Wolkite University

Department of Accounting and Finance

Course Title: Business Mathematics(AcFn2131)

Second year Accounting and Finance Students

Course Instructor: Dr. Kassahun Wolde

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Course Objectives & Competences to be
Acquired
At the end of this course, students should be able to

 Differentiate the various techniques of mathematics that can be employed in

solving business problems

 Identify the way mathematical techniques are utilized

· Appreciate the importance of mathematics in solving real world business
problems

 Use different mathematical techniques for supporting managerial Decisions

 Analyze real managerial problems using mathematical
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Kassahun Wolde
 Course Description
Business Mathematics is one of the preliminary quantitative aids to decision
making that offers the decision-maker a method of evaluating every possible
alternative (act or course of action) by using various techniques to know the
potential outcomes.

This course is designed to

- expose finance students to the basic concepts and area of managerial application of
mathematics for decision making.

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Topics include:
 Linear equations and their applications,
 Matrix algebra and its applications,
 Markov chain analysis,
 Linear programming,
 Mathematics of finance,
 Elements and application of calculus

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Chapter one: Linear Equations and
Their Interpretative Applications

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 1.1. Linear Equations, Functions and Graphs
Linear Equations
A linear equation is another name for a linear-function rule.
In standard form, a linear equation looks like this: y = mx + b

The x and y variables are the input and output values, respectively, allowing you to create
ordered pairs to plot on a coordinate plane.

The variable b represents the y-intercept of the graph of the line. The y-intercept is the
place where the line crosses the y-axis.

The variable m represents the slope of the line. Slope is the steepness of the line; the
steeper the line, the greater the slope.
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 Slope
Slope is either positive or negative.
Slope is calculated as the amount of rise (change in height) per amount of run
(horizontal change).

Slope can be determined with a formula or from a graph of a line.

Slope can also be calculated if you know any two points on the line.
You can find the points yourself from a graph or you may be given the points without
any graphical representation of the line. The formula follows:

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Example
What is the slope of the line that passes through the points (4, -7)
and (-2, 5)?

Question
What is the slope of the line that passes through the points (-3, -2) and (6,
8)?

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Special Slope Cases
Horizontal lines have a slope of zero (m = 0). Since this makes the “mx” term of
the linear equation disappear, all horizontal lines are an equation of the form y = b.
Vertical lines have an undefined slope. The “run” on a vertical line would be zero,
and when you divide by zero, you get an undefined answer.

Vertical lines are equations in the form of x = n, where n is the x-intercept of the
graph.

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Graphing Lines from Equations

Follow these steps to graph a line from its equation:

 Mark the y-intercept on the y-axis.
 Starting from the y-intercept, count out the slope. (Remember, the run is the
denominator and the rise is the numerator. Pay attention to any negative signs!)

 Make a mark at the point you reached after counting out the slope.

 Connect the two points with a line.

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Example:
Graph

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Lines can also be graphed using their x-intercept and y-intercept.
 To find the intercepts of the line, you will be replacing one variable with zero.

Steps:
 To find the x-intercept, let y = 0 and solve for x. Then you will have an ordered pair
(x, 0) to graph.

 To find the y-intercept, let x = 0 and solve for y. Then you will have an ordered pair
(0, y) to graph.

 Graph both points and connect the dots.

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Example

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Question
Which graph below shows the line y = 3x + 2?

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Writing Linear Equations from Graphs
Now that you can graph lines from equations, let’s work on going the other direction:
writing an equation of a line from its graph.

Depending on what the line looks like on the graph, you may be able to easily
determine the y-intercept and count out the slope to another obvious point. Then all
you have to do is put it into the y = mx + b form.

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Unfortunately, lines do not always cross the y-axis at a grid line, so it is often better to choose
two other obvious points and calculate the slope and the y-intercept.

Therefore,
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Question
What is the equation of the line shown on the graph?

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Generalized Mathematical Form of a Function
An expression f (x) = y or y = f (x) is often called a function.

Here the value of y depends upon the value of x and it is often called the dependent variable.

The choice variable x is called the independent variable.

It must be noted that function given in this general format is nothing more than the
representation to stresses of the relationship between x and y.

If we write y = 100 + 2x to represent a relationship between x and y, for any given x the
corresponding y is obtained by merely substituting the x value in the given functional
relationship.
For example, if x = 2 then from the given function y = 100 + 2 × 2 =104
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Types of Functions
The function can be either algebraic or transcendental.

The algebraic functions possess the following properties:

If u = f(x) and v = g(x) are two given algebraic functions then we
define variety of algebraic functions by using all the four algebraic
operations:
1. The sum function u + v is obtained as f(x) + g(x).
2. The difference function u – v is obtained as f(x) – g(x).
3. The product function u .v is obtained as f(x). g(x).
4. The quotient function u/v is obtained as f(x)/g(x).

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The algebraic functions
The mathematical forms of this type of functions are further classified into two broad
categories depending upon the shapes that these functions create when they are
graphed on a graph sheet.

If it generates a linear or otherwise called straight-line graphs, then it is called a linear

function.

Instead, if it generates a non-linear curve shape on a graph sheet, then it is called a

non-linear function.
The following are some of special types of algebraic functions used in business related
studies.
1. Linear functions. 2. Quadratic functions. 3. Cubic functions. 4. Exponential
functions.
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Linear Functions
A linear function always gives rise a straight-line graph when it is graphed on a graph
sheet.
Whenever we come across situations in which both x and y variables increase or
decrease at a constant proportion we often use linear functions of the type y = mx +c to
represent such relationships.

In this format the variable x is called the independent variable because its choice is ours.

The left hand side variable y is called the dependent variable because its value depends
upon the choice of x.

In this standard form the constant c represents the y- axis intercept when it is graphed on
a graph sheet. The other constant ‘m’ is often called the slope of the given straight line.
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 If the slope is positive, then the straight line slopes upwards,

 If it is negative then it slopes downwards,

 If it is zero then it is horizontal,

 If it is infinite then it is vertical.

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Example 1
A small city police department is contemplating the purchase of an
additional patrol car. Police analysts estimate the purchase cost of a
fully equipped car to be $18,000. They also have estimated an
average operating cost of $0.40 per mile. (a) Determine the
mathematical function which represents the total cost C of owning
and operating the car in terms of the number of miles X it is driven.
(b) What are projected total costs if the car is driven 50,000miles
during its life time? (C) If it is driven 100,000miles?
Check figures:
a) C= 0.4X +18,000
b) $38,000
c) $58,000

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2. The local electricity company uses the following method for
computing monthly electric bills for one class of customers. A
monthly service charge of $3 is assessed for each customer. In
addition, the company charges $0.8 per kilowatt hour. If C equals the
monthly charge stated in dollars and K equals the number of kilowatt
hours used during a month
a) Determine the function which expresses a customer’s monthly
charge as a function of the number of kilowatt hours, and
b) Use this function to compute the monthly charge for a customer
who uses 725 kilowatt hours.

Check figures:
a) C= 0.8k +3
b) $583
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3) A mutual fund company has $24 million to invest. They place part
of the funds in the bonds of a utility company and $4 million more
than three times that amount in New York City bonds. Find the
amount placed in utility bonds and the amount in New York City
bonds.

Check figures:
Utility bond= $5million
New York City Bond= $19million

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4) Laurie Zimmerman has $15,000 to invest. She places a portion of
the funds in a passbook account and $3000 more than twice this
amount in a retirement account. How much is put into the passbook
account? How much is placed in the retirement account?

Check figures:
Passbook account=$4,000
Retirement account=$11,000

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5)The Eastside Nursery ordered 27 tree seedlings. Some of the
seedlings were elms, costing $17 each. The remainder of the
seedlings were maples at $11 each. The total cost of the seedlings is
$375. Find the number of elms and the number of maples.

Check figures:
Number of elms=13
Number of maples= 14

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------------END OF SESSION ONE--------

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