depends on production).
e. Total variable cost = variable cost/unit × quantity produced or sold.
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TVC = VC × Q
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VC = variable cost, Q = total quantity
f. Total cost, TC = FC + TVC
FC = fixed cost
g. Profit = R – C or TR – TC
h. Average cost = TC/Q
i. Marginal cost, MC =

C = cost function
j. Maximum profit occurs when MC = MR
=

k. Break even point = no profit or no loss

That is, TR = TC or TR – TC = 0
l. Elasticity = e = rate of change of demand/rate of change of price
e = P/q( ) = P/q( )

Elasticity of demand uses demand function

Elasticity of supply uses supply function
If |e| > 1 – product is elastic
|e| = 1 – perfectly elastic
|e| < 1 – product is inelastic
At equilibrium, demand = supply
m. Marginal propensity to consume = rate of change of consumption with respect to
income (I)
MPC =

C = consumption, I = income
n. Marginal propensity to save MPS = 1 – MPC

5.2 Higher Order Derivatives

Partial derivatives:

In many applications and subjects, the dependent variable is a function of more than one
variable. For example, f(x, y):
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The partial derivative of x with respect to x or y is

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= f(x, y), where y is kept constant.

= f(x, y), where x is kept constant

Straight second order partial differentiation = d2z/dx2 or d2z/dy2

Mixed second order partial differentiation = d2z/dxdy

For chain rule, we have

= . , where y is kept constant

= . , where x is kept constant

For example, z = (2x2y + 3xy3)1/7

Let u = 2x2y + 3xy3, u1 = 4xy + 3y3

z = u1/7, z1 = 1/7u-6/7

= .

= 1/7u-6/7. (4xy + 3y3)

= (4xy + 3y3)/[7(2x2y + 3xy3)6/7

Product rule:

Z = f(x, y) = u.v

=v + u , where y is constant

=v + u , where x is kept constant

For example, z = (2x2 + y3) 3

u = 2x2 + y3, ux = 4x, uy = 3y2

 BUS220 Module

v = exy3, vx = y3exy3, vy = 3xy2exy3

32
=v +u = exy3(3y2 + 6x3y2 + 3xy5)

Quotient rule:

Z = f(x, y) = u/v

= v - u /v2

=v - u /v2

Partial derivatives of more than two variables f(x, y, z, t) = 3xyt + 2x2y3z + 4z2t3

= 3yt + 4xy3z + 0, keeping others constant

5.3 Higher Order Partial Derivatives

For example, f(x, y) = 3x5y4

= 15x4y4, = 12x5y3

d2f/dx2 = 60x3y4, d2f/dy2 = 36x5y2

d3f/dx3 = 180x2y4, d3f/fy3 = 72x5y

df/dxdy = 60x4y3 = df/dydx

5.4 Applications in Business and Economic Situations

Many businesses depend on factor of production (i.e. capital, land, labour, machines,
materials and so on).
Quantity Q, produced = f(K, L, M, and so on)
a. Marginal profit = rate of change of profit
b. Marginal cost = rate of change of cost
c. Marginal revenue = rate of change of revenue with quantity produced or sold
d. Elasticity
Marginal productivity (other factors of production are kept constant)
 BUS220 Module

If production function Q = 3k2 + 4k5m3 + m2

33
Where k = capital and m = machines

Marginal productivity of capital is = 6k + 20k4m3

Marginal productivity of machines is = 12k5m2 + 2m

Marginal profit = extra profit made from selling one additional unit of a product
Profit, π = f(x, y) derived from selling x and y units of products. That is if π = f(x, y)
= 0.001x3y4. The marginal profit at producing units of (30, 40) is

= 0.001y4(3x2) = 0.003x2y4

At (30, 40), marginal profit = 0.003(30)2(40)4

= ₦6912000
= 0.001x3(4y3) = 0.004x3y3

= 0.004(30)3(40)3 = ₦6912000

Marginal cost of product x = (x, y)

For example, if cost function of producing x and y quantities of two products is C = 2xy2 +
3x3y3
The marginal cost of product x = = 2y2 + 9x2y3

And marginal cost of product y = = 4xy + 9x3y2

Given that cost C = 3x2y + 4xy2 – 0.003x2y2

The average cost C = C/xy = 3x + 4y – 0.003xy
Minimum average cost occurs when =0=

That is, = 3 – 0.003y, = 4 – 0.003x

3 = 0.003y 4 = 0.003x
y = 3/0.003 = 1000units x = 4/0.003 = 1333.3 units
The production level at the average cost or unit be minimized = (x, y) = (1333.3,1000) units
Marginal utility of utility function u = f(x, y)
Is which is the marginal utility of consuming x goods or services

If the utility function of a consumer u = f(x, y) = 0.023x2y + 12xy3 for engaging services x
and y.
 BUS220 Module

The marginal utility for engaging x = = 0.046xy + 12y3

34
And for engaging y = = 0.023x2 + 36xy2

Marginal revenue = the total revenue with respect to x or y

Total revenue from selling x and y units at price p is R = p(x, y)
Given the p = 324x2y
Total revenue R = 324x2y. xy
= 324x3y2
= 972x2y2 = marginal revenue from selling x-units of the commodity

= 648x3y

Marginal demand is the change in demand for a product or service as a result of a specific
change in price.

For example, the demand functions for two goods are

Qd1 = 53 – 3P1 – 2P2

Qd2 = 67 – 5P1 – 2P2

The marginal demand = -3, = -2

= -5, =3

Elasticity is a measure of how a variable or quantity demanded varies or responds to

changes in another variable, that is, price, income and so on. It is in %.

Price elasticity of demand Ep = %change in demand/% change in price

Ep at price Px and quantity demand Qx

ExPx = +

If ExPx > 1 – elastic demand

ExPx = 1 – unit elastic

 BUS220 Module

ExPx = ∞ - perfectly elastic

35
ExPx = 0 - perfectly inelastic

ExPx< 1 – inelastic demand

5.5 Income Elasticity of Demand

Exl = % change in quantity demanded/% change in income

= %∆Qx/%∆I = (∆Qx/Qx)/(∆I/I)

= × I/Qx

Exl< 0 – Inferior goods

Exl> 0 – normal goods

Exl> 1 – Luxury goods

Exl< 1 – Necessity goods

Cross price elasticity measures the change in quantity demanded of good A to changes in
the price of another good.

ExPy = % change in the quantity of x goods/% change in the price of y goods

ExPy = %∆Qx/%∆Py = × Py/Qx = × Py/Qx

ExPy> 0 the two goods x, y are substitutes

ExPy< 0 the two goods x, y are complements.

Summary of Study Session 5

This session has exposed you to different formulae that you can use to find solutions to
multivariable functions in business and economics.
 BUS220 Module

36
Study Session 6: Definition of Integration

Introduction
Integration is concerned with the reverse of differentiation though it is not merely a matter
of putting into reverse the technique for differentiation. You have learned a technique for
differentiating, for example, the function (3x2 + 2)4 as it stands, but can you integrate this
function without first expanding it? It might be difficult for you to do that. Then, you
should know that integration is less open than differentiation in terms of giving systematic
treatment.

In this session, you will learn the definition of integration and how to start with the
differential coefficient and work back to find the function from which the differential
coefficient was derived.

Learning Outcome for Study Session 6

At the end of this session, you should be able to:

6.1 Define and use correctly all the key words printed in bold

6.2 Define integration as the reverse of differentiation

6.3 Integrate a function when its derivative is given

6.4 Solve problems using the general rule of integration

6.1 Definition
If the derivative of a given function is given, you can find the function having that
derivative. For instance, you know that the derivative of x2 is 2x ie if y = x2, . So, if

you wish to find the function whose derivative is 2x, x2 is the correct answer. That is

. This implies that ,

 BUS220 Module

y = x2 + c
37
You should also know that 2x is the derivative of x2 1, x2 – 5, x2 +200, and so on or
generally, x2 + c, where c is called the constant of integration. Therefore, if you wish to find
the function whose derivative is 2x, x2 + c is the best general answer. The value c can be
determined if you are given more information. You should note that any variable could be
used in place of x.

Now, we define integration as a process which is the reverse of differentiation. At this

point, the problem to be solved in integration is: What is the function which on being
differentiated produces a given function? For instance, you know from differentiation that
is .

The differential is written by the side of the function to be integrated in order to indicate
the independent variable with respect to which the original differentiation was made, and
with respect to which you are to integrate. Hence, means that is to be
integrated with respect to x.

6.2 General Rule of Integration for Algebra

In integration, you should increase the power of the variable by one and divide by the
resultant value with the addition of a constant c. You are adding a constant c because
differentiating a constant gives you zero. That is:

1.

2. If .

That is .

Examples:
Integrate each of these integrals with respect to x:
a. 12x5 b. c. d.

Solutions:

a. (12 is a coefficient of x5)

 BUS220 Module

Note that c can be any constant called constant of integration as stated earlier.
38
b.

Note:

c.

d.

Note: You can check the answers by differentiating each of the given integrals as shown
below:
a.

b.

c.
 BUS220 Module

39

d.

You should note that the differentiation of any constant gives zero. So c in all the cases
above is zero. You can see that you got the function back by differentiating the integral and
this shows that integration is reverse of differentiation.

§ Integrate the following functions with respect to x:

a. x3 b. 15t2 c. -6x-4 d.

□ a.

□ b.

□ c.

□ d.
Try the ITQs and confirm that you have found the functions correctly before you proceed to
the next section. You can check the answers by differentiation.

Summary of Study Session 6

In this session, you have learnt that integration is the reverse of differentiation. You also
learnt how to integrate a function when the derivative is given and how to check the result
using differentiation and stating some general rules of integration.

Self Assessment Questions (SAQs) for Study Session 6

 BUS220 Module

SAQ 6.1 (tests Learning Outcome 6.1 to 6.4)

40
Integrate the following functions whose derivatives are given below using the general rule
of integration and check the answer by finding the reverse.

1. 3x 2. 2x-3 3. 4. 5.
 BUS220 Module

Study Session 7 – Basic Integral Formulae

41

Introduction
In study session 1, you learnt that integration is the reverse of differentiation. If you have
forgotten what you learnt in that study session, you can go back and make sure you
understand all the materials presented there.

In this study session, you will learn how to actively integrate using some basic rules, but
these rules will be treated in separate units. In this study session, you will study the Rule 1
of integration and how to apply it in solving some problems.

Learning Outcomes for Study Session 7

At the end of this session, you should be able to

7.1 Use integration notation to solve integration problems

7.2 Apply Rule1 of basic integral formulae in solving integration problems

7.1 Integration Notation

If , then . is the sign of integration or the integral sign as

stated in the study session 1. Now, and must always be written together. The
function to integrate is called the integrand and it is written between the integral sign
as . The is written to show that the function called the integrand is to be integrated

with respect to x. So, if , then , where c is any constant.

7.2 Rule 1
The rule states that the integral of a sum of a finite number of functions is the sum of
their separate integral with the addition of a constant. You will integrate each
expression one by one and add or subtract accordingly.
 BUS220 Module

Examples:
42
2
1. Integrate x -5x+3 with respect to x.
2. If the interest rate of a company is given by and if the rate is , find

the expression for y in terms of x.

Solutions:

1. .

From example 1, we break the function up into the sum of parts whose integrals are
obtained easily by integrating each expression independently.

2. We integrate both sides of the equation thus:

Since the interest rate is (1,2), we substitute x =1 and y = 2 in the solution above, we get
2 = 12 + 1 + 0
2=2+c c=0
We substitute c = 0 in the solution, we find that
In this case, the value of c = 0 but that is not always the case, since we know that c can be
any constant.

§ Find

§ Given that and y = 4 when x = 0, find y in terms of x.

§ Integrate x2 – 3x with respect to x.

, we obtain
 BUS220 Module

Hence, (that is by substituting c = 4)

43

Did you first try the problem on your own? Did you solve the entire problem correctly?
Mark your answers and determine your score. If you have scored less than 2 out of 3, you
should go over the study session again; otherwise solve your self assessment questions.

Summary of Study Session 7

You have just learnt basic integration formulae, Rule 1 in this session. If you understand
all the examples given, proceed and solve your SAQs. If not, study the session again.

Self Assessment Questions (SAQs) for Study Session 7

SAQ 7.1 (tests Learning Outcome 7.1)

1. Integrate 4x5-x4+3x2-1 with respect to x.

2. Integrate t3-t with respect to t.

SAQ 7.2 (tests Learning Outcome 7.2)

1. Find

2. Find

3. Given that , , find y in terms of x when y=5 and x=1

 BUS220 Module

44

Study Session 8: Basic Integral Formulae; Rules 2 and 3

Introduction
You are getting familiar with the idea of integration. You have just studied Rule 1 of basic
integral formulae. In this study session, you would learn certain ways of resolving
integrands into simple functions which can now be easily integrated.

Learning Outcomes for Study Session 8

At the end of this study session, you should be able to:

8.1 Find integration of exponential with ‘e’ as the base

8.2 Divide out numerator of the same or higher degree than the denominator

8.3 Recognise the function whose numerator is the derivative of its denominator

8.4 Solve more problems using these rules

8.1 Basic Integral Formulae: Rules 2 and 3

8.1.1 Rule 2

Integration of exponential with ‘e ‘ as the base is repeating the whole value divided by the
differentiation of the power and log base.

Note:

Integration of .
 BUS220 Module

If you apply the rule of integration to or , we will have,

45

This result is infinite. You should recall that by the rule for differentiation of a logarithmic
function, the differential coefficient of or .

Therefore, .

Integration of the form .

If

Therefore,

Based on the integration above, you should also note that the integration of a function
whose numerator is the derivative of its denominator is the logarithm of the denominator
with ’e’ as the base.

Examples:

1. Find the integral with respect to x of

a. b. 72x

2. Integrate a. b.

Solution:
1. a.

; (log to its own base is 1)

 BUS220 Module

46

b.

You can see from the above examples that example (b) has log base 7, and that is why
we have to divide it also as the rule stated.

2. a.

You can see in example 2 that differentiation of denominator is equal to the value at the

numerator. That is . This is equivalent to the numerator.

Sometimes, you need to introduce a constant to make the numerator or denominator

exactly equal to the derivative of the denominator as you can see from example 2b.

b.

§ Find the following integral

1. 2. 3. 4. 5.

□ 1.

□ 2.

□ 3.

□ 4. (since with the introduction of 4 to the numerator,

the denominator will be the derivative of the numerator)

□ 5.
 BUS220 Module

8.1.2 Rule 3
47
If the numerator is the same or higher degree than the denominator, you divide out first
before integrating. The interest here is to remould the given algebraic function in such a
way you can apply some rules we have considered earlier to carry out the integration.
Examples:
Find the following integrals:

1. 2. 3. Integrate

Solutions:

1. ; (We have just split up the fraction into its

component fractions by dividing out).

Note that .

2. ( By splitting into its component fraction)

3.

Since the numerator is greater than the denominator, you divide to split up the fraction

into its component fractions and we get .

 BUS220 Module

You should notice that we have used the methods of integration available to us so far to
48
evaluate the last integral. You can equally use remainder theorem you learnt in BUS210
to split the fraction in example 3 above.

§ Find the integrals

1. 2. 3.

□ 1.

□ 2.

□ 3. , (using long division

method)

Summary of Study Session 8

You can now integrate certain rational fractions whose numerator is the same or of
higher degree than the denominator. You can also write down with ease the integral of
numerator of a given function which is the derivative of the denominator.

Self Assessment Questions (SAQs) for study session 8

SAQ 8.1 (tests Learning Outcome 8.1)

Find the following integrals:

1. 2. 3.

SAQ 8.2 (tests Learning Outcome 8.2, 8.3 and 8.4)

Find the following integrals:

1. 2.
 BUS220 Module

Study Session 9: Rule 4 and Method of Partial Fraction

49

Introduction
The rules studied in study session 8 are a little bit complicated. You need to apply
remainder theorem, you studied in BUS210 to simplify a certain fraction into its component
fraction before you go on to integrate the problem.

In this session, you would study the rule that involves the use of partial fraction to simplify
before the integration can take place. We consider fractions of which the denominators are
of the second or higher degree. Alternatively, if in the fraction to be integrated the
numerator is of the same or higher dimensions than the denominator, the fraction can first
be simplified. We would study this rule under some sub-headings.

Learning Outcomes for Study Session 9

At the end of this study session, you should be able to:

9.1 Integrate rational functions using the method of partial fractions

9.2 Recall some standard integrals by solving integration problems using them

9.1 Integration of Simple Algebraic Functions by Partial Fractions with

Linear Denominator that Did not Repeat Itself.

Note that each unrepeated linear factor of the form ax+b in the denominator of a rational
function, corresponds to a fraction of the form: ,where A is a constant to be found.

Examples:

Find the integral of :

1. 2. 3.

Solutions:
 BUS220 Module

1. , (By factorising the denominator)

50

Now, let the numerators be A and B,

Clearing the fractions, we get:

Let

To get value for B, we expand equation (2),

Collecting the like terms, we get:

Comparing the coefficients, we have:

You can use any of the equations to determine your B. Substituting back in the equation
above, we have:

Using the rule you learnt in session 8 to integrate, we have:

Note: Subtraction is division in logarithm of numbers.

 BUS220 Module

2. , factorising the denominator, we have:

51

Now, using partial fraction, we have:

Let

To obtain value for B, we expand equation (2) thus

Collecting the like terms and comparing the coefficients, we get:

3. , Let
 BUS220 Module

In this case, is the L.C.M. Let x = -1

52

Now, we multiply out (2) and compare the coefficients,

§ Integrate the following: 1. 2. 3.

1. (by the use of difference of two squares)

; Let

2. ;

Note that B = 3 and A = 2

3. ; A = -1 and B = 2

9.2 Integrating by Partial Fractions when the Denominator is of Different

Linear Factors and when the Denominator Has one or more Linear Factors
which may be Repeated.
 BUS220 Module

The method of resolving denominators of this kind is the same as when there are only two
53
factors as we have studied earlier. Here, the number of fractions will correspond to the
number of factors.

Examples:

Integrate

Solution:

, factorising the denominator, we get:

Now, let

Let

Again, let

Let

9.3 Some Standard Integrals

In some cases of integration, you may be expected to trace back the steps of
differentiation. So, every differentiation formula may be written as an integration formula.
Below is the table containing some basic differential coefficients and the basic integrals
that go with them. This is done for quick reference.
 BUS220 Module

54
Table 9.1 Some Standard Integral Formulae
S/N

1.

2. ,

3.

4.

5.

6.

7.

8.

9.

10.

11.

There are lots of other integration formulae contained in some other relevant textbooks.
You can check them up. Note also that there are situations when it may be impossible to
express the required integrals in standard form.

§ Integrate the following:

1. 2.

□ 1.

Note that
 BUS220 Module

□ 2.
55
.

Note that

Summary of Study Session 9

You can now simplify rational functions to partial fractions and apply standard integral
formulae in solving integration problems.

Self Assessment Questions (SAQs) for Study Session 9

SAQ 9.1 (tests Learning Outcome 9.1)

Integrate the following:

1. 2. 3. 4. 5.

SAQ 9.2 (tests Learning Outcome 9.2)

Show that: i. ii.

 BUS220 Module

56

MODULE TWO
APPLICATION OF INTEGRATION, VECTORS, MATRICES
AND MATHEMATICS OF FINANCE

Learning Outcomes for Module Two

At the end of Module Two, you should be able to:

2.1 Apply methods of integration in solving business problems

2.2 Solve business problems using vectors and matrices

2.3 Solve problems involving mathematics of finance

 BUS220 Module

57

Study Session 1- Methods of Integration

Introduction
You need to change variables and apply substitution methods you studied in your secondary
school before you can carry out integration under methods of integration.

In this session, you will study integration by substitution, integration by parts and
application of integration. We shall examine integration by substitution before proceeding
to integration by parts and then the application.

Learning Outcomes for Study Session 1

At the end of this study session, you should be able to:

1.1 Integrate functions by substitution method

1.2 Integrate functions using integration by parts method

1.3 Solve some application problems involving integration

1.1 Integration by Substitution

The formula for integration by substitution is: where .
 BUS220 Module

Sometimes, we need to change variables and substitute other variables before we can
58
solve a given integration problem.

Examples:

1. Use substitution method to solve .

2. Find the integral take

Solution:

1. Let we are to solve

Since

Expanding, we have:

We find the L.C.M. of to have:

Factorising, we have:

We substitute back to into the integral to have:

2. Given: ,
 BUS220 Module

Hence,
59

Finding the L.C.M. of , and substituting for u, we have:

1.2 Integration by Parts

This method of integration is derived from the rule for the differentiation of a product of
two functions. So it is used to integrate the product of two functions.
Recall that:

are functions x.

So, integrating both sides with respect to x, we get:

where

Examples:

1. Find the integral of 2. Integrate with respect to x.

Solution:

Let

Substituting in the formula, we have:

 BUS220 Module

60

2. , let

1.3 Application of Integration

Integration is used to compute demand function, marginal cost/cost function, revenue
function, consumer surplus and profit function of a company.

Marginal Cost and Cost Function

Marginal cost is defined as differentiation of total cost with respect to output (in units).
That is: and so, , where k is an arbitrary constant. (At x = 0,

C = fixed cost) and total cost of n units = and cost of nth unit = .

Marginal Revenue

Differentiation of Total Revenue with respect to output (in units) is defined to be marginal
revenue. That is, and so , where k is an arbitrary constant

(At x = 0, R = 0) and Total Revenue of n units and

Revenue of nth unit = . And demand function

Profit Function
 BUS220 Module

, where k is any arbitrary constant (at x = 0, P = k) and k = FC.

61
Total Profit of n units = and Total Profit from nth unit =

Examples:

1. The Marginal Revenue of a company is related to the volume of sales by the

equation Determine the Revenue Function and find the Total

Revenue when 10units were sold.
2. The Demand Function of a particular commodity is given as . At the
price , the total demanded is 6units. Find the consumer surplus.
3. A company suffers a loss of N5000 if its product does not sell at all. Marginal revenue
and cost functions are MR = 100 – 2x and MC = x – 5. Find the Profit Function.
Solutions

1.

2. Using Consumer surplus, , we have:

3.

at x = 0, P = -5000,
 BUS220 Module

62

§ Find the integral using the substitution

§ A curve passes through the point (-2,8) and its gradient function is . Find the
equation of the curve.

§ The marginal revenue function of a firm is . Find the revenue and demand
function.

□ Let

(Application of L.C.M.)

Since the curve passes through the points(-2,8),

is the equation of the

curve.

At x = 0, R = 0;
 BUS220 Module

So,
63
(by finding the L.C.M.)

Demand Function

Summary of Study Session 1

You have learnt important methods of integration which can be applied in solving real life
problems as shown in the applications of integration.

Self Assessment Questions (SAQs) for Study Session 1

SAQ 1.1 (tests Learning Outcome 1.1 and 1.2)

Find the integral .

SAQ 1.2 (tests Learning Outcome 1.2)

A particle moves in a straight line such that its acceleration after time t s is ams-2, where
. If its initial velocity was 3ms-1, find an expression for s, the distance (in m)
travelled from the start in t s.

SAQ 1.3 (tests Learning Outcome 1.2)

The Marginal Revenue of a company expressed as a function of units x of a commodity

sold is . Calculate the Total Revenue if the article has been continuously sold
from to .
 BUS220 Module

SAQ 1.4 (tests Learning Outcome 1.2)

64
The Marginal Cost and Marginal Profit of a firm is given as under MC = 4 + 0.06x and MR
= 15. Compute Total Profit given that fixed cost is zero at x = 0
 BUS220 Module

Study Session 2: Definition of Vector

65

Introduction
In the study of physical phenomena, we come across different quantities, such as time,
temperature, speed, length, mass, area or volume of a body, etc. These quantities are
defined completely by a single number or magnitude with appropriate units. For example,
the mass of a body can be specified by the number of grams and time by minutes, etc. Such
quantities are called scalars. There are, however, certain other quantities called vectors,
which cannot be expressed completely by their magnitude only but also by the direction in
which they operate. Examples of such quantities are: velocity, acceleration, force,
momentum, displacement, etc.

In this session, you will learn the definition of vector, its representations and the basic
vector types.

Learning Outcomes
At the end of this study session, you should be able to:

2.1 Define vector as a quantity that is expressed completely by magnitude and direction

2.2 Obtain vector representations

2.3 State basic types of vectors

2.1 Definition
Vectors are those physical quantities that have their units of measurements expressed in
both magnitude and direction. For example, while an ordinary quantity, or scalar, can be
exemplified by the distance 6 km, a vector quantity can be exemplified by the term 6
km north. You can also represent vectors by directed line segments, such as B in figure
2.1. The length of the line segment is a measure of the vector quantity, and its direction
is the same as that of the vector.
 BUS220 Module

Further illustration of the meaning of vectors you can put out is by making vector say, a
66
or A (see fig. 2.1) to indicate the motion of a boat in the course of a given interval of
time, if it were moving through still water; vector b or B, will show the drift or flow of
the current during the same period of time. The actual path of travel of the boat under
the influence of its own driving force and of the current is represented by vector c.

Figure 2.1: Graphical Representation of Vectors

2.1.1 Representation of Vectors

The best way you can represent a vector is with the help of a directed line segment.
Suppose A and B are two points, then by the vector we mean a quantity whose
magnitude is the length AB and whose direction is from A and B as in figure 2.2.
B

Figure 2.2: Vector Representation

A and B are called the end points of the vector In particular A is called the initial

point and B is called the terminal point. Sometimes you can express vector by a
single letter a (which is always written in bold type, to distinguish it from a scalar).
Some other times, however, you may write the vector a as or ᾶ.

2.1.2 Modulus of a Vector

 BUS220 Module

The modulus (absolute value) or magnitude of a vector is a positive number you can
67
use for measuring of the length of the line representing it. Modulus of a vector a is
denoted by |a| or by the corresponding letter a in italics.

2.1.3 Equality of Two Vectors

You will identify two vectors that are equal if and only if they have the same magnitude
and the same direction.

Example:

Figure 2.3: Vector Equality

if = , then

(i) a = b (magnitude equal)

(ii) The direction of = direction of , i.e. the two vectors are parallel and in the
same sense.

2.2 Types of Vectors

2.2.1 Unit Vector

A vector whose magnitude is in unit (i.e. a magnitude of 1) is called a unit vector and is
generally denoted by â. We will always use the symbols i, j, k to denote the unit vectors
along the x, y and z axes in three dimensions. If a is any vector, then a= where is a
unit vector having same direction as that of a.

2.2.2 Zero Vector

 BUS220 Module

A vector with zero magnitude (and any direction) is called a zero vector or a null vector.
68
For example, in Figure 2.3 if the point B coincides with the point A, then the vector

becomes the zero vector . The zero vector is denoted by the symbol O.

2.2.3 Negative Vector

The vector which has the same magnitude as that of a vector a, but in opposite
direction, is called negative of a, and is denoted by -a.

Thus - for any vector

Example:

B
B

A
A

Figure 2.4: Negative Vector

2.2.4 Free Vector

A free vector is not restricted in any way. It is completely defined by its magnitude and
direction and can be drawn as any one of a set of equal-length parallel lines. Most of the
vectors you shall learn in this lesson are free vectors.

2.2.5 Line Vector

A line vector slides along its line of action, e.g. a mechanical force action on a body.

2.2.6 Position Vector

In this vector, occurs when the point A is fixed.

2.2.7 Localised Vector

 BUS220 Module

This is the vector whose position in space is fixed.

69
2.2.8 Co-initial Vectors

This has the same initial point and is also called concurrent vectors.

Examples:

(i) A velocity of ’110 km/h due North’ is a vector quantity as against a speed of 100
km/h which is a scalar quantity.
(ii) A temperature of 90oC is a scalar quantity

§ The weight of a 9kg mass is a _________ quantity

§ The sum of ₦800.00 is a ___________ quantity

§ A South-easterly wind of 50knots is a _______ quantity

§ If two vectors are said to be equal, they have?

□ Vector

□ scalar

□ vector

□ the same magnitude and the same direction

Summary of Study Session 2

In this session, you have learnt that a vector is a physical quantity that has both magnitude
and direction. You have also learnt the difference between a vector quantity and a scalar
quantity, some examples and the difference in their units of measurements. You can also
represent a vector quantity diagrammatically. You have learnt what modulus of a vector is
and can now state some of the vector types.

Before we conclude this session, solve the self assessment questions below:

Self Assessment Questions (SAQs) for Study Session 2

 BUS220 Module

SAQ 2.1 (tests Learning Outcome 2.1)

70
Define a vector.

SAQ 2.2 (tests Learning Outcome 2.1)

Give three examples of a vector quantity.

SAQ 2.3 (tests Learning Outcome 2.2)

Represent a vector diagrammatically.

SAQ 2.4 (tests Learning Outcome 2.3)

Denote the modulus of a vector a.

Name three vector types.

 BUS220 Module

Study Session 3: Vector Algebra

71

Introduction
In session 2, you learnt that a vector is a physical quantity that has both magnitude and
direction. You also learnt the difference between a vector quantity and a scalar quantity,
some examples of scalar and vector quantities and the difference in their unit of
measurements. You can now also represent a vector quantity diagrammatically. We also
treated what modulus of a vector is and state some of the vector types. For better
understanding of our next session you can go back to session 2 for a quick revision and
make sure you understand all the materials presented there.

In this study session, you will learn how to actively carry out vector algebra using some
basic rules to solve some basic algebraic problems.

Learning Outcomes
At the end of this session, you should be able to:

3.1 Solve Vector Algebra

3.2 Analytically represent a vector

3.3 State laws of vector Algebra

3.4 Solve Dot Product, Cross Product and Triple Product problems

3.5 Obtain Norm of vectors

Why Bother with Vector Algebra?

Learning vector algebra represents an important step in students' ability to solve problems.
The importance of vector algebra can be understood in the context of previous steps in
knowledge:

(i) At some point (usually in middle school or high school) students are taught basic
algebra because the mathematics they have known up to that point, arithmetic, cannot solve
 BUS220 Module

most real-world problems. For example, a student may be asked to find the speed required
72
to travel 33 miles in 60 minutes. Knowledge of Arithmetic alone is not sufficient to solve
this problem.
(ii) During high school, students begin to realize that even algebra cannot solve
problems that incorporate two-dimensional space; so they learn trigonometry and
geometry. For example, if a student is trying to find the amount of concrete needed to fill a
cone-shaped hole, simple algebra alone will be of little help.

(iii) Geometry and trigonometry are however very difficult to apply in many situations.
Vector algebra was invented in order to solve two-dimensional and three-dimensional
problems without the use of cumbersome geometry.

Although it is possible to use ordinary trigonometry and geometry to solve most of the
mathematics problems you are likely to encounter, Vector algebra operations are much
easier to express with familiar nomenclature. For example, the statement C = A + B is a
typical vector algebra expression. Many of the rules learned in basic algebra also apply in
vector algebra. For example, you can add the same vector to both sides of an equation; you
can divide both sides of an equation by a number, and so on.

3.1 Vector Algebra

3.1.1 Addition of Vectors

An operation of addition is defined for vectors when the sum of two vectors A and B which
is the vector C as shown in Figure 3.1a. You place the initial point of B at the terminal
point of A and make C the vector running from the initial point of A to the terminal point of
B. You can then write, C = A + B.

C A A-B
B

B
A

Figure 3.1a: Vector Addition Figure 3.1b: Subtraction

of Vector

3.1.2 Difference of Vectors

 BUS220 Module

You will be able to identify the difference (A - B) of two vectors A and B as the sum of A
and (-B) i.e. A - B = A + (-B). The vector A - B is the vector running from the tip of B to 73
the tip of A. See Fig. 2b. You can also see from the figure that B + (A - B) = A.

3.1.3 Definition of Scalar

Scalar is used to contrast with the word “vector”. It is customary, in any context where
vectors and real numbers are both being discussed, to refer to real numbers as scalars.

3.1.4 Product of a Vector A by a Scalar m

The product of a vector A by a scalar m is a vector mA with magnitude |m| times the
magnitude of A and with direction the same as or opposite to that of A, m could be positive
or negative. If m = 0, mA is the zero vector.

3.2 Analytical Representation of Vectors

You have seen that i, j and k are unit vectors directed along the positive x, y and z axes of a
right-handed Cartesian coordinate system as shown in Figure 3. If we let A be a vector
whose initial point is located at the origin O and whose terminal point is at coordinates (a1,
a2, a3). Then vector A can be represented as:

(1) A = a1 i + a2 j + a3 k

The vectors a1 i, a2 j, and a3 k are the component vectors of A in the x, y and z directions
respectively. a1, a2, and a3 are the x, y and z components of A. The magnitude or modulus
of A is therefore:

here, =a

a1, a2, and a3 represent the magnitudes of the projections of vector A on the x, y and z axes
respectively.
 BUS220 Module

74

Figure 3.2:
Magnitude of Vector

or

A = (a1, a2, a3),

The sum of two vectors expressed in analytical form is obtained by adding corresponding
components i.e. if A = a1 i + a2 j + a3 k and B = b1 i + b2 j + b3 k, then:

A + B = (a1 + b1) i + (a2 + b2) j + (a3 + b3) k

3.3 Laws of Vector Algebra

If A, B and C are vectors and m and n are scalars, then:

1. A + B = B + A (Commutative law for addition)

2. A + (B + C) = (A + B) + C (Associative law for addition)

3. mA = Am

4. n(mA) = (mn)A

5. (m + n)A = mA + nA

6. m(A + B) = mA + mB

7. A + 0 = A (Additive identity)

8. A + (-A) = 0 (Additive inverse)

 BUS220 Module

These laws enable us to treat vector equations in the same way as ordinary algebraic
equations. For example, if A + B = C then by transposing A = C - B. 75

A much used vector in vector analysis is the position or radius vector.

3.3.1Position Vector in Space (or Radius Vector)

A position vector is a vector that extends from the origin of the coordinate system to some
point (x, y, z) in space i.e. the vector:

r = xi + yj + zk

or

r = (x, y, z)

3.4 Dot Product

Definition: The dot product A∙B of two vectors A and B is defined as the product of the
magnitudes of A and B and the cosine of the angle θ between them, i.e.

A∙B = |A| |B| cos θ

Note that A∙B is a scalar and not a vector.

A∙B = a1b1 + a2b2 + a3b3

where A = a1i + a2j + a3k and B = b1i + b2j + b3k

3.4.1 Length of a Vector in Terms of the Dot Product

The length of vector X is given by:

3.4.2 Laws Valid for Dot Products

1. A∙B = B∙A (Commutative law)

2. A∙(B + C) = A∙B + A∙C (Left distributive law)

3. (A + B)∙C = A∙C + B∙C (Right distributive law)

4. m(A∙B) = (mA)∙B = A∙(mB) = (A∙B)m (where m is a scalar)

5. i∙i = j∙j =k∙k = 1, i∙j = j∙k = k∙i = 0

6. If A∙B = 0 and A and B are not zero vectors, then A and B are perpendicular.
 BUS220 Module

3.4.3 Vector (or Cross) Product

76
You can define the vector (or cross) product A×B of two vectors A and B as

A×B = |A| |B| sin θ u

where θ is the angle from A to B and u is a unit vector perpendicular to the plane of A and
B and so directed that a right-handed screw driven in the direction of u would carry A into
B.

If A = a1i + a2j + a3k and B = b1i + b2j + b3k, then

= (a2b3 - b2a3) i + (a3b1 - b3a1) j + (a1b2 - b1a2) k

3.4.4 Laws Valid for Cross Products

1. A×B = -B×A

2. A × (B + C) = A×B + A×C (Left distributive law)

3. (A + B) × C = A×C + B×C (Right distributive law)

4. m(A×B) = (mA)×B = A×(mB) = (A×B)m (where m is a scalar)

5. i×i = j×j =k×k = 0 i×j = j×k = k×i = 1

6. If A×B = 0 and A and B are not zero vectors, then A and B are parallel.

3.4.5 Triple Products

Dot and cross product multiplication of three vectors A, B and C produces meaningful
products of the following forms:

1. (A∙B)C

2. A∙(B×C) (scalar triple product or box product)

3. A×(B×C) (vector triple product)

 BUS220 Module

3.4.6 Scalar Triple Product

77
A∙(B×C)

Let A = a1i + a2j + a3k , B = b1i + b2j + b3k and C = c1i + c2j + c3k . Then:

which is equal to the volume of a parallel piped having A, B and C as edges, or the negative
of this volume, accordingly as A, B and C do or do not form a right-handed system.

A∙(B×C) = (A×B)∙C i.e. the dot and cross can be interchanged without changing the
value.

In the scalar triple product A∙(B×C), the parentheses are sometimes omitted and it is
written A∙B×C or A×B∙C . It is sometimes denoted simply by [ABC]. It is also called the
box product.

3.4.7 Vector Triple Product

The product A×(B×C) is called the vector triple product.

1. A×(B×C) = B(A∙C) - C(A∙B) = (A∙C)B - (A∙B)C

2. (A×B)×C = (A∙C)B - (B∙C)A

Note that

(A∙B)C A(B∙C)

A×(B×C) (A×B)×C

3.4.8 Generalized Identity of Lagrange

For vectors A, B, C, D, the following holds

(A×B)∙(C×D) = (A∙C)(B∙D) - (A∙D)(B∙C)

3.4.9 Identity of Lagrange

(A×B)∙(A×B) = (A∙A)(B∙B) - (A∙B)2

3.5 Vector Norm

 BUS220 Module

Given an n-dimensional vector

78

(1)

Here, a general vector norm , sometimes written with a double bar as , is a

nonnegative norm defined such that

1.

when and iff X = .

2. for any scalar k.

3.

In this work, a single bar is used to denote a vector norm, absolute value or complex
modulus, while a double bar is reserved for denoting a matrix norm.

The vector norm for ... is defined as

(2)

The -norm of vector v is implemented as Norm [v, p], with the 2-norm being returned by
Norm[v].

The special case is defined as

(3)

The most commonly encountered vector norm (often simply called "the norm" of a vector,
or sometimes the magnitude of a vector) is the L2-norm, given by
 BUS220 Module

(4)
79
This and other types of vector norms are summarized in the following table, together with
the value of the norm for the example vector v = (1, 2, 3).

Table 3.1: Summary of vector norms

Name Symbol Value Approximate

-norm 6 6.000

-norm 3.742

-norm 3.302

-norm 3.146

-norm 3 3.000

§ Find the angle between the vectors; a = i + 2j + 3k and b = i - j + 2k

§ Find (i) a + b (ii) a - b (iii) a + 3b

We have:

□ a = (1, 2, 3) and b = (1, -1, 2)

Therefore, a2 = 1+4+9 = 14; b2 = 1+1+4 = 6

If θ is the angle between a and b then

Hence θ =

i.e. θ the angle between vectors a and b is

 BUS220 Module

□ (i) a+b = (i + 2j + 3k) + (i - j + 2k)

80
= 2i + j +5k

□ (ii) a - b = (i + 2j + 3k) - (i - j + 2k)

= oi + 3j + k

= 3j + k

□ (iii) a + 3b = (i + 2j + 3k) + 3(i - j + 2k)

= 4i - j + 8k

Summary of Study Session 3

In this session, we explained some examples of how to solve Vector Algebra, analytically
represented a vector, stated laws of vector algebra, laws and provide solutions to Dot
Product, Cross Product and Triple Product problems. Finally we have obtained norm of
vectors.

Use the self-assessment questions below and the in-text questions above, to assess your
level of understanding of vectors.

In case you have any other challenges, please consult other vector textbooks and discuss
with your lecturer.

Self Assessment Questions (SAQs) for Study Session 3

SAQ 3.1 (tests Learning Outcomes 3.1, 3.2 and 3.3)

If a = 2i +2j - k and b = 3i - 6j + 2k, find (i) a . b and (ii) a x b

SAQ 3.2 (tests Learning Outcomes 3.4 and 3.5)

A, B, C are three points with position vectors given by you to show that they form a right
triangle and right angled at C.

a = 2i - j + k

b = i - 3j - 5k
 BUS220 Module

c = 3i - 4j - 4k
81
Note: When you have completed the exercise, compare your s answers with the ones at the
back of the booklet.
 BUS220 Module

Study Session 4 - Definition of Matrix

82

Introduction
In mathematics, a matrix (plural matrices, or less commonly used matrixes) is a rectangular
array of numbers, symbols, or expressions. The individual items in a matrix are called its
elements or entries. An example of a matrix with six elements is

Matrices of the same size can be added or subtracted element by element. The rule for
matrix multiplication is more complicated, and two matrices can be multiplied only when
the number of columns in the first equals the number of rows in the second.

Learning Outcomes of Study Session 4

At the end of this study session, you should be able to:

1.1 Define matrix

1.2 Show matrix notation

1.3 Find inverse of a square matrix

4.1 Definition of Matrix

The cross product representation we learnt in study session 3 will help you to understand
matrix.

A matrix is a rectangular arrangement of mathematical expressions that can be simple

numbers. Consider the following example:

An alternative notation uses large parentheses instead of box brackets

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83

4.1.1Row and Column of a Matrix

In the matrix A above, the horizontal and vertical lines are called rows and columns
respectively. The numbers in the matrix are called its entries or its elements. For you to
specify the size of a matrix, the matrix with m rows and n columns would be called an m-
by-n matrix or m × n matrix, while m and n are called its dimensions. Thus matrix A, is a 4-
by-3 matrix.

4.1.2 Row and Column Vectors

Matrix X with one row (a 1 × n matrix) is called a row vector, and matrix Y with one
column (an m × 1 matrix) is called a column vector. Any row or column of a matrix
determines a row or column vector, obtained by removing all other rows or columns
respectively from the matrix. For example, the row vector for the third row of matrix A is

When a row or column of a matrix is interpreted as a value, this refers to the corresponding
row or column vector. For instance, if you say two different rows of a matrix are equal, you
mean that they determine the same row vector.

4.3 Notation
In order to identify an entry in a matrix, we simply write a subscript of the respective
entry's row followed by the column.

In matrix A below, we write a23 to denote the entry in the second row and the third column.
 BUS220 Module

One way to remember that this notation puts rows first and columns second is to think of it
as reading a book. You always read sideways first, just as you always write the rows first. 84
When you are done, your eyes move downward. A23 indicates the row number 2 first, then
the column number 3.

Examples:
Test your understanding of what you done on matrices so far and practice these;

What are the dimensions of the matrix G below?

Identify entry G23 in the matrix.

What is the matrix notation to denote the entry in the bottom right corner of G?

Solutions

3x3

55

G33

Having understood what has been done so you may now learn about equality of matrices.

4.4 Equality of Matrices

Two matrices are equal if you are able to identify all the following three conditions in
them:

(i) Each matrix has the same number of rows

(ii) Each matrix has the same number of columns

(iii) Corresponding elements within each matrix are equal

Consider the three matrices shown below:

If A=B then we understand that x = 34 and y = 54, since corresponding elements of equal
matrices are also equal.
 BUS220 Module

Matrix C is not equal to A or B, because C has more columns.

85
Note: Two equal matrices are exactly the same

§ If

Find a11, a22, a33, a31

§ What is the order of the following matrices?

i) ii) iii) iv)

§ In a Mathematics examination, 20 students from college A, 30 students from college

B and 40 students from college C appeared. Only 15 students from each college could
answer all the examination questions. Out of them, 10 students from college A and 5
students from college B and 10 students from college C secured full marks. Write down the
above data in matrix form.

□ a11 = element of A in first row and first column = 1

a22 = element of A in second row and second column = 5

a33 = element of A in third row and third column = 9

a31 = element of A in third row and first column = 7

□ i) 2x2 (ii) 2 x 3 (iii) 3x2 (iv) 1x1

□ In providing solution to this problem you have to use your ability in matrices
notation to form a row and column matrix.

Consider this matrix:

In the matrix above, you observe that, first row represents the number of students in college
A, college B, college C respectively. Second row represents the number of students who
answered all the examination questions in three colleges respectively. And the third row
represents the number of students who got full marks in the three colleges respectively.
 BUS220 Module

86
Summary of Study Session 4

In this session, we have defined a matrix, show its notations and the order of the matrix.
The in- text questions are provided to test you on these. In case there are some grey areas
that you are yet to understand properly, discuss such with your lecturer.

Self Assessment Questions (SAQs) for Study Session 4

Solve these problems without looking back at the pages that contain the solutions.

SAQ 4.1 (tests Learning Outcome 4.1 and 4.2)

1. If

Find a11, a22, a33, a31, a12, a23, a32, a21

SAQ 4.2 (tests Learning Outcome 4.2 and 4.3)

What are the diagonal elements of the following matrices?

(i) (ii) (iii)

SAQ 4.3 (tests Learning Outcome 4.2 and 4.3)

The notation below describes two matrices A and B.

A = (Aij)

Where i = 1, 2, 3 and j = 1, 2

B=

Which of the following statements about A and B are true?

Matrix A has 5 elements ii) The dimension of matrix B is 4 x 2

iii) In matrix B, element B21 is equal to 222 iv) Matrix A and B are equal.
 BUS220 Module

Note: When you have completed the task, check the correct answers in the appendix.
87
 BUS220 Module

Study Session 5:Types of Matrices

88

Introduction
In this session you find out that familiarization with the different types of matrices and their
properties makes it easier for you to be able transpose and solve other matrices related
problems.

Learning Outcomes for Study Session 5

At the end of this study session, you should be able to:

5.1 Identify types of matrices

5.2 Explore transposition of a matrix by symmetric and skew symmetric matrices

5.3 Identify properties and basic operations of types of matrices

Definitions

You must have noticed how matrix has been used as a collection of numbers arranged into a
fixed number of rows and columns. Here, we highlight the ability of the types and
properties of matrices in transposition and the basic operations of various types in solving
matrices problems.

5.1 Types of Matrices

5.1.1 Row Matrix

A row matrix is formed by a single row.

Example:

5.1.2 Column Matrix

 BUS220 Module

A column matrix is formed by a single column.

89

Example;

5.1.3 Rectangular Matrix

A rectangular matrix is formed by a different number of rows and columns, and its
dimension is noted as: mxn.

Example:

5.1.4 Square Matrix

A square matrix is formed by the same number of rows and columns.

The elements of the form aii constitute the principal diagonal.

The secondary diagonal is formed by the elements with i+j = n+1.

Example:

5.1.5 Zero Matrix

In a zero matrix, all the elements are zeros.

Example:

5.1.6 Upper Triangular Matrix

 BUS220 Module

In an upper triangular matrix, the elements located below the diagonal are zeros.
90
Example:

5.1.7 Lower Triangular Matrix

In a lower triangular matrix, the elements above the diagonal are zeros.

Example:

5.1.8 Diagonal Matrix

In a diagonal matrix, all the elements above and below the diagonal are zeros.

Example:

5.1.9 Scalar Matrix

A scalar matrix is a diagonal matrix in which the diagonal elements are equal.

Example:

5.1.10 Identity Matrix

An identity matrix is a diagonal matrix in which the diagonal elements are equal to 1. It is
denoted by I

Example:
 BUS220 Module

I= 91

5.1.11 Regular Matrix

A regular matrix is a square matrix that has an inverse.

5.1.12 Singular Matrix

A singular matrix is a square matrix that has no inverse.

5.1.13 Idempotent Matrix

The matrix A is idempotent if:

A2 = A.

5.1.14 Involutive Matrix

The matrix A is involutive if:

A2 = I.

where I is the identity matrix

5.1.15 Transposition of Matrix

Given matrix A, the transpose of matrix A is another matrix where the elements in the
columns and rows have switched. In other words, the rows become the columns and the
columns become the rows.

(At)t = A

(A + B)t = At + Bt

(α ·A)t = α · At
 BUS220 Module

(A · B)t = Bt · At
92
5.2 Symmetric and Skew-Symmetric Matrix

5.2.1 Symmetric Matrix

A square matrix A = [aij] is said to be symmetric if its (i, j)th element is the same as its (j,
i)th element.

i.e. A = AT

Example:

if .

Then,

A = AT

Therefore, A is symmetric matrix.

5.2.2 Skew Symmetric Matrix

A square matrix A = [aij] is said to be skew-symmetric if the (i, j)th element of A is the
negative of the (j, i)th element of A

i.e. A T = -A

Then,

Therefore, AT = -A
 BUS220 Module

5.2.3 Properties of Symmetric and Skew-Symmetric Matrix

93
i) A square matrix A is said to be skew-symmetric if A' = -A.

ii) The diagonal elements of a skew-symmetric matrix are all zero.

5.2.4 Antisymmetric Matrix

An antisymmetric matrix is a square matrix that verifies:

A = −At.

5.2.5 Orthogonal Matrix

A matrix is orthogonal if it verifies that:

A · At = I.

§ Perform a scalar multiple of the matrix below

§ If A= Can this matrix A be squared?

□ To multiply a matrix by a single number, you have to make sure that each individual
element of the matrix is multiplied by that factor, that is

It also means that, in reverse, you can take a common factor out of every element - not just
one row or column but the entire matrix:

Therefore, can be written as:

□ Matrix A can be square.

You have learnt here that a matrix can be squared only if it is itself a square matrix, that is,
the number of rows equals the number of columns.

Since, A=
 BUS220 Module

A2= . = =
94

Summary of Study Session 5

In this session you have learnt the identification of the various types of matrices, explored
transposition of matrices by symmetric and skew symmetric, identified properties and
perform basic operations of types of matrices.
Here are some self-assessment questions that could assist in your further understanding of
the study session.

Self Assessment Questions (SAQs) for Study Session 5

Do these without looking back at the pages that can give away the solutions.

SAQ 5.1 (tests Learning Outcome 5.1 and 5.2)

Given that A = determine (i) AT and (ii) A. AT

SAQ 5.2 (tests Learning Outcome 5.2 and 5.3)

Which of the following matrices are scalar?

i) ii) iii) iv)

SAQ 5.3 (tests Learning Outcome 5.2 and 5.3)

Which of the following matrices are triangular matrices?

(i) (ii) (iii) (iv)

When you have completed the task, compare your answers with the ones provided in the
appendix
 BUS220 Module

95

Study Session 6:Basic Operations with Matrices

Introduction
This study session will once more put to the test your proficiency in the basic algebra
operations; addition, subtraction and multiplication that you have learnt over the years both
 BUS220 Module

in arithmetic and mathematics. In this session, division of matrices is not treated but left for
96
further studies. You would also be tasked to apply your understanding of transposition of
matrices you did in Study Session 5 in solving inverse of matrices.

Learning Outcomes for Study Session 6

At the end of this study session, you should be able to:

6.1 Add, subtract and multiply matrices

6.2 Transpose matrices

6.3 Solve inverse of matrices using different methods

6.4 Identify the properties addition, subtraction, multiplication and inverse of matrices.

6.1 Basic Matrices Operation

6.1.1 Addition of Matrices

Given two matrices below, of the same dimension, A = (aij) and B = (bij), the matrix sum is
defined as: A + B = (aij + bij). That is, the resultant matrix's elements are obtained by
adding the elements of the two matrices that occupy the same position.

Properties of Addition of Matrices

1. Closure:
 BUS220 Module

The sum of two matrices of dimension m x n is another matrix of dimension m x n.

97
2. Associative:

A + (B + C) = (A + B) + C

3. Additive identity:

A+0=A

Where 0 is the zero matrix of the same dimension

4. Additive inverse:

A + (−A) = O

The opposite matrix has each of its elements change sign.

5. Commutative:

A+B=B+A

Examples:

Given the matrices:

Calculate: (i) A + B (ii) A – B

Solution:

.
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98

6.1.2 Scalar Product

Given a matrix, A = (aij), and a real number, k R, (k element of real number R) the
product of a real number by a matrix is a matrix of the same dimension as A, with each
element being multiplied by k.

That is:

k · A=(k aij)

Example:

Properties Scalar Product

a · (b · A) = (a · b) · A; A Mmxn, a, b

a · (A + B) = a · A + a · B; A,B Mmxn , a

(a + b) · A = a · A + b · A; A Mmxn , a, b

1 · A = A; A Mmxn

6.1.3 Multiplication of Matrices

Two matrices A and B can be multiplied together if the number of columns of A is equal to
the number of rows of B. That is:

Mm x n x Mn x p = Mm x p

The element cij of the product matrix is obtained by multiplying every element in row i of
matrix A by each element of column j of matrix B and then adding them together. Example:
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99

Properties of Multiplication of Matrix

1. Associative:

A · (B · C) = (A · B) · C

2. Multiplicative Identity

A·I=A

Where I is the identity matrix with the same order as matrix A

3. Not Commutative:

A·B≠B·A

4. Distributive:

A · (B + C) = A · B + A · C

Examples:

1. Given the matrices:

Calculate: (i) A B (ii) B A

Solutions:

In this example you would see that multiplication of matrices is not commutative by having
answers that are not the same.
 BUS220 Module

= 100

This implies that; , i.e.

2. Given the matrices:

Determine if the following multiplications are possible:

(At · B) · C

Solution:

We first consider the dimensions of each matrix to see whether they conform to matrices
notation operations
 BUS220 Module

(At3 x 2 · B2 x 2) · C3 x 2 = (At · B)3 x 2 · C3 x 2

101
You can then see that multiplication is not possible because the number of columns of
(At · B) does not coincide with the numbers of rows of C.

(B · Ct ) · At

(B2 x 2 · C t2 x 3) · At3 x 2 = (B · C)2 x 3 · At3 x 2 = (B · C t · A t ) 2 x 2

Here, multiplication is possible

3. Determine the dimension of M if C t · M is a square matrix.

C t2 x 3 · Mm x n

In this case M must have a dimension of m = 3 and n = 3

6.2 Inverse of Matrices

The multiplication of a matrix by its inverse is equal to the identity matrix.

A · A-1 = A-1 · A = I

Properties of Inverse Matrix

(A · B)-1 = B-1 · A-1

(A-1)-1 = A

(k · A)-1 = k-1 · A-1

(A t)-1 = (A -1)t

6.2.1 Steps to Calculate the Inverse Matrix

A is a square matrix of order n. For you to calculate the inverse of A, denoted as

A-1, the following steps are necessary:

Construct a matrix of type M = (A | I), that is to say, A is in the left half of M and the
identity matrix I is on the right. See illustration below,

Consider an arbitrary 3x3 matrix:

Place the identity matrix I of order 3 to the right of Matrix M.

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102

Using the Gaussian elimination method to transform the left half of A to the identity matrix,
located to the right, and the matrix that results in the right side will be the inverse of matrix:
A-1. Here r3, r2 and r1 mean rows 3, 2 and 1 respectively.

r2 - r1

r3 + r2

r2 - r3

r1 + r2

(−1) · r2

The inversed matrix is:

Examples:

Calculate the matrix inverse of:

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103

Solution:

We apply the steps above:

Construct a matrix of type M = (A | I).

Using the Gaussian elimination method, transform the left half of A, in the identity matrix,
located to the right, and the matrix that results in the right side will be the inverse of matrix:
A-1

6.3 Inverse of a Square Matrix

To form the inverse of a square matrix say A, you need to:

Evaluate a determinant of A, i.e. .

Form a matrix C of cofactors of the elements of

Write the transpose of C, i.e. CT to obtain the adjoint of A B

Divide each element of CT by .

 BUS220 Module

The resulting matrix is the inverse A-1 of the original matrix A

104
Let us work through an example in detail to illustrate this further.

You are required here to find the inverse of A =

STEP 1; Evaluate a determinant of A, i.e.

= = 1(2 - 0) -2(8 - 30) + 3(0 - 6) = 28

STEP 2; Now, you form a matrix of cofactor C,

This is done by making

A11 = + (2 - 0) = 2; A12 = - (8 - 30) = 22; A13 = + (0 - 6) = - 6; A21 = - (4 - 0) = - 4; A22 = +

(2 - 18) = - 16; A23 = - (0 - 12) = 12; A31 = + (10 - 3) = 7; A32 = - (5 - 12) = 7; A33 = + (1 -
8) = - 7

Note: care should be taken to remember to multiply each minor of A11, A12… A33, by a

corresponding sign in . This is limited to 3 x 3 because we are dealing with a 3

x 3 dimension matrix.

Therefore C =

STEP 3; You have to write down the transpose of C to obtain the adjoint (adj) of A.

adj A = CT =

STEP 4; You divide the elements of adj A by the value of , i.e. 28, to arrive at A-1.

That is A-1 =
 BUS220 Module

STEP 5; the inverse of square of the original matrix A can also be put as
105
A-1 =

I guess this was quite interesting. Work through some of the in-text and self-assessment
questions on your own and see how far you have understood this unit.

§ Add the following matrices:

□ =

§ Given the following matrices, find A – B and A – C, or explain why you cannot.

&

□ A and B are the same size, each being 2 x 3 matrices, so you can subtract working
entry- wise:

However, A and C are not the same size, since A is 2 × 3 and C is 2 × 2. So this subtraction
is not defined.

§ Find the values of x and y given the following equation:

 BUS220 Module

+ =
106
□ First, I'll simplify the left-hand side a bit by adding entry-wise:

+ =

= =

Since matrix equality works entry-wise, you can compare the entries to create simple
equations that you can solve. In this case, the 1, 2-entries tell you that x + 6 = 7, and the 2,
1-entries tell you that 2y – 3 = –5. Solving, you will get:

x+6=7
x=1
2y – 3 = –5
2y = –2
y = –1

Summary of Study Session 6

Up till now, you have been able to add any two things you felt like: numbers, variables,
equations, and so forth. But addition does not always work with matrices: A matrix is a way
to organize data in columns and rows. You have also seen in this module that matrix is
written inside brackets [ ] or ( ). Each item in a matrix is called an entry.

You have been able to identify in this session that matrices are added entry-wise,
Subtraction works entry-wise, too. This is always the case: To be able to add two matrices,
they must be of the same size. If they are not of the same size (if they do not have the same
"dimensions"), then the addition is "not defined". In order to multiply matrices, you have
also observed that we follow rules of matrices multiplication.

Below is a self assessment question to conclude this session.

Self Assessment Questions (SAQs) for Study Session 6

 BUS220 Module

SAQ 6.1 (tests Learning Outcome 6.1 to 6.4)

107
Determine the value of a, b, c, and d, so that the following equation becomes valid.

Study Session 7: Sequence Series and Progression

Introduction
This is an extension of the number systems in BUS 210. It deals with the arrangement of
numbers and other areas to be covered in Business Mathematics. In this unit, you will learn
the sequence of formulation of numbers and identify the difference between sequence,
series and progressions. You should also be able to solve problems using them.
 BUS220 Module

108
Learning Outcomes
At the end of this study session, you should be able to:

7.1 Identify the sequence formation of numbers.

7.2 Derive the formulation of number sequence.

7.3 Formulate the number sequence with reference to the terms position.

7.4 Differentiate between sequence, series and progressions.

7.5 Solve simple problems in day to day business activities relating to sequence, series

and progressions.

7.6 Relate the types of progression to business day activities.

7.1 Sequence
A sequence is defined as a set of values which is growing or declining with some regular
patterns.

It is denoted by tn where t represents the value and n a natural number represents the
positions of the value.

Thus a sequence is a set numbers.

t₁ ,t₂ , t₃ , t₄..., tn

where t₁ = the first term.

t₂ = the second term.

t₃ = the third term and

tn = the nth term

Therefore a sequence is a function of the set of natural numbers.

e.g. 0, 1, 2, 3, 4 ..., n

or f (n) = n

where n = 0, ..., n.

Examples:

2, 6, 18, 54
 BUS220 Module

2, 6, 18, 54...
109
1, 4, 7, 10

1, 4, 7, 10...

1/3, 1/5, 1/7, 1/9.

1/3, 1/5, 1/7, 1/9...

1, -2, 3, -4, 5, -6...

2, 4, 6, 8...

3, 9, 27, 81...

1, -1/4, 1/9, -1/16...

7.2 How to derive the Formula for tn of a Sequence

This session is treated with examples as shown below:

Example 1:

Given the Sequence 2, 4, 6, 8. Find

(i) the nth term.

(ii) the 15th term.

Solution:

(i) 2, 4, 6, 8

Common Factor = 2.

Attaching position n to this common factor using any of the mathematical sign descriptions.

i.e. – addition

- subtraction

- multiplication.

- division

- Index (power) formation

From these, one looks for the one which gives a definite solution to the value given above

e. g First term from the sequence is 2, the position n of this term is 1.

 BUS220 Module

Applying all the above, it should be noted that the multiplication procedure suits all the
values indicated above. 110

i.e. 2*n

tn = 2n

t₁ is when n = 1

t₁ = 2(1) = 2

t₂ is when n = 2

t₂ = 2 * 2 = 4

t₃ is when n = 3

t₃ = 2 * 3 = 6 etc.

Since this satisfies the value formation of the equation,

tn = 2n

(ii) The fifteenth term (15th) term is t₁₅.

If tn = 2n

t₁₅ is when n = 15.

t₁₅ = 2 * 15

= 30.

Example 2:

Given the sequence 3, 9, 27, 81... Find the

(i) nth term

(ii) 50th term

Solution:

3, 9, 27, 81...

Common factor = 3.

Attaching the common factor with the position n becomes 3n

i.e. tn =3ⁿ

t₁ = 3¹ = 3
 BUS220 Module

t₂ = 3²= 9
111
t₃ = 3³= 27

tn = 3n.

50th term = t₅₀

If tn = 3ⁿ

t₅₀ is when n = 50

t₅₀ = 3⁵⁰

Example 3:

Given the sequence 1, -1/4, 1/9, -1, 16... Find the

(i) nth term (ii) 10th term

Solution:

Two things are going to be considered here, i.e.

-The tn representing the sign change.

-The tn for the value change

The two will now be combined together to get the tn representing the sequence.

Thus :

For the sign change.

tn = (-1)n+1 or (-1)n-1

or tn = (-)n+1 or (-)n-1 .

For value change 1/1, 1/4, 1/9, 1/16, ...

tn= 1/n²

t n= tn (sign change) * tn (for value change).

= (-1)ⁿ⁺¹ * 1/n²

tn= (-1)ⁿ⁺¹ 1/n²

i.e. for t₁ = 1

when n = 1

t₁ = (-1)¹⁺¹ 1/12 = 1
 BUS220 Module

for t2 = ¼
112
when n=2

t₂ = (-1)²⁺¹ 1/2² =(-1)³ ¼ = -1/4.

for t₃ = 1/9.

when n = 3

t₃ = (-1)³⁺¹. 1/3² =1/9

Therefore tn = (-1)ⁿ⁺¹* 1/n².

(ii) 10th term = t₁₀

since tn = (-1)ⁿ⁺¹ * 1/n².

t₁₀ is when n = 10

substituting in the formula.

t₁₀ = (-1)¹⁰⁺¹ *1/10².

= (-1)¹¹* 1/100

= -1/100

7.3 Series
Series is obtained by adding the terms of a sequence. It is the sum of a sequence.

i.e. for the sequence t1, t2, t3, ..., tn

The series of these terms denoted by Sn is given by

Sn = t₁ +t₂+t₃ + ... +tn.

A series can be finite or infinite.

A finite series is the one that has the last term or definite number of terms. The sum of first
n terms of a sequence is called a finite series.

An Infinite series is the one that has no last term. i.e. it is an unending series.

Thus for a finite series

Sn = t₁ +t₂ +t₃ = ... + tn

Sn = S ti
 BUS220 Module

7.4 Progression
113
A progression is a sequence or series of numbers with a constant difference or ratio
between the successive terms in the sequence or series.

Progression forms a special sequence whose terms follow a definite pattern. Thus, the
special sequences are the

(i) Arithmetic progression (AP)

(ii) Geometric ,, (GP)

(iii) Harmonic ,, (HP)

(iv) Arithmetic – Geometric Progression ( AGP)

Summary of Study Session 7

The following topics are covered in this session

(i)Sequence (ii) Series (iii) Progressions.

Self Assessment Question (SAQs) for Study Session 7

SAQ 7.1 (tests Learning Outcome 7.1, 7.2 and 7.3)

1. Find the nth term of the following sequence

(i) 2, 4, 6, 8; (a)n (b)3n (c)2n (d)4n.

(ii) 3, 9, 27, 81; (a)3n (b)3ⁿ (c)9n (d)9ⁿ.

(iii) 1, -2, 3, -4, 5, -6; (a) (-1)ⁿ-¹n (b) (-1)ⁿ⁺¹(-n) (c) -n (d) n.

(iv) 1, -1/4, 1/9, -1/16...; (a) (-1)ⁿ1/n² (b) (-1)ⁿ1/n (c) (-1)ⁿ-¹ 1/n² (d) (-1)ⁿ-¹n²

SAQ 7.2 (tests Learning Outcome 7.4 and 7.5)

2. (i) Which type of progression is this? 1,1/3,1/5,1/7? (a)HP (b)AP (c)GP (d)AGP.

(ii) 1, 2, 3, 4, 5, 6 ... is a progression (true of false)

(iii)A geometric progression has a first term and a common difference. (true of or false).

(iv) The nth term of an AP is a – (n-1)d. (true or false)

 BUS220 Module

(v) The sum of the terms of a GP is n/2(a+l) (true of or false)

114
(vi)The arithmetic mean of 1, 2, 3, is 2. (true of or false).

(vii)The Geometric mean of 1, 2, 3, is 2. (true of or false).

Study Session 8: Special Sequence

Introduction
In study session 7, you have learnt about formation of numbers with reference to their
positions. This session deals with the area of special sequence which is used in day-to-day
business activities. These are Arithmetic Progression, Geometric Progression, Harmonic
Progression and Arithmetic – Geometric Progression.
 BUS220 Module

115
Learning Outcomes for Study Session 8
At the end of this session, you should be able to:

8.1 Outline the derivation of each of the progressions formula.

8.2 Apply each type of progression in solving business problems.

8.3 Appreciate the importance of each of the types of progression.

8.1 Arithmetic progression (AP)

Arithmetic progression is a series in which each of its terms increases or decreases by a
common difference.It is characterized by two parameters. These are:

- The first term denoted by a and

- The common difference denoted by d

The progression is generated by a continual addition of the common difference d to the first
term a.

Thus, the nth term or last term of an Arithmetic progression is deduced as follows:

Fist term = a = a+0d i.e: the coefficient of d = 0, position of the term is n=1

Second term = a+d i.e. the coefficient of d = 1, position of the term n =2

Third term = a + d+d = a + 2d i.e. the coefficient of d =2, position of the term is n=3

Fourth term = a + 2d +d = a+ 3d i.e. the coefficient of d=3, position of the term is n=4

Following the same pattern, therefore, the nth term can be given as

nth term = a + (n-1) d i.e. the coefficient of d=n-1, position of the term is n=n

For an Arithmetic progression the nth term or last term is given as

nth term = Ln = a+(n-1)d

Arithmetic series (sum of the term of an AP)

For an AP, the growing AP can be denoted as

a a+d a+d+d a + d + d + ... a + (n-1)d

i.e. a a+d a + 2d a + 3d ... a + (n-1)d

the sum of this AP terms can be found as follows.

 BUS220 Module

S n = a + (a +d) + (a + 2d) + ... + a + (n-1)d (i)

116
For a declining Arithmetic progression (AP) can be denoted as

a + (n-1)d a + (n-2)d ... a + d a

Sn = a + (n-1)d + a + (n-2)d ...+ (a + d) + a (ii)

eqn (i) + eqn (ii)

2Sn = {a + a + (n-1)d} + {a + d + a + (n-2)d} +... {a + (n-1)d + a}

= {a + a + (n-1) d} + {a + a + (n-1) d} + ... {a + (n-1)d + a}

2Sn = n {a + a + (n-1)d

Sn = n/2 {a + a + (n-1) d}

Sn = n/2 {2a + (n-1) d}

since Sn= n/2 (2a + (n-1) d)

but Ln = a + (n-1) d = nth term or last term of an AP.

Sn = n/2 (a + a+ (n-1) d

substituting for Ln = a+ (n-1) d in this equation gives

S n= n/2 (a +Ln}

Sn = n/2 (2a + (n-1)d ) can be used if the series is an Infinite series or sequence

where Sn= n/2(a + Ln) can be used if it is a finite series.

Example:

The nth term of an AP is 9-15n. Find the first term a, tenth term and the common
difference (d).

Solution:
nthterm = Ln = 9 – 15n
First term is when n = 1

t₁ = 9 – 15 (1)

= - 6.

The first term, denoted as a = - 6

The 10thterm L₁₀

since Ln = 9-15n
 BUS220 Module

The 10th term is when n = 10

117
L₁₀ = 9 – (15)(10).

= 9 – 150

= -141

To find the common difference d

since it is an AP

a = -6

The second term is when n = 2.

t₂ = 9 – 15 (2)

= 9 – 30

= -21

common difference d = second term – first term

= - 21 – (- 6).

= - 21 + 6

= -15

Arithmetic means

If x, y, z are consenter terms of an AP

y = Arithmetic mean of x and z.

Thus, using this concept where

First term = a – d

Second term = a

Third term = a + d

The consecutive terms are a-d, a, a+d.

The arithmetic mean = a.

where
 BUS220 Module

118

Geometric Progression

This is a series in which each of its terms increases or decreases by some constant ratio
called the common ratio r

Thus, the GP is characterized by two parameters. There are

The first term demoted by a

The common ratio denoted by r.

Thus each term of a GP is obtained by multiplying the preceding terms by a constant ratio
r.

If the first term = a, and the common ratio = r

The first term to the nth term of a GP is as follows :

First term = a.

Second term = ar

Third term =ar²

Fourth term = ar³

nth term = arⁿ-¹

Thus, the terms of a GP are

a, ar, ar², ar³, ...

indicating that the nth term of a GP = arn-1

The nth term of a GP is used in financial arithmetic in the areas like compounding and
discounting.

Geometric Series

For increasing Geometric series, we have

Sn = a + ar + ar ²+ ar ³ ... + (1)

multiplying this equation (1) by the common ratio, we have

 BUS220 Module

r Sn = ar + ar² + ar³ +ar⁴ ... + arn-1 + arⁿ . (2)

119
equations (1)-(2)

Sn – rSn = a - arⁿ.

Sn (1-r) = a (1 - rⁿ).

Sn = for r < 1

or

Sn = for r > 1

Sum of GP to Infinity

Since Sn = a(1-rⁿ)/(1-r)

as n becomes very large i.e. n ®¥

S¥ = a(1-r¥)/(1-r).

S¥ =a /(1-r)

Geometric mean

Let x, y, z be the consecutive terms of a GP.

R = y/x or z/y

y/x = z/y

y²=xz

y = √xz

Thus, the positive or negative sign is chosen for the geometric mean according to whether
the sign of x and z are positive or negative.

In general if x₁, x₂, x₃... xn are in GP, then the geometric mean is

GM = (x₁* x2*x₃)¹/ⁿ.

Example 1:

The second and the fifth month salaries of Bola were ₦700 and ₦5,600 each. You are
required to

deduce the increment ratio.

 BUS220 Module

deduce the first month’s salary of Bola.

120
find the sum of the first five month salaries of Bola

find the sum to infinity of Bola’s salary.

Solution:

(i) Second month’s salary = ₦700

i.e. ar = 700... (1)

Fifth month’s salary = ₦5,600

ar⁴ = ₦5,6000 ... (2)

equation (2)/ equation (1)

ar⁴/ar = 5600/700.

r3 = 8

r = √8. =2.

Incremental ratio = 2

(ii) First month’s salary = a

From equation (1)

ar =700

a (2) = 700

a = 700/2

a = ₦350

(iii) Sum of the first five month’s salary = S₅.

Since Sn = a (1-rⁿ)/(1-r ) or a (rⁿ-1)/(r-1)

s₅ = a(r⁵-1)/(r-1)

=350 (2⁵-1)/2-1

= 350 (32-1).

= ₦ (350)(31)

=₦10,850.

(iv) Sum to infinity of Bolas’ salary = S∞

 BUS220 Module

Since Sn = a(rⁿ-1)/( r-1) or a(1-rⁿ)/(1-r).

121
S¥ = a/1-r or a/r-1

= 350/1-2 or 350/2-1

= ₦350.

Harmonic Mean

This is the sequence in which the reciprocal of the terms forms an Arithmetic progression.

i.e. 1/x₁, 1/x₂, 1/x₃ ... 1/xn

where x₁, x₂ ,x₃ ... xn is an AP.

HM = n/(S(1/xi)

Example: 1, 1/3, 1/5, 1/7...

This is a Harmonic progression because the values in the denomination of the fraction 1, 2,
5, and 7 form an AP.

Summary of Study Session 8

The topics covered under this session are the different types of special sequence such as
Arithmetic Progression, Geometric Progression and Harmonic Progression.

Self Assessment Questions SAQs) for Study Session 8

SAQ 8.1 (tests Learning Outcome 8.1 and 8.2)

A sum of money is shared among nine people such that the first person gets ₦75, second
person gets ₦150, the third person ₦225 etc.

(i) How much money does the ninth person get?

(ii)How much money is shared altogether?

SAQ 8.2 (tests Learning Outcome 8.1 and 8.2)

A clerk’s salary started at ₦2,300:00 per annum. A rise of ₦150 is given at the end of each
year; find his total salaries in 12yrs.
 BUS220 Module

SAQ 8.3 (tests Learning Outcome 8.2 and 8.3)

122
The sum to infinity of a GP is 100. Find its first term if the common ratio is ¼.

SAQ 8.4 (tests Learning Outcome 8.1, 8.2 and 8.3)

LOC establishes an investment starting with ₦12,500 each year for a period of five years at
5% compound interest. Calculate the worth of the investment after nine years.

SAQ 8.5 (tests Learning Outcome 8.3)

Insert two geometric mean between 1/27 and -1

SAQ 8.6 (tests Learning Outcome 8.2)

You as an individual have won a contract to supply 109,200 units of a product to DLI. DLI
wants final delivery in 12weeks. You have estimated that production in the first week will
be 8000 units, but that by employing more hands, output will rise by 200units each week.
Will you be able to complete the contract within the expected time given by DLI?

MODULE THREE
APPLICATION OF MATHEMATICS OF FINANCE AND
BASIC PROBABILITY

Learning Outcomes for Module Three

At the end of module three, you should be able to:

3.1 Apply the basic concepts of mathematics of finance in solving business problems

3.2 Identify the concepts of probability and use them in business mathematics problem

solving
 BUS220 Module

3.3 Apply set theory in solving probability problems

123

Study Session 1: Definition and Basic Concepts of mathematics

of Finance

Introduction
Mathematics of finance or financial mathematics deals with the problems of investing
money or capital. Since the main purpose of any business organization is to make profit, the
investor requires compensation mainly for two reasons.

(1) Time value of the money

(2) Risk bearing

This compensation can be referred to as the Interest paid on the money invested.
 BUS220 Module

The reasons for the time preference are:

124
(i)Consumption preference i.e. money received now can be spent on consumption.

(ii)Risk preference: the risk disappears once the money is received

(iii)Investment preference: money received can be invested in a business or invested

externally.

This interest referred to can be Simple or Compound i.e. We have Simple Interest and
Compound Interest.

Simple interest arises when interest accruing on an investment is paid to the investor as it
becomes due and its is not added to the capital balance on which subsequent interest will be
calculated.

Compound interest arises when the accrued interest is added to the capital outstanding
and it is this revised balance on which interest is subsequently earned. Thus the
discounting process i.e. fundamental to Discounted Cash Flow (DCF) calculations is
analogous to compound interest in reverse where the calculation of the Present Value (PV)
is the mechanics behind DCF.

Learning Outcomes for Study Session 1

At the end of this session, you should be able to:

8.1 Recognize simple problems relating to simple and compound interest.

8.2 Derive simple problems relating to simple and compound interest.

8.3 Solve simple problems relating to simple and compound interest.

1.1 Term used in Simple and Compound Interests

Principal Amount or Present Value

This is the amount of money that is initially being considered. It may be an amount to be
invested or loaded or of the cost of machinery. It is denoted as P

Accrued Amount

This is a term applied generally to a principal amount after some has lapsed for which the
interest has been added or calculated. If is denoted by A.

Rate of Interest
 BUS220 Module

Interest is the name given to the appropriate amount of money which is added to the
principal. It is expressed as a percentage rate per annum. It is denoted by i or r. 125

Number of time periods:

This is the number of time periods over which an amount of money are being invested or
borrowed.

Simple Interest

This is where any interest earned is not added back to the principal amount invested.

Example 1

Suppose ₦1000 is invested at 10% simple interest per annum.

The statement of the investment year by year can be shown as follows.

Year Amount on which Interest is Interest Earned Cumulative Amount
calculated
1 ₦1000 10% of 1000 = ₦100 1000+100 = ₦1100
2 ₦1000 10% of ₦1000 = ₦100 1100+100 = ₦1200
3 ₦1000 10% of ₦1000 = ₦100 1200+100 = ₦1300

This can also be done using the formula for the simple interest calculation.

Thus Simple Interest = PRT/100 or PIT/100 or PIN/100

where P = Principal Amount, R = I = rate of interest in %, T = t = n= time in years

1.2 Compound Interest

Compound interest arises when the accrued interest is added to the capital outstanding and
it is this revised balance on which interest is subsequently eared. With compound interest
the interest is added each year to the principal and for the following year, the interest is
calculated on their sum.

The discounting process, i.e. fundamental to Discounted calculation Cash Flow (DCF)
calculation is analogous to compound interest in reverse.

Thus Compound Interest = Compound Amount – Principal Amount.

where Compound Amount CA = P(1+i)ⁿ.

where P = principal (initial amount deposited)

r = rate of interest per annum.

n= no of years the principal is left on deposit.

 BUS220 Module

Note that the Compound Amount can also be referred to as the Final Amount
Accumulated or Terminal Value. 126

Example 2:

Suppose ₦1000 is invested at 10% compound interest per annum.

The statement of the investment year by year can be shown as follows:

Year Amount on which Interest Earned Cumulative amount
interest is added earned

1 ₦1000 10% of ₦1000 = ₦1000 ₦(1000+100) = ₦1100

2 ₦1100 10% of ₦1100 = ₦110 ₦ (100+110) = ₦1210
3 ₦1210 10% of ₦1210 = ₦121 ₦(1210 +121) = ₦1331
OR

Year Principal (₦) Total Amount (₦)

1 1000 1000(1+0.1) = 1000(1+.01)¹ =1100
2 1000(1+0.1) 1000(1+0.1)(1+0.1) = 1000(1+0.1)² = 1210
3 1000(0+0.1)² 1000(1+0.1)²(1+0.1) = 1000 (1+0.1)³ = 1331

Thus if this process continues, the Future Value at the end of the nth year is given by CA or
FV = 1000 (1+0.1)ⁿ.

CA or FV = P(1+i)ⁿ

This indicates that the amount at the end of successive year form a Geometric Progression
with common ratio (1+i)

Year Amount on which Interest Earned Cumulative amount earned

interest is added
1 ₦1000 10% of ₦1000 = ₦1000 ₦ (1000+100) = ₦1100
2 ₦1100 10 of ₦1100 = ₦110 ₦ (1100+110) = ₦1210
3 ₦1210 10% of ₦1210 = ₦121 ₦ (1210+121) = ₦1331

Note that this is for a single Principal Amount.

Example 3:

Mr. X places ₦2000 on deposit in a bank earning 5% compound interest per annum

(a) Find the amount that would have accumulated after

(i) one year (ii) two years (iii) three years.

(b) Find the compound interest of the periods mentioned in (a).

Solution:
 BUS220 Module

CA = P(1+ i)ⁿ
127
(i) After one year.

i.e. n =1

P = ₦2000

i = 5% = 0.05.

CA = 2000 (1+0.05)¹

= 2000(1.05)

= ₦2100

(ii) After two years.

i.e. n=2

CA = P (1+i)ⁿ

= 2000(1+0.05)².

= 2000(1.05)²

= ₦2205

(iii) After three years

i.e. n = 3

CA = P(1+i)ⁿ

=2000(1+0.05)³

=2000(1.05)³.

= ₦2315.25

Compound interest for each of the period

After 1 year

CI = CA-P

=2100-2000

= ₦1000

After 2 years
 BUS220 Module

CI = CA-P
128
= 2205 - 2000

= ₦205

After 3years

CI = CA – P.

= 2315.25-2000

= ₦315.25

1.3 Discounting
Having said that people have a time preference for money and should prefer to receive
money sooner rather than later, it is inappropriate to give the same value to similar sums
receivable at different times over the life of a project. This is what traditional methods of
investment appraisal do as illustrated in the context of the payback period. Because of
investors rates of time preference for money, a more suitable method of investment
appraisal reduces the value of later cash flows (discount them) to find that sum with which
one could be equally happy now as a given receipt due in several years’ time. Thus, the
calculation of the present value is what was illustrated with the compound interest
calculation. In corporate decisions, the required rate of return might well be referred to as a
cost of capital.

Summary of Study Session 1

The basic concepts of Mathematics of Finance i.e. Simple and Compound Interests were
covered here.

Self Assessment Questions (SAQs) for Study Session 1

SAQ 1.1 (tests Learning Outcome 1.1 and 1.2)

A man invests ₦1000 to earn a compound interest of 10% per annum. How much would he
expect his total investment to be worth after 3years?

SAQ 1.2 (tests Learning Outcome 1.1 and 1.2)

For money to have time value, it must be possible to invest it at a __________

rate of return.
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SAQ 1.3 (tests Learning Outcome 1.1 and 1.2)

129
The three components of rates of return that provide money with time value are ___, ___
and ___

SAQ 1.4 (tests Learning Outcome 1.2 and 1.3)

The compensation that investors require for being exposed to various types of investment
risk is known as ____

SAQ 1.5 (tests Learning Outcome 1.2 and 1.3)

Time value of money applications frequently calls for the determination of the ___ of an
investment cash flows as a result of the effects of the _____

SAQ 1.6 (tests Learning Outcome 1.2 and 1.3)

The process of computing Future Value involves projecting the ____ forward on the basis
of appropriate _____ to the end of the investment life.

SAQ 1.7 (tests Learning Outcome 1.2 and 1.3)

In a time-line diagram for solving time value of money, cash outflows, otherwise known as
____ are given ____ signs while cash inflows, known as _____are given ___ signs.

SAQ 1.5 (tests Learning Outcome 1.2 and 1.3)

The rate of interest the investor actually realizes as a result of compounding is known as
____while the one quoted by the financial institutions is known as _____.
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130

Study Session 2: Present and Future Values

Introduction

You have learnt mathematics of finance in session one and in this session, you will learn
how to calculate the present and future values of a given cash flow.

Learning Outcomes for Study Session 2

At the end of this study session, you should be able to:

2.1 Derive formulae for finding Present and Future Values.

2.2 Make use of PV tables.

2.3 Solve simple problems Future Values of a sum received.

 BUS220 Module

2.1 Present Value Calculation

131
The Present Value (PV) of a single Sum (S) receivable or payable in n years time , given
an interest rate (a discount rate r) is given from the Compound Amount formula.

Thus of CA = S = P(1+r)ⁿ

P = S / (1+r)ⁿ

where P = Principal = Present Value

PV = S / (1+r)ⁿ.

The Present Value (PV) is the cash equivalent now of a sum receivable or payable at a
future date. Since discounting is so widely used in business problems, Present Value (PV
tables) are available for computations.

The table provides a value (the discount factor) for a range of years and discount rates.
Thus, the discount factor is the factor by which the future sum (FV) is multiplied to get a
Present Value.

i.e. 1/(1+r)ⁿ or 1/(1+i)ⁿ

where r = i = discount rate

n = number of years.

Time 0 1 2 3 n years

Now 1 yr 2 yrs. 3 yrs. n yrs.

from now from now from now from now

The discount factor for the time t=0 is always 1, therefore it is not included in
the table.
Example:
Calculate the present value of the given cash flows using 15% discount rate.

Time 0 1 2 3 4 5 6
Cash flow (60,000) (10,000) 15000 20,000 20,000 20,000 20,000
 BUS220 Module

Solution: Discount rate = 15%, using the table

132
Time Cash flow (₦) Discount factor Present value
(₦)
0 (60,000) 1.000 (60,000)
1 (10,000) 0.870 (8.700)
2 15000 0.756 11,340
3 20,000 0.658 13,160
4 20,000 0.572 11,440
5 20,000 0.497 9940
6 20,000 0.432 8640

The above cash flow may represent the outflows and inflows of a particular investment
project.

2.2 Continuous Compounding

When compounding is continuous i.e. every hour or minutes or seconds, the accrued
amount though increasing will approach a particular a particular value.

Thus, when an amount P is invested for n years at r % annual interest with continuous
compounding , the amount P will grow to a Future Value or Accumulated Value of

A = Lim A = Lim P(1+r/m)ᵐⁿ

A = Peⁿr

2.3 Accrued Amount of a Number of Equal Payment

If a firm plans to invest an amount of money at the beginning of every year in order to
accrue a sum of 100,000 at the end of a 5 year period. What is the value of the amount if the
investment rate is 14%?

It should be noted here that the money is being invested as a series of equal payment and
not a single principal amount.

Let the amount invested at the beginning of each of the five years (5year) = ₦x.

where ₦x is the Present Value.

1st payment of ₦x accrued to ₦x(1.14)⁵

2nd payment of ₦x accrued to ₦x (1.14)⁴

3rd payment of ₦x accrued to ₦x (1.14)³

 BUS220 Module

4th payment of ₦x accrued to ₦x (1.14)²

133
5th payment of ₦x accrued to ₦x (1.14)¹

Thus,

Sn = x(1.14)⁵ + x(1.14)⁴ + x(1.14)³ + x(1.14)² + x(1.14)¹

where Sn = ₦100,000.

Thus, this looks like a Geometric Progression, where n = 5

S₅ = x((1.14)⁵ + (1.14)⁴ + (1.14)³) + (1.14)² + (1.14))

when Sn = ₦100,000

a = x(1.14)⁵

r = 1.14

n=5

Sn = a(rⁿ-1)/r-1

substituting for these values,

100,000 = { x(1.14)⁵((1.14)⁵-1} / {1.14-1}

100,000 = {x(1.14)⁵(0.9254)}/0.14

x=1000,000 (0.14)/(1.14)⁵(0.9254)

=14000/(1.14)⁵(0.92554)

=14000/(1.9254)(0.9254)

= ₦7,8547.38

Summary of Study Session 2

The topics covered under this unit are present and future values in business environment.

Self Assessment Questions (SAQs) for Study Session 2

 BUS220 Module

SAQ 2.1 (tests Learning Outcome 2.1 and 2.2)

134
The amount an investor will have in 15yrs if ₦1000 is invested today at an annual interest
rate of 9% will be closest to (a) ₦1350 (b) ₦3518 (c) ₦3642
(d) ₦9000.

SAQ 2.2 (tests Learning Outcome 2.1 and 2.2)

How much must be invested today at 0% to have ₦100 in 3yrs? (a) ₦77.75 (b) ₦100.00 (c)
₦126.30 (d) ₦87.50

SAQ 2.3 (tests Learning Outcome 2.2 and 2.3)

An analyst estimates that ABC’s earning will grow from ₦3:00 a share to ₦4:50 per share
over the next eight years. The rate of growth in ABC’s earnings is closest to (a)4.9%
(b)5.2% (c)6.7% (d)7.0%.

SAQ 2.4 (tests Learning Outcome 2.2 and 2.3)

If ₦5000 is invested in a fund offering a rate of 12% p.a. approximately, how many years
will it take for the investment to reach ₦10,000? (a)4yrs (b)5yrs (c)6yrs (d)7yrs.

Study Session 3: Nominal and Effective Interest Rates

Introduction
You have learnt a lot of calculations involving financial mathematics starting from session
one to session two. In this study session, you will also learn a lot of calculation in nominal
and effective interest rate.

Learning Outcomes for Study Session 3

At the end of this study session, you should be able to:

1.1 Use interest rate or actual percentage rate to solve problems

 BUS220 Module

1.2 Solve problems involving annuities

135
1.3 Find Sinking Fund and Amortisation

3.1 Definition of Normal and Effective Interest Rate

It is a normal practice in business and commerce to express rates of interest as per annum
figures even though the interest may be compounded over time periods of less than one
year. i.e. interest can be calculated daily, weekly, monthly or quarterly instead of annually.
In this case, the given annual rate of interest is called a Nominal Rate. This is the quoted
interest rate to the investor. It is the stated annual rate. Compounding may be semi-
annually, quarterly, monthly or daily. For such, effective annual rate has to be calculated.
The actual annual rate of interest is called the Effective Rate or Actual Percentage Rate
(APR).

It is also referred to as the Nominal Yield or True Investment Rate. This will always be
greater than the nominal rate. i.e.

Note that the standard method of determining the APR is to make the effective time period
equal to the compounding period and actually compound over a period of one year.

The discrepancy between the Nominal Rate and the Actual Percentage Rate (APR) gets
larger as the number of years increase.

Thus the Effective Rate or APR is defined as the rate which when compounded annually
gives the same amount of interest as a nominal rate compounded several times.

3.1.1 Formula for Calculating the APR

Given the Nominal Annual Rate of interest, the effective or Actual Percentage Rate can be
calculated using the following formula.

ARP = {1+(i/m)}ᵐ - 1

where i = given nominal rate (as a proportion)

m = number of compounding periods in one year.

Note that if the interest is compounded continuously at an annual rate of r %,

Effective interest rate = er -1.

 BUS220 Module

Example 1:
136
10% nominal rate is compounded quarterly. What is the Effective Rate or APR?

Solution:

APR = (1+i/m)

From the question,

Nominal rate = 10% compounded quarterly

m=4

i = 10% =0.1

APR = (1+0.1/4)⁴ - 1

= (1+0.025)⁴ - 1

= 1.025⁴ - 1

= 0.1038

10.38%

i.e. 10% nominal rate compounded quarterly is equivalent to 10.38% effective rate,

Example 2:

20% nominal compounding semi-annually. What is the effective rate?

Solution:

APR = (1+i/m)ᵐ - 1

where m =semi-annually = 2

i = 20% = 0.2

APR = (1+0.2/2)² - 1

= (1+0.1)² - 1

= (1.1)² - 1

= 1.21-1

= 0.21

21%.
 BUS220 Module

3.2 Annuities
137
An annuity is a sequence of fixed equal payments (receipts) made over uniform time
intervals.

Annuity arises when the cash flows received or paid out are constant for all years. It may
range from weeks to months or years.

Examples of annuities include weekly wages, monthly salaries, insurance premiums, rental
of properties, house purchase, mortgage payment, pension, sinking fund payment, etc.

Types of Annuities

The types of Annuities include the following:

(a) Annuities may be paid

(i) at the end of the payment intervals. This is known as Ordinary Annuity e.g. salary

(ii) at the beginning of the payment intervals. This is referred to as Due Annuity e.g. Rent
payment

(b) The term of annuity may

(i) begin and end on fixed dates. This is referred to as Certain Annuity.

(ii) depend on some events that cannot be fixed. This is known as Contingent Annuity.

(c) Perpetual Annuity is the one that carries on indefinitely. This includes Ordinary
Annuity

This is an annuity paid (received) at the end of the payment interval. Payment or receipt
commences in one year’s time. It is also known as immediate annuity. It is among the
most common annuities. e.g. personal loans paid at the end of each month but with initial
deposit.

Example

For a four year payment of #300 made annually as annuity payment, the annuity pattern of
an ordinary annuity will be made as follows:

Year 0 1 2 3 4
Annuity - 300 300 300 300

Due Annuity

This is an annuity which may be paid or received at the beginning of payment (receipts)
intervals. e.g. advance payment (receipts) intervals. i.e. advance payment in saving scheme.
 BUS220 Module

Since the first sum arises immediately, the cash flow of the first sum arises in year zero e.g.
138
For a four year payment to be made as due annuity, then the cash flow pattern is as follows.

Year 0 1 2 3 4

Annuity 300 300 300 300 -

Certain Annuity

This is a common annuity whose term begins and ends on a fixed date. A good example is a
hire purchase with initial deposit and then equal monthly payments payable at the end of
each month.

Contingent Annuity

This is a type of annuity whose term may depend on some events that cannot be fixed such
as pension scheme received until death.

Perpetual Annuity

This is the annuity that carries on indefinitely. The perpetuity discount factor is 1/r –
1/r(1+r)n. When n gets very large (i.e.¥), the term 1/r(1+r)ⁿ gets very small and will be
zero when n = ¥.

It should be noted that the Future Terminal Value of an Annuity is given as

FV = A(1+r)ⁿ -1

where FV= Future Terminal Value.

r = Discount rate.

n = number of years

A = Flow of annuity.

From the information given above on Perpetual Annuity, the Perpetuity Discount factor =
1/r. Present value of an Annuity

PV = A/(1+i), A/(1+i)², A/(1+i)³,………………………………………… A / (1+i)ⁿ

The Present Value of an annuity can be calculated using PV ={ A / (1+i)ⁿ}

NPV = A {1- (1+r)-ⁿ)} / r

As n approaches infinity (¥), (1+r)¥ approaches zero, and 1 – ( 1+ r )n approaches 1.

Hence PV = A /r for Perpetual Annuity.

 BUS220 Module

3.3 Sinking Fund

139
Sinking Fund is the money put aside periodically to settle liability or replace an asset. The
money is invested to produce a required sum at an appropriate time. i.e. Sinking Fund is an
annuity invested in order to meet a known commitment at some future date. It is commonly
used for repayment of debts and provision of funds for the purchase of a new asset when
the existing asset is fully depreciated. E.g. Sinking Fund for Debt repayment.

If a debt is incurred over a fixed period of time subject to a given interest rate, a sinking
fund can be maintained to mature to the outstanding amount of the debt.

Example

If #2000 is invested at the end of each year for 5 years at 8% compound interest. What is
the accumulated amount at the end of the 5yrs?

Solution:

_The first contribution to the fund will earn interest for 4 yrs.

_ The second contribution to the fund will earn interest for 3 yrs

_The third contribution to the fund will earn interest for 2 yrs.

_The fourth contribution to the fund will earn interest for 1 yr.

_The fifth contribution to the fund will earn interest for 0 yr.

Thus the investment (Sinking Fund) can be carried out as follows:

Investment Amount (₦) Duration (yrs) Accumulated Amount (₦)

1 2000 4 2000(1+0.08)⁴
2 2000 3 2000(1+0.08)³
3 2000 2 2000(1+0.08)²
4 2000 1 2000(1+0.08)¹
5 2000 0 2000(1+0.08)⁰

The total amount in the fund at the end of the period

= Sum of the values in the accumulated amount.
=2000(1+0.08)⁴+2000(1+0.08)³+2000(1+0.08)²+2000(1+0.08)¹+ 2000(1+0.08)0
=2000 (1.08⁴+1.08³+1.08²+1.08¹+1)
= 2000 (1+1.08+1.08²+1.08³+1.08⁴)
This forms a Geometric Progression.
For a GP
Sn = a(rⁿ-1)/r-1
where a = first term = 2000
r = common ratio =1.08
 BUS220 Module

n=5
Sn = 2000(1.08⁵-1)/1.08-1 140
= 2000(1.4693-1)/0.08
= 2000 (0.4693)/0.08
=938.6/0.08
= ₦11,732.50

Note that : If the instalments are paid into the fund at the start of each year instead of the
end. The first term will become 2000(1.08)⁵ and the last term is 2000(1.08)¹. Each term is
therefore increased by a factor 1.08. Therefore, the total (accumulated amount) will be

= ₦11,732.50*1.08

= ₦12,671.10
Amortisation
The term amortization can be used to mean the repaying of a debt by regular instalments as
with mortgage. Such repayments consist partly of interest and partly repayment of some of
the loan. The amount of each instalment remains constant but as the amount of the
outstanding debt decreases, the proportion of the instalment which goes to paying the
interest decreases and the proportion which goes to paying off the outstanding debt
increases.

From the point of view of the lender (mortgager) this is equivalent to an annuity. The
lender invests a lump sum in the borrower (mortgager) and receives a regular income in
return.

Summary of Study Session 3

The unit covers the following topics;

(i) Nominal and Effective rates of interest.

(ii) Annuities, Sinking Fund and Amortisation.

Self Assessment Questions (SAQs) for Study Session 3

 BUS220 Module

SAQ 3.1 (tests Learning Outcome 3.1 and 3.2)

141
A stream of equal cash flows that occurs at equal intervals over a given period is known
as… ………………………………………

SAQ3. 2 (tests Learning Outcome 3.1 and 3.2)

Cash flows that occur at the end of each compounding period is known as ………………
while the one that occurs at the beginning of each period is referred to as……………….

SAQ 3.3 (tests Learning Outcome 3.2 and 3.3)

A financial instrument that pays a fixed amount of money at set intervals over an infinite
period of time is known as (a) Perpetuity, (b) Due, (c) certain, (d) sinking fund.

SAQ 3.4 (tests Learning Outcome 3.2 and 3.3)

Compute the APR if the nominal rate is 12% for the following periods.

Semi-annually

Quarterly

Monthly

Daily

SAQ 3.5 (tests Learning Outcome 3.1 and 3.3)

Compute the Future Value of a single sum of ₦2000 cash flows at the end of 5 years using
an interest rate of 12% compounded.

Semi- annually

Quarterly

SAQ 3.6 (tests Learning Outcome 3.1 and 3.3)

Calculate the Present Value of an investment which gave ₦647.68 at the end of 10yrs if it
earns an annually compounded rate of return of 8%.

SAQ 3.7 (tests Learning Outcome 3.1 and 3.3)

Calculate the Future Value of a ₦300 investment at the end of 10yrs if it earns an annually
compounded rate of return of 8%.
 BUS220 Module

SAQ 3.8 (tests Learning Outcome 3.3)

142
If a sum of money is borrowed and discounted to ₦35,123; calculate the amount to be paid
into the sinking fund if the money can be invested at 9.5% for 3yrs.

Study Session 4: Concept of Probability as a Numerical Measure

Introduction
The concept of probability is intended to provide a numerical measure of the likelihood of
an event’s occurrence. Probability is measured on a scale of ZERO to ONE. At the
extremes of this range, a probability of ZERO implies that the occurrence of the event is
impossible i.e. it is certain not to occur, whereas a probability of ONE implies that the event
is certain to occur.

Learning outcomes
 BUS220 Module

At the end of this study session, you should be able to:

143
4.1 Recognise probability as a numerical measure

4.2 Identify probability as a value that ranges between zero and one

4.3 define the following probability terms: random experiment, basic outcomes and

sample space

4.4 Identify the features of processes whose outcomes are uncertain.

4.1 Probability as a Language

For uncertain events, we want to attach a probability between ZERO and ONE such that the
more likely the event is to occur, the higher the probability. In practice, such ideas are
frequently met. For example, it is known that rain is more likely under certain
meteorological conditions than others. Also an experienced manager may judge that one
product is more likely to achieve substantial market penetration than another. Therefore,
probability can be regarded as the language in which we discuss uncertainty. But before we
can communicate with one another in this language, we need to acquire a common
vocabulary. Moreover, as in any other language, rules of grammar are needed so that clear
statements can be made with our vocabulary. It will be necessary therefore to introduce a
good deal of new terms and to become acquainted with the manipulation of these terms in
the production of probabilistic statements.

Example:

If the probability of an event A occurring is 0.8 and the probability of another event B
occurring is 0.4, then since 0.8 is nearer 1.0 than 0.4, then we say that event A is more
likely to occur than event B. Or since 0.4 is nearer ZERO than 0.8, we say that the
uncertainty of event B occurring is higher than that of event A.

4.2 Features of Processes Whose Outcomes Are Uncertain

In real life situations, processes whose outcomes are uncertain are many and varied.

For example:
 BUS220 Module

• tossing an unbiased coin

144
• rolling or throwing a die
• asking a consumer of a GSM product: which of the two products, Airtel or
Globacom, he or she prefers?
Each of these examples involves a random experiment. A random experiment is defined as
a process leading to at least two possible outcomes with uncertainty as to which will occur.

You should note that a random experiment involves an action taking place.

In each of the above experiments, it is easy to see that it is possible to specify, before hand,
all the possible outcomes that might arise. These are listed for each example as follows:

• If a coin is tossed, the result is either “Head” or “Tail”

• If a die is rolled, the result will be one of the digits 1 to 6
• In the interview example, a GSM product consumer might indicate a preference for
either Airtel or Globacom or none at all.
In each case, the different possible outcomes are known as basic outcomes and they are as
listed above.

Basic outcomes are the possible outcomes of a random experiment.

The set of all these basic outcomes exhausts all possibilities and it is called the sample
space of the random experiment.

The outcome of a random experiment possesses two characteristics: They are:

• No two outcomes can occur simultaneously

• The random experiment must necessarily result in the occurrence of the basic
outcomes.
Example:

1. If a die is rolled or thrown, list all the possible outcomes.

Solution:

We are required to list the elements in the sample space(S). It is obtained as

S = {1,2,3,4,5,6}.
 BUS220 Module

We can see that no two digits can appear or occur together.

145
2. Tossing a coin once

The sample space (S) = {H,T}

where H & T denote the Head and Tail respectively.

Summary of Study Session 4

In this session, probability is recognised as a numerical measure and its value ranges
between zero and one. Definitions of random experiment, basic outcomes and sample
space are presented. The main features of processes whose outcomes are uncertain are
discussed.

Self Assessment Questions (SAQs) for Study Session 4

SAQ 4.1 (tests Learning Outcome 4.1 and 4.2)

What can you make of this statement: two events have equal probability of 0.6?

SAQ 4.2 (tests Learning Outcome 4.3 and 4.4)

If two coins are tossed, list all the possible outcomes

SAQ 4.3 (tests Learning Outcome 4.3 and 4.4)

If a die is rolled, list the even and odd sub-sample spaces.

 BUS220 Module

146

Study Session 5: Generalising Coin and Die Experiments

Introduction
You have learnt what probability is all about in Study Session 4.In this session, you will
learn how to determine number of elements in a sample space based on the coin
experiment, how to generalise that and the fast way to list the elements from coin
experiment.

Learning Outcomes for Study Session 5

At the end of this session, you should be able to:

5.1 Determine the number of elements of the sample space based on coin experiment.
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5.2 Generalise the coin and die experiments

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5.3 Identify the quicker way of listing elements of sample space involving coin

experiments

5.4 List the elements of sample space involving two dice as a matrix

5.1 Coin Experiment and Generalising the ¨Coin¨ Experiment

Since an unbiased coin always has two sides, then the total number of elements (or
numbers) in the sample space of any coin experiment depends on

• the two-side phenomenon (M=2) and

• the number of coins tossed or number of times a coin is tossed (n).

The process obeys the binary law of arranging numbers. Thus, the number of elements
contained in such sample space is MN where M = 2 (always) and N = the number of coins
tossed or the number of times such a coin is tossed.

Examples:

1. If one coin is tossed once, M=2, and N=1 i.e. number of elements in the sample
space is obtained as:

n(S) = MN = 21 = 2,

i.e. S = {H,T}

2. If one coin is tossed twice or two coins are tossed once, M = 2 and N = 2
i.e. n(S) = MN = 22 = 4

i.e. S = {HH, HT, TH, TT}.

3. If 3 coins are tossed once or a coin is tossed 3 times, M= 2, N = 3

i.e. n(S) = MN = 23 = 8

i.e. S = {HHH, HHT, HTT, HTH, TTT, TTH, THH, THT}.

and so on.
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5.2 The Quicker Way of Listing Samples Space Elements Involving Coin
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Experiments.
Note that in listing all the elements of the sample space, it becomes easier to exhaust all
outcomes in which “H” is the beginning letter before outcomes with letter “T” beginning
will follow. For example, in the 3-coin example, outcomes in which “H” is the beginning
letter are HHH, HHT, HTH, HTT. All these 4 outcomes exhaust the outcomes in which
letter “H” is the beginning letter and these four outcomes form the 50% of all the outcomes
of the sample space. The remaining 50% are the outcomes in which letter “T” is the
beginning letter. All that need to be done now is to re-visit the earlier listed four outcomes
putting T where there is H and putting H where there is T. That is for HHH, we will have
TTT; for HHT we will have TTH; for HTH, we will have THT and for HTT we will have
THH. Thus, the sample space for the 3-coin example is

S = {HHH, HHT, HTH, HTT, TTT, TTH, THT, THH}

Example:

Tossing a coin 4 times or tossing 4 coins once puts M=2 and N=4 giving n[S] = MN = 24 =
16

outcomes with letter “H” beginning are

HHHH, HHHT, HHTH, HTHH, HTTH, HTHT, HHTT, HTTT

Since half of 16 is 8, then these 8 outcomes with letter “H” being the beginning letter
exhaust all the outcomes in this category. To obtain the remaining outcomes where letter
“T” is the beginning letter, we proceed as before by re-visiting the above listed 8 outcomes
putting T where there is H and putting H where there is T. i. e.

{TTTT, TTTH, TTHT, THTT, THHT, THTH, TTHH, THHH}

giving the whole sample space as

S = {HHHH, HHHT, HHTH, HTHH, HTTH, HTHT, HHTT, HTTT, TTTT,

TTTH, TTHT, THTT, THHT, THTH, TTHH, THHH}

5.3 Experiments with Two Dice

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Occasions do arise when two dice are involved in an experiment. The listing of elements of
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the sample space in this case is more involving than the case of rolling a die. Possible
outcomes of an unbiased die are six digits 1 to 6. When two dice are involved, it means we
have to arrange the two groups of outcomes in such a way that will prevent any confusion.

The easiest way to carry this out is to resort to arranging the outcomes in a ¨matrix¨ form in
which the outcomes of the first die will occupy the ¨vertical¨ space while the second die
will occupy the ¨horizontal¨ space. The arrangement will look like this:

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 3,5 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

You can see that a cell ´houses´ two digits: the first digit is the outcome of the first die
while the second digit is the outcome of the second die. That is, if a cell has 2,3 as its
elements, it means the digit ¨2¨ is the outcome of the 1st die while the digit ¨3¨ is the
outcome of the 2nd die, etc. The matrix of the outcomes of the two dice is the sample space
for the two-dice experiment.

In all, you will notice that there are thirty-six two-digit cells. From this matrix, we can
generate the matrix in which each cell houses the sum or the difference or the product of the
two digits.

Example:

If two dice are rolled, list the sample space whose elements are the sums of the two digits.

Solution:

1 2 3 4 5 6
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1 1,1 1,2 1,3 1,4 1,5 1,6

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2 3 4 5 6 7

2 2,1 2,2 2,3 2,4 2,5 2,6

3 4 5 6 7 8

3 3,1 3,2 3,3 3,4 3,5 3,6

4 5 6 7 8 9

4 4,1 4,2 4,3 4,4 4,5 4,6

5 6 7 8 9 10

5 5,1 5,2 5,3 5,4 5,5 5,6

6 7 8 9 10 11

6 6,1 6,2 6,3 6,4 6,5 6,6

7 8 9 10 11 12

Summary of Study Session 5

The study session discusses experimenting with coins and dice. It also discusses how to
determine the sample space in an experiment involving coins and die. The binary nature of
the process of determining the elements of the sample space involving coins is explained, as
well as the process of obtaining the sample space of rolling two dice in form of a ¨matrix¨.

Self Assessment Questions (SAQs) for Study Session 5

SAQ 5.1 (tests Learning Outcome 5.1, 5.2 and 5.3)

A coin is tossed five times.

a. Determine the number of elements in the sample space

b. List all the outcomes that begin with

- letter H

- letter T

c. Write down the sample space for the experiment.

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SAQ 5.2 (tests Learning Outcome 5.4)

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Extract from the sample space of rolling two dice, all the outcomes whose sums are

a. odd b. Even

Study Session 6: The Use of Set Theory in Explaining Basic

Probability Concepts

Introduction
You need to revise your set theory study session before studying this session. Remembering
what you did in your set theory session will assist you to gain better knowledge in this
session. You will learn how Euler-Venn diagram is used in probability.
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Learning Outcomes of Study Session 6
At the end of this session, you should be able to:

6.1 Draw Euler-Venn diagram to illustrate the intersection and the union of two sets, the
empty set and the complement of a set.

6.2 Use the Euler-Venn diagram to explain the concepts of mutually exclusive and
collectively exhaustive events

6.3 Identify the condition under which two events can be compatible or incompatible.

6.1 Concepts of Intersection of Two Sets and Mutually Exclusive Events.

In many applications, we may be interested in two or more events at the same time.
Supposing an unbiased die is rolled, two events that might be of interest could be “number
showing is divisible by 2” and “number showing is divisible by 3”. One possibility is that
all the events of interest might occur. This will be the case if the basic outcome of the
random experiment belongs to all these events. Therefore, this set of basic outcomes
belonging to every event in a group of events is known as the intersection of these events.

That is, if A and B are two events in the sample, their intersection, denoted by A∩B, is the
set of all basic outcomes in the sample space that belong to both A and B. Thus, in the
language of set theory, the intersection A∩B occurs if and only if (iff) both A and B occur.
Pictorially, this is represented by Euler-Venn Diagram. Fig 6.1 shows the diagram for pairs
of set A and B. In part (a) of the figure, the rectangle S represents the sample space (or the
universal set) while the two closed figures (circles) denote the two events A and B. So, for
example, a basic outcome belonging to A will be inside the corresponding figure. The
shaded area, where the figures (circles) intersect, is A∩B.

Clearly, a basic outcome will be in A∩B if and only if it is in both A and B. Thus, in
rolling a die as described above, the outcome “6” belongs to the two events “number
divisible by 2” and “number divisible by 3”.

The two events may not have anything in common in which case the figures will not
intersect as in part (b) of figure 6.1 Such events are said to be mutually exclusive.
Consider two events A nd B. If in a throw of a die, A is the event: “odd numbers shows”
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and B is the event: “even number shows”, it is easy to see that nothing is common to both A
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and B. Hence figures A and B will not intersect. Thus, we can conclude that if events A
and B have no basic outcomes in common, they are said to be mutually exclusive events
and their intersection A∩B is said to be the empty set. It then follows that A∩B (= null set
or ɸ or { } ) cannot occur.

S S A∩ B
A B A B

2, 4 6 3 1,3,5
2,4,6

1, 5
a b

Fig. 6.1: Euler-Venn diagrams for showing events A and B:

(a) A∩B is the shaded area i.e. 6

(b) A and B are mutually exclusive i.e. nothing is common between them.

6.2 Concepts of Union of Two Sets and Collectively Exhaustive Events

If a set of accounts is audited, the event: “Less than 6% contain material errors” and the
event “More than 10% contain material errors” are mutually exclusive. For jointly several
events, another possibility of interest is that “at least one of the events will occur”. This is
possible if the basic outcome of the random experiment belongs to at least one of the
events. Thus, the set of basic outcomes belonging to at least one of the events is called
Union. Symbolically, this is written as AUB read as A or B for two events A and B. That
is, it is clear that a basic outcome will be in AUB if and only if it is either in A or B or in
both. This is shown in Fig 6.2

A B
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Fig. 6.2: Euler-Venn

Diagram for the Union of events A and B: AUB

is the shaded area.

Example 1:

In a throw of a die experiment, the outcomes 2,3,4 and 6 all belong to at least one of the
events: “number divided by 2” or “number divisible by 3”.

It is possible to have a collection of several events whose union is the whole sample space
S. Since every basic outcome is always contained in S, it follows that every outcome of the
random experiment will be in at least one of this collection of events. These events are then
said to be collectively exhaustive i.e. events A and B are collectively exhaustive if the
contents of both events constitute the sample space. In the rolling of a die, If A = {1,2,5},
then Ā (i.e. complement of A) is {3,4,6}, you can see that AUĀ =S={1,2,3,4,5,6}.

Example 2:

a. If a die is rolled, the events “number shown is at least 2” and “number shown is at
most 4” are together collectively exhaustive – i.e. at least one of these two events must
occur.

Thus, the characteristics of all basic outcomes contained in a sample space are as follows:

- all these basic outcomes are both mutually exclusive and collectively
exhaustive.
- these outcomes are such that one must occur but not more than one can
simultaneously occur.
b. If event A is “number shown is even”, in a throw of a die, then numbers that are not
even are not contained in A but they are contained in the sample space. These elements
form a set Ā known as the Complement of A. Clearly, the events A and Ā are mutually
exclusive (i.e. no basic outcome can belong to both) and collectively exhaustive (i.e. every
basic outcome must belong to one or the other). Fig 6.3 illustrates the complement of A.

Ā
A
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155

Fig. 6.3: Euler-Venn Diagram for

the
complement of event A: Ā is the shaded
area.

Example 3:

In an earlier example: A is the event “number shown is divisible by 2” and B is the event
“number shown is divisible by 3”. Then:
A = {2,4,6}, B = {3,6}.

The complements of these events are:

Ā = {1,3,5} and B = {1,2,4,5}

The intersection of A and B is the event ‘number divisible by 2 and 3”, so

A∩B = {6}

The Union of A and B is the event “number is either divisible by 2 or by 3 or both and so:

AUB = {2,3,4,6}.

Note that events A and Ā are mutually exclusive since their intersection is the empty set
and collectively exhaustive, since their union is the sample space S; that is:

AUĀ = {1,2,3,4,5,6} = S

The same statements also apply for the events B and B

6.4 Concept of Incompatible Events

Two events are compatible if they can both occur in the same experiment, otherwise they
are incompatible. This concept is common with “coin” experiments. To decide if two
events are incompatible, this question is asked: “can both events happen in the same trial of
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the experiments?”. If the answer is “yes”, then the events are compatible, otherwise they
156
are incompatible.
§ Let a coin be tossed four times.

Let A be the event “at least three Heads” and let B be the event “at least three Tails”

Are these events A and B compatible?

□ Events A and B could happen separately in two separate experiments but could not
happen in the same experiment since if you get at least three Heads, you can have at most
one Tail (This is because there are maximum of four spaces to be occupied by Heads or
Tails or both in this type of experiment.)

Therefore events A and B are incompatible.

§ Let C be the event “exactly two Heads” and let D be the event: “the 4th toss is a
Tail”. Are C & D compatible?

□ Yes, they are compatible, since it is possible for both events to happen. For
instance, you could get three outcomes out of the four available. i.e. HHT(T) or HTH(T) or
HHH(T) in which the 4th toss is a Tail.

Summary of Study Session 6

The importance and relevance of set theory to the probability as a concept are discussed.
The probability concepts of mutually exclusive and collectively exhaustive events are
discussed with reference to the set theory concepts of intersection and Union of two sets.
The condition under which two events can be compatible is explained.

Self Assessment Questions (SAQs) for Study Session 6

SAQ 6.1 (tests Learning Outcome 6.1, 6.2 and 6.3)

(a) Using the example information on page 11, show that

i. A∩B and Ā∩B are mutually exclusive

ii. (A∩B) U (Ā∩B) = B

iii. A and Ā∩B are mutually exclusive

iv. AU(Ā∩B) = AUB

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(b) Draw Euler-Venn diagram to illustrate

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(i) Ā∩B (ii) A∩B and Ā∩B (iii) A and Ā∩B

SAQ 6.2 (tests Learning Outcome 6.3)

A coin is tossed five times. Which of the following pairs of events are incompatible?

a. Heads on the first toss and the 5th toss

b. Two Heads on the first tosses and three tosses together

c. All the odd tosses are Heads and three Tails together

d. Three Heads on the first three tosses and tails on the last three tosses

Study Session 7: Probability Viewed as a Finite Fraction

Introduction
Often times, interest is not particularly in the basic outcomes themselves, but in some
subset of all the outcomes in the sample space. For example, if a die is rolled, an event that
 BUS220 Module

might be of interest is whether the resulting basic outcome or number is EVEN (i.e. a result
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that will occur if one of the basic outcomes 2,4 or 6 arises). Such sets of basic outcomes
are called events. An event is a part of the points in the sample space defined by a given
rule. It is formally defined as follows: An event (E) is a set of basic outcomes from the
sample space and it is said to occur if the random experiment gives rise to one of its
constituent basic outcomes.

Learning Outcomes for Study Session 7

At the end of this session, you should be able to:

7.1 Define an event as a part of the points in the sample space and recognize the event

being defined by a given rule

7.2 Define probability as a ratio of the number of points in the event to the number of

points in the sample space (i.e. n(E)/n(S))

7.3 Distinguish carefully between theoretical and empirical probabilities.

7.1 Event as a Part of the Points in the Sample Space and its Rule
This is explained with the example below:

Example

A die is rolled once, write down the sub-sample space for obtaining

(i) exactly 3 (ii) less than 3 (iii) less or equal to 3 (iv) greater than 3 (v) greater or
equal to 3

Solution

i. exactly 3 means only one element (3) i.e. S1={3}

ii. less than 3 (<3) i.e. all elements that are less than 3 i.e. S2 {1,2} i.e. only two
elements

iii. less or equal to 3 (≤3) i.e. all elements up to 3 or from 3 downwards. i.e. S3 =
{1,2,3}
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iv. greater than 3 (>3) i.e. all elements greater than 3 i.e. S4 = {4,5,6}
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v. greater or equal to 3 (≥3) i.e. all elements from 3 upwards i.e. S5 = {3,4,5,6}

7.2 Two Ways of Calculating Probability

There are two separate ways of calculating probability depending on whether some
experiment is performed or not.

• One way is the Theoretical Probability: In this method, probability is calculated

without the experiment being performed i.e. using the only information that is
known about the physical situation. It is defined as follows:
If E is some event of an experiment that has an equally likely outcome set (U) or the sample
space(S), then the theoretical probability of event E occurring when the experiment is
performed is written as:

n( E )
p (E) = n( S )

where n (E) = no. of different ways that the event can occur

n (S) = no. of all possible outcomes of the experiment.

Note that this method is applicable to situations that are known even without performing
any experiment. For example, we know that throwing a coin will result in either a Head or
a Tail.

Example:
A trader stocks baskets of potatoes, oranges, carrots and garden eggs with a basket
containing 20 pieces of each fruit. Currently in her stock are 3 baskets of potatoes, 16
baskets of oranges, 30 baskets of carrots and 11 baskets of garden eggs. If a basket of fruits
is chosen randomly for inspection, what is the probability that the basket contains (i)
potatoes? (ii) oranges? (iii) neither garden eggs nor carrots?
Solution:
Since the basket of fruits is chosen at random, each separate basket of fruits (of any type)
can be regarded as a single equally likely outcome. Thus, we have an equally likely
outcome set and the definition for the theoretical probability can be used.
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The number of outcomes in total is the total number of fruit baskets which is 3+16+30+11
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or 60

i. The Probability of choosing a basket of potatoes is given by the number of potato

baskets divided by the total number of baskets of all the fruits.

3 1
i.e. P (basket of potatoes) = 60 = or 0 . 05
20

16 4
ii. P (basket of oranges) 60 = = 0 .27
15

iii. The number of baskets that are not for garden eggs and carrots = 60 – 41 = 19 =
3+16

19
P (neither garden eggs or carrot baskets) = 60 = 0 .32

• The second way of calculating probability is the empirical probability. Sometimes

an outcome set for an experiment is not known or if it is, the outcome might not be equally
likely. In this type of case, it is not possible to use the definition of the theoretical
probability given above, and so another method is based on the results of performing the
experiment a number of times yielding a frequency distribution of events or outcomes, and
using these results to calculate what is known as empirical probability. This is defined as
follows:

If E is an event of an experiment that has been performed a relatively large number ( f) of

times to give a frequency distribution, then the empirical probability of event E occurring
when the experiment is performed one more time is given as:

no . of times the event occurred

p (E) = no . of times the experiment was performed

f (E)
= ∑f
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where f(E) is the number of times that event E has occurred

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is the total frequency i.e. the number times that the experiment was performed.

In other words, the empirical probability or subjective probability of an event E

occurring is the proportion of times that event E actually occurred when the experiment was
performed. In a statistical context, the word “empirical” means “as seen in practice” or
“experienced”. Thus, an empirical approach to a statistical problem involves performing
some experiment a number of times and using the results as a guide to what will be
expected to happen in general.

Examples:

1. If out of 200 orders received so far this financial year, 40 were not completely
40
satisfied, then the proportion 200 or 0.2 is the empirical probability that the next

order received will not be completely satisfied.

2. A number of families of a particular type were measured by the number of
children they contain to give the following frequency distribution:

3.

Number of children
0 1 2 3 4 5 or more

Number of families 12 28 22 8 2 2

Use the information in the above table to calculate the relative frequency i.e. probability
that another family of this type will have

(i) 2 (ii) 3 or more (iii) less than 2 children

Solution:
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Here = 74, i.e. the number of times in which the experiment: “determine the number of
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children in a single family” has been repeated.
(i) The probability that another family of this type will have just 2 children is the
proportion of families that have 2 children:
f (2 children ) 22
= 0 . 297
i.e. p (2 children) - ∑f = 74

(ii) From the given distribution, f(3 or more children) = 8 + 2 + 2 = 12

12
p (3 or more children) = 74 = 0 . 162

f ( less than 2 children)

(iii) p (less than 2 children) = ∑f
12+ 28 40
= 74 = 74 = 0 . 541

7.3 The Concept of Conditional Probability

Sometimes you are given partial information about the outcome of an experiment. This
usually enables you to make a new computation of the probability of events in the
experiment conditional upon the information given.

First, you determine what the “whole” list of outcome is. Then you determine which of
these outcomes “qualify” or belong to the “part” list specified by the conditional statement.
For example, if a coin is tossed three times and you are told that at least one of the three
tosses was a Head, what is the probability that exactly two of them were Heals?

The possible solution appears as follows:

• Outcome (or “whole”) list of tossing a coin three times is HHH, HHT, HTH, HTT,
TTT, TTH, THT, THH.
• If at least one toss was a Head, then the outcome list will be HHH, HHT, HTH,
HTT, TTH, THT, THH
• The information “at least one of the tosses was a Head” tells us that this event
7
happens 8 of the time.

7
The question is: “In what part of this 8 of the time do we get exactly two Heads?

• The corresponding outcome list is HHT, HTH, THH

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3
• HHT, HTH, or THH happens 8 of the time. 163
7 3
The second question is: “what part of 8 of the time is this 8 of the time? The answer

is:
3 7 3 8 3
÷ = ´ =
8 8 8 7 7
This is the conditional probability of exactly two Heads given that at least one Head has
occurred.

A procedure for solving this kind of problem is given as follows:

(i) List all outcomes corresponding to the “whole” or the given condition.
(ii) Add their chances or probabilities – the sum is the probability of the “whole”.
(iii) List all of those outcomes which “qualify” or belong to the “part”.
(iv) Add their chances – this sum is the chance of the “part”.
(v) Divide the “part” chance by the “whole” part.
(b) Mathematical Expression for Conditional Probability

Viewed midstream, suppose that we are interested in a pair of events A and B and we are
given the extra information that event B has occurred. A question of interest is: “what is the
probability that A occurs, given that B has occurred? This is the notion of conditional
probability as discussed in section 4.3a. The basic idea is that the chance of any event
occurring is likely to depend on whether or not other events occur.

Illustrative Example
A manufacturer planning to introduce a new brand may test-market the product in a few
selected stores. He may be much more confident about the brand’s success in the wider
market if it is well accepted in the test market than if it is not. This means that this
company’s assessment of the probability of high sales will therefore be conditioned by the
test market out come.
• If I know that interest rates were going to fall over the next year, I would be far
more bullish about the stock market than if I believed that interest rate would rise. This
means that my probabilistic assessment of the likely course of stock prices is conditioned
by what I know or believe, about interest rates.
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Therefore we must be concerned about the probability of occurrence of a particular event,

164
given the occurrence of another.
Let A and B be two events. The conditional probability of event A, given event B denoted
by P(A/B) is defined as:

(A ∩B)
P(A/B) = P( B) with P(B) > 0 ……………. 7.1

Similarly the conditional probability of B given A, i.e. P (B/A), is defined as

(A ∩B)
P (B/A) = P( A ) with P(A) > 0 ……………. 7.2

Example:

1. A hamburger chain found that 75% of all customers use mustard, 80% use ketchup, and
65% use both. What is the probability that
(i) a ketchup user uses mustard?

(ii) a mustard user uses ketch up?

Solution:
Let A be the event: “customer uses mustard” and B the event: “customer uses ketchup” so
that
P (A) = 0.75, P (B) = 0.80 and = 0.65
(i) The probability that a ketchup user uses mustard is the conditional probability of
event A, given event B:
P ( A ∩B ) 0 .65
i.e. P (A/B) = = = 0. 8125
P( B ) 0 .80

(ii) In the same way, the probability that a mustard user uses ketchup is the conditional
probability of event B given event A, i.e.
P ( A ∩B ) 0 .65
P (B/A) = = = 0. 8667
P( A ) 0 .75

2. A die is tossed twice. Given that the sum is greater than 7, what is the probability of
getting a pair?

Solution:
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First get the sample space. The sample space is a matrix of outcomes shown as

1 2 3 4 5 6 digits shown on faces of the

dice.
1 1, 1 1, 2 1, 3 1, 4 1, 5 1, 6

Sum of the digits shown

2 3 5 5 6 7

2 2, 1 2, 2 2, 3 2, 4 2, 5 2, 6

3 4 5 6 7 8

3 3, 1 3, 2 3, 3 3, 4 3, 5 3, 6

4 5 6 7 8 9

4 4, 1 4, 2 4, 3 4, 4 4, 5 4, 6

4 6 7 8 9 10

5 5, 1 5, 2 5, 3 5, 4 5, 5 5, 6

6 7 8 9 10 11

6 6, 1 6, 2 6, 3 6, 4 6, 5 6, 6

7 8 9 10 11 12

Note that the matrix shows digit appearances on the dice faces and the sum of these digits
appearances.

- The number of elements contained in the sample space of “the sum is greater than 7” is
15, hence probability is 1536.
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- The number of elements contained in the sub-sample space of “getting a pair” is 3, hence
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probability is 336

P (getting a pair/sum greater than 7)

P (getting a pair ∩ sum greater than 7 )

= P( sum greater than 7 )

3 1
336÷ 1516 = = = 0.2
15 5

Summary of Study Session 7

In this unit, the concept of ¨event¨ as part of the sample space is discussed. How a given
rule leads to an event is explained. Probability is defined theoretically and empirically in
the unit. The concept of conditional probability is introduced. Mathematical expressions
for calculating condition probabilities of an event given that another event has taken place
are derived.

Self Assessment Questions (SAQs) for Study Session 7

SAQ 7.1 (tests Learning Outcome 7.1)

For a throw of a die, write down the sub-sample space for obtaining (i) an even number (ii)
an odd number (iii) a prime number (iv) a number divisible by 3 (v) a number between 1
and 4 inclusive.

SAQ 7.2 (tests Learning Outcome 7.2)

A wholesale stationer stocks Heavy (2B), medium (HB), fine (2H) and extra fine (3H)
pencils which come in packs of 10. Currently in stock are 4 packs of 3H, 15 packs of 2H,
40 packs of HB and 10 packs of 2B. If a pack of pencils is chosen randomly for inspection,
what is the probability that they are (i) medium? (ii) heavy? (iii) not very fine?(iv) neither
heavy nor medium?
 BUS220 Module

SAQ 7.3 (tests Learning Outcome 7.3)

167
A charitable organization sells 2000 lottery tickets. There are 20 major prizes and 200
minor prizes, all of which must be won. The process for choosing winners is such that, at
the onset, each ticket has an equal chance of winning a major prize, and each has an equal
chance of winning a minor prize.

(i) What is the probability of winning a major prize with a single ticket?

(ii) What is the probability of winning a minor prize?

(iii) What is the probability of wining some prize?

SAQ 7.4 (tests Learning Outcome 7.3)

An insurance company estimated that 30% of all automobile accidents were partly caused
by bad roads, and that 20% of all automobile accidents involved bodily injury. Further, of
those accidents that involved bodily injury, 40% were partly caused by bad roads

(i) What is the probability that a randomly chosen accident was partly caused by bad roads
and involved bodily injury?

(ii) If a randomly chosen accident was partly caused by bad roads, what is the probability
that it involved bodily injury?

(iii) What is the probability that a randomly chosen accident was not partly caused by bad
roads and did not involve bodily injury?

Study Session 8: The Concepts of Mutually Exclusive and

Independent Events

Introduction
 BUS220 Module

You have learnt some basic things about probability in the previous sessions. In this
session, you will learn mutually exclusive, independent events and application of addition 168
and multiplication rules of probability.

Learning Outcomes for Study Session 8

At the end of this session, you should be able to:

8.1 Define and distinguish between mutually exclusive and independent events

8.2 Apply the basic probability rules

8.3 Apply both the addition and multiplication rules of probability.

8.1 Distinguishing between Mutually Exclusive and Independent Events

A pair of events are mutually exclusive if they cannot jointly occur i.e. if the probability of
their joint occurrence is zero i.e. P(A B) = 0

On the other hand, two events are independent if, when one happens, the chance that the
other happens is unchanged. Independence often arises in an experiment where the chance
service is unchanged at each stage i.e. drawing with replacement, and the events pertain to
different stages of the experiment. Mathematically speaking, independent events are
characterized by the fact that the probability of their intersection is the product of their
individual probabilities.

i.e. P(A B) = P(A). P(B) …………………………. 8.1

Since P(A/B) = P(A) if events A and B are independent. If this is substituted in equation
7.1, we shall obtain equation 8.2 as shown.

Suppose I believe that the probability of event A occurring is P(A). I am now given the
extra piece of information that event B has occurred. If this does not change my view about
the likelihood of the occurrence of event A, my conditional probability assessment P(A/B)
will be the same as P(A). I will have concluded that the knowledge of the occurrence of
event B is of no use in determining whether or not event A will occur i.e. event A is no
more or less likely to occur when event B does than otherwise.
 BUS220 Module

Let A and B be two events. From the arguments above, these two events are independent if
169
and only if
P(A B) = P(A). P(B)
From the conditional probability concept developed in section 7.3(b), we have that
P ( A∩ B )
P(A/B) = P( B )

We can then substitute for P(A B) as follows

P ( A ) . P( B )
P(A/B) = =P( A )
P( B)

Similarly P(B/A) = P (B)

These are probability statements for two events A and B that are independent.
Note that
• P(A/B) is the conditional probability of event A occurring given that event B has
occurred.

• P(B/A) is the conditional probability of event B occurring given that event A has
occurred.

• P(A) is the unconditional probability of event A occurring.

• P(B) is the unconditional probability of event B occurring.

• this definition can be used to check whether or not a pair of events are independent.

Example:
If it is estimated that 48% of all bachelor’s degrees are obtained by women and that 17.5%
of all bachelor’s degrees are in business. Also, 4.7% of all bachelor’s degrees go to women
majoring in business,
• Are the events “Bachelor’s degree holder is a woman” and “Bachelor’s degree in
business” independent?
Solution:
Let A and B denote these respective events. Then
P(A) = 0.48, P(B) = 0.175 and P(A B) = 0.047
P(A) .P(B) = (0.48) (0.175) = 0.084
But P(A B) = 0.047
Since 0.084 = 0.047,
then the events A and B are not independent.
 BUS220 Module

The dependence of these events can be seen from the conditional probability calculation:
P ( A∩ B ) 0 . 047
170
P(A/B) = = = 0 . 269
P( B ) 0 . 175
P ( A∩ B ) 0 . 047
or P(B/A) = = = 0 . 098
P( A ) 0 . 48

Thus, only 26.9% of business degrees go to women whereas women constitute 48% of all
the degree recipients.
Only 9.8% of women who got degrees major in business whereas Bachelor’s degrees in
Business constitute 17.5% of all the degree recipients.
It should be noted also that the two events are not mutually exclusive since P(A/B) = 0.

8.2 Basic Probability Rules

(a) Probability Limit Rule:
The probability of an event E occurring must lie between zero and 1 inclusive i.e.
0 ≤ p (E) = 1
• If P(E) = 0, then E is an impossible event
Example 1:
# Negative production from an assembly line
# An employee of a workforce who is less than 1 year old.
• If P(E) = 1, then E is a certain event
Example 2:
- an employee being either male or female
- a person will die
(b) Total probability Rule:
The sum of the probabilities of all possible outcomes of an experiment must total
exactly 1. This is equivalent to saying that when an experiment is performed, one of
the outcomes must occur i.e. symbolically P = 1
i.e. all the events are collectively exhaustive.
For example, let A be an event in the sample space(S). We already know that A and
its complement Ā are mutually exclusive and collectively exhaustive, then
P( A∪A ) = P(A) + P( A ) (mutually exclusive)

and P( A∪A ) = 1 (collectively exhaustive)

putting these equations together yields the

 BUS220 Module

(c) Complementary Rule as

171
P(A) + P ( A ) = 1
P ( A ) = 1 – P(A)
i.e. if the complement of an event A is and defined as “event A does not occur”,
then the probability of A and must total 1

i.e. P ( A ) = 1 – P(A)

8.3 More Advanced Probability Rules

8.3.1 Addition Rule of Probability

In the earlier section, we showed that if A and B are mutually exclusive, the probability of
their union is the sum of their individual probabilities. We now want to find the probability
of their union when the events are not mutually exclusive
Using Euler – Venn Diagrams, we can see that

(a)

and (b)

S or U

A A

AÇ B AÇ B

You can see that

are mutually exclusive and their union is B.

(c)

Also the events A and are mutually exclusive and their union is AUB.

(d)

If we now eliminate from (c) and (d), we have

 BUS220 Module

(e)
172
This is known as the addition rule of probability. Notice that the rule implies that the
probability of a union is not the sum of the individual probabilities unless the events are
mutually exclusive, that is unless the probability of the intersection is zero.

Note that the meaning of or P(A or B) is quite precise in probability terms. It

stands for the probability that either A or B or both occur.

Example:

A hamburger chain found that 75% of all customers use mustard, 80% use ketchup, and
65% use both. What is the probability that a particular customer will use at least one of
these?
Solution:

Let A be the event “customer uses mustard” and B the event “customer uses ketchup”.

From the statements in the question, we have

P(A) = 0.75, P(B) = 0.80 and = 0.65

the probability required is

0.75 + 0.80 – 0.65 = 0.90

8.3.2 Multiplication Rule of Probability

An immediate consequence of the definition of conditional probability is the

Multiplication Rule of Probability which expresses the probability of an intersection in
terms of probabilities for individual events and conditional probabilities.

If A and B are two events, then the meaning of or P(A and B) is quite precise in
probability terms. It stands for the probability that A and B occur.

The probability of the intersection of A and B is

 BUS220 Module

173
Also

Further, if A and B are two independent events, then the probability that A and B occur, i.e.
, can be calculated as the product of P(A) and P(B) because

P(A) = P(A/B) and P(B) = P (B/A) for independent events A and B.

for independent events.

Summary of Study Session 8

The concept of independent events is introduced. Differences between mutually exclusive

and independent events are established. Basic rules of probability are enumerated. Other
advanced probability rules such as addition law and multiplication law of probability are
explained.
 BUS220 Module

Study Session 9: The Concepts of Ordering, Permutations and

174
Combinations

Introduction
Counting the numbers of basic outcomes in the sample space and in the event of interest is
usually difficult. For these types of difficulties, the use of ordering, permutations and
combinations comes handy.

Learning Outcomes for Study Session 9

At the end of this study session, you should be able to:
9.1 Identify the meaning of factorial notation (!) and what is meant by ordering

9.2 Identify how possible ordering constitutes the permutations

9.3 Distinguish between permutation and combination

9.4 Arrange letters in a given word to form different words.

9.1 Process of Ordering and the Notion of Factorial (!)

Suppose we have x objects that are to be placed in order with a proviso that each object
may be used once only. The number of different sequences is obtained as follows: This
problem is viewed as a requirement to place the objects in each of x boxes (or positions)
arranged in a row. Beginning with the first box, there are x different ways to fill it. Once an
object is put in that box, there are (x-1) objects remaining and so (x – 1) ways to fill the
second box. Now with two boxes filled, there are (x – 2) ways of filling the third box. This
means that the first three boxes (or positions) can be filled in a total of x (x – 1) (x – 2)
ways. Finally, when we arrive at the last box, there is only one object left to put in it.
Hence, the total number of possible orderings of x objects is x (x - 1) (x - 2) …. (2) (1)
which, for notational convenience, is written x! (read as “x” factorial).

Example 1:

3! means 3(3-1) (3-2) = 3 x 2 x 1

6! = 6 x 5 x 4 x 3 x 2 x 1, etc.
 BUS220 Module

Note that 0! = 1
175
Example 2:
In how many possible orderings can the three letters A, B and C be arranged?
Solution:
The total number of possible orderings = 3! = 3 x 2 x 1 = 6 ways

i.e. ABC ACB BAC BCA CAB CBA.

9.2 Permutation Concept
If we now have a number of n objects with which the x-ordered boxes could be filled (with
n > x) with a provision that each object may be used only once. This number of possible
n
orderings is called the permutations of x objects chosen from n. It is denoted as P x read
as n permutation x. This is formally defined as follows:

The number of permutation nPx of x objects chosen from n is the number of possible
arrangements when x objects are to be selected from a total of n and arranged in order. This
number of ways is

n n!
Px=
( n− x )!
Example 1:
5 5! 5! 5x4x3 !
P2 = = = = 20
(5− 2)! 3! 3!

Example 2:

Two letters are supposed to be selected from A, B, C and arranged in order.

3 3! 3!
This means P2 = (3− 2 ! = 1! = 3x2x1= 6 ways
)

giving 6 arrangements
i.e. AB BC CA
BA CB AC
9.3 Combination Concept
Unlike permutation, order is not important here; that is, a repetition is not permitted here,
since we are interested in the number of different ways that x objects can be selected from n
(where no object may be chosen more than one) but are not concerned about the order. In
 BUS220 Module

example 6.3.2, it is noticed that the second row is just a re–arrangement of the first row and
176
may therefore be ignored. i.e. we now have only:
AB BC and CA (i.e. only 3 ways of selecting two letters from three letters without
considering order or there are thus three possibilities for selecting two objects from a group
of three). This number of possible selections is called the number of combinations and it is
denoted by nCx read as n combination x where x objects is to be chosen from n.

Thus, the number of combinations (i.e nCx) of x objects chosen from n is the number of
possible selections that can be made. This number is

n
n! P
n
C n= = x
x!( n− x) ! x!

Example 1:
Two items are to be chosen from 8 items of which 3 are defective. Find the probability that
one of them is defective and the other is non-defective.
Solution:
8 8! 8x7
Choosing 2 from 8 items = C 2 = 2 ! 6 ! = 2 = 28

3 3!
Choosing 1 defective from 3 defective ones = C 1= 1 ! 2! = 3

Choosing 1 non-defective from 5 (i.e. 8-3) non-defective ones

5 5!
= C 1= 1 ! 4 ! = 5
3
C1 C1 3x5 15
5

the required probability = 8

= =
C2 28 28

Example 2:
A student is required to answer three questions out of five in a DLI examination in which
question one is compulsory. In how many ways can this be done?
Solution:
If out of 5 questions, one is compulsory, then there are 4 questions left out of which the
student is to answers two.
4 4 ! 4x3
no of ways of doing this is C2 = = = 6 ways
2! 2! 2

9.4 Arranging Letters in a Word to Form Different Words.

 BUS220 Module

Here the number of times a letter appears in the work plays a significant role. Consider the
177
following examples:
Examples:
In how many ways can the word “STATISTICS” be arranged?
Solution:
Repetition or no repetition, the word STATISTICS contains 10 letters. It means there are
10! ways of arranging this.
But S appears 3 times i.e. in 3! Ways
T appears 3 times i.e. in 3! Ways
I appears 2 times i.e. in 2! Ways
The effective number of ways of arranging the word STATISTICS is
10 ! 10 x9x8x7x 6 x5x 4 x2
=
3!3 !2 ! 3 x2x 2
= 10 x 9 x 8 x 7 x 5 x 2 = 50, 400 ways.

Summary of Study Session 9

The concept of factorial (!) is introduced in this session. Its relevance in the concepts of
ordering, permutations and combinations is discussed.

The terms ¨ordering¨, ¨permutation¨ and¨ combination are explained. How the process of
ordering constitutes permutations is discussed. Permutations and combinations are
distinguished. Examples are solved to illustrate the principles enunciated.
Self Assessment Questions (SAQs) for Study Session 9

SAQ 9.1 (tests Learning Outcome 9.1 and 9.3)

A consumer of beer is asked to rank, in order of preference, the taste of 6 brands of beer.

(a) If the consumer is in fact indifferent among these brands,

(i) determine the total number of different possible orderings

(ii) find the probability of selecting any particular one, if each is equally likely to be

picked.

(b)If an individual who is truly different, selects a specific ordering for the first three places
 BUS220 Module

-determine the number of permutations

178
-find the probability of selecting anyone of these permutations, if each is equally likely.

SAQ 9.2 (tests Learning Outcome 9.2 and 9.4)

In how many ways can the word “NECESSARY” be arranged?

LIST OF REFERENCES
1. Perry R. Hinton ( 2004): Statistics Explained, Routledge New York, USA

2. David R. Anderson, Dennis J. Sweeny, Thomas A William ( 1999): “Statistics for

Business and Economics” Thomson South-western , USA

3. Ken Black ( 2009): Business Statistics for Contemporary Decision Making, John Wiley
& sons, USA.

4. Bruce Bowerman, Richard O’Connel ( 2010): Business Statistics in Practice, McGraw-

Hill Singapore.

5. John Schiller A. Srinivasan, Murray Spiegel ( 2011): “Schaum’s Revised edition,”

McGraw-Hill

6. Thomas H. Wonnacott, Ronald J. Wonnadt ( 1990): 4th edition, “John Wiley & Sons,
USA.

7. Teresa Brandley (2006): Essential Statistics for Economics, Business & Management,
John Wiley & Sons, USA.

8. Obiwuru, T. (2003). Basic Mathematics. Pp 416 – 451. Panaf Press, Lagos.

9. Onah, H. O. & Nyinfawa, R. N. (2009). Foundations of Business Mathematics. First

Pyramid Digital Publishing Company Ltd, Kaduna.

10. Soma Garg & Arun Julka (2010). Business Mathematics and Statistics. Taxmaa
Publication (P.) Ltd, New Delhi.

11. Qazi Zameeruddin, V. K. Khanna and S. K. Bhambri; (1986). Business Mathematics,

Vikas Publishing House Pvt Ltd. India. Pg. 699 - 719

12. K. A. Stroud; (1995). Engineering Mathematics (fourth edition). Macmillan Press Ltd,
Hampshire RG21 6XS and London. Pg. 324 - 348

13. http://www.math.com/tables/oddsends/vectordefs.htm
 BUS220 Module

14. Microsoft ® Encarta ® 2009, Vector (Mathematics). © 1993-2008 Microsoft

Corporation 179

APPENDIX

Solutions to Self Assessment Questions (SAQs) for Module One

Study Session 1:
1. y = 4x5 – x4 + 3x2 – 1

2. y = (x5 – 4x) (2x3 + 5)

3.

= 10x7 + 25x4 – 8x3 – 20 + 6x7 – 24x3

= 16x7 + 25x4 – 32x3 – 20
4.

Study Session 2:
1. y = x8

2. y = 3x5 + 4x3 – 2x
 BUS220 Module

180

3. y = 12x3 – 6x2

Study Session 3:
1. Price (R) = 200q – 2q2
Cost (C) = 2q3 – 57q2
Profit = Revenue – Cost
= 200q – 2x2 – (2q3 – 57q2)
= 200q + 55q2 – 2q3
when q = 10
Profit = 200(10) + 55(10)2 – 2(10)3
= N5,500
2. Revenue (R) = 315q – 5q2
Marginal Revenue, dR = 315 – 10q
dx
At maximum revenue dR/dq = 0
i.e. 315 – 10q = 0
:. Q = 31.5 units

Study Session 6:

1.

2.

3.

4.

5.
 BUS220 Module

181

Study Session 7:
1.

2.

3.

4.

5.

When y = 5, x = 1, we have

Study Session 8:

1.

2.

3.

4.

5. (through the use of long division)

Study Session 9:

5
 BUS220 Module

182

; (that is if we let x = -1)

Let x = 0, we have

9 ;
 BUS220 Module

183

Solutions to Self Assessment Questions (SAQs) for Module Two

Study Session 1:

1. Using integration by parts method, Let

2.

When t = 0, v = 3which gives c = 3

When t = 0, s = 0

3.

4.
 BUS220 Module

184

At x = 0, FC = 0 ie P = 0
0 = 0 – 0 + k, k=0

Study Session 2:
(i) Vector is a physical quantity that has both magnitude and direction
(ii) velocity, force, and displacement

(iii)
A Figure 5

(iv) |a|
(v) Unit, zero and free vectors

Study Session 3:
(a) i) a . b = (2i +2j - k) . (3i - 6j + 2k)
= (2 . 3 + 2 . (-6) + (-1) . 2)
= 6 - 12 - 2 = -8
ii) a b = (2i +2j - k) x (3i - 6j + 2k)

(b) = b - a = (i - 3j - 5k) - (2i - j + k)

 BUS220 Module

= - i - 2j - 6k
185
= c - b = (3i - 4j - 4k) - (i - 3j - 5k)

= 2i - j + k

= c - a = (i - 3j - 5k) - (3i - 4j - 4k

= i - 3j - 5k

Their magnitudes are AB = =

BC = =

AC = =
But, AB =AC + BC,
Also, AB2 = AC2 + BC2 i.e. = +
This implies that ABC is a right angled triangle at C

To show that there is a right angle at C;

Therefore angle C = 90

Study Session 4:
1. a11 = 2, a22 = 1, a33 = 1, a31 = 4, a12 = 1, a23 = 0, a32 = 2, a21 = 0

2. i) 1, 4, 6 ii) 1, 9, 7 iii) 0, 0, 0
3. The correct answer is, matrix A has 3 rows and not 2 columns; that is 3 rows each
with 2 elements. This adds up to 6 elements not 5.

The dimension of matrix B is 4 x 2, which means that matrix B has 2 rows and 4
columns and not 4 rows and 2 columns.
 BUS220 Module

Element B21 refers to the first element in second row of matrix B, which is equal to 555
186
but not 222.

Matrix A and B cannot be equal because, we do not know anything about the entries of
matrix A. They are just unknown for us. Moreover, their orders also are different.

Study Session 5:

1. (i) A = therefore, AT =

(ii) AT = =

2. Since a scalar matrix is a diagonal matrix in which the diagonal elements are equal, (i),
(iii) and (iv) are scalar matrices.

3. You understand that matrices are either upper triangular (the elements located below the
diagonal are zeros) or lower triangular (the elements above the diagonal are zeros),
therefore (i), (ii) and (iv) are triangular matrices.

Study Session 6:

1. If the two matrices are equal then the corresponding elements are equal too, thus we
have

a = 5, a + c = 4, b - 2d = 1 and 2b = 6.

When you insert the value of a into a + c =4 will give;

c = -1

b=3

d=1
 BUS220 Module

Thus, the two given matrices will be equal if a = 5, b = 3, c = -1 and d = 1; which is the case
187
here.

Study Session 7:
1. (i) C (ii) B (iii) A (iv) C
2. (i) A (ii) True (iii) False (iv) False (v) False (vi) True (vii) False.

Study Session 8:
1. (i) 675 (ii) 3,375 2. 37,500
3. 75 4. 419,391.6027 5. a =- 1/9, b= 1/3 6. Yes.

Solutions to Self Assessment Questions for Module Three

Study Session 1:
1. 1,331

2. positive

3. risk free rate, inflation premium, risk premium.

4. risk premium/Interest.

5. Future value, compound interest.

6. Cash flows, compound interest rate.

7. Payments, negative; receipts, positive.

8. Effective annual rate; Nominal rate or annual interest rate.

Study Session 2:
1. C
2. B
3. B
4. C
 BUS220 Module

Study Session 3:
188
1. Annuity
2. Ordinary annuity, Due annuity.
3. A
4. (i) 12.36% (ii) 12.55% (iii) 12.68% (iv) 12.75%.

Study Session 4:
1. It means the two events have equal chance of occurring.
2. For tossing two coins, the sample space = {HH, HT, TT, TH}
3. (a) Even sub-sample space = Se = {2, 4, 6}
(b) Odd sub-sample space = Se = {1, 3, 5}

Study Session 5:
1 (a) No of elements in the sample space = M,N

where M=2, N=5

No of elements in the sample space

= MN = 25 = 32

(b) Elements that begin with letter H have the following subset:

S1 = {HHHHH, HHHHT, HHHTH, HHTHH, HTHHH, HHHTT, HHTTH, HTTHH,

HHTTT, HTTTH, HTHTH, HTTHT, HTHTT, HTHHT, HHTHT, HTTTT} (16 basic
outcomes)

Elements that begin with letter T have the following subset:

 BUS220 Module

S2= {TTTTT, TTTTH, TTTHT, TTHTT, THTTT, TTTHH, TTHHT, THHTT, TTHHH,
189
THHHT, THTHT, THHTH, THTHH, THTTH, TTHTH, THHHH} (16 basic outcomes)

(c) The sample space for the experiment is

S= {S1, S2}

2. (a) Odd sums ={3, 5, 7, 3, 5, 7, 5, 7, 9, 7, 9, 11, 7, 9, 11}

(b) Even sums = {2, 4, 6, 4, 6, 8, 4, 6, 8, 6, 8, 10, 6, 10, 12}

Study Session 6:
1. (a) (i) to (iv) are proofs.
(b) (i) to (iii) are Euler-venns diagrams that can be found in the text.
2. * They are compatible
* They are compatible
* They are incompatible
* They are incompatible

Study Session 7:
1. (i) {2, 4, 6} (ii) {1, 3, 5} (iii) {2, 3, 5} (iv) {3, 6} (v) {1, 2, 3, 4}
2. (i)

3. (i)
4.

(BI/bad road) = 0.2

BI ) = P (BR BI) = 0.48

Study Session 9:
1. (a) (i) 720 possible ways
(ii)

(b) (i) 120 permutations

 BUS220 Module

(ii)
190
2. 90720 ways