Basic and Applied Mathematics

Chapter 3
8. To produce two different items, three types of raw materials are needed for each item. The number
of units of materials needed to produce one units of each of the two items is given below.

Items Type I Type II Type III

A 3 1 2
B 2 1 1
Available 56 22 34

Solution:
Let x- be the production of item A
y- be the production of item B
The system can be

{3x+2y=56¿{x+y=2 ¿ ¿
The matrix representation is:

3 2 56
( )( ) ( )
1 1
2 1
x =
y
22
34
Solving the matrix using Gaussian method, the augmented matrix is:
2 56
1 2 56

(
3 2
1 1
2 1
56
22
34 ) ( 0
0
1
3
−1
3
10
3
−10
3

) (
1
0
0
1
0
3
10
0
3
)
This implies y=10
2 56 2 56
x + y= Substituting y=10 in the x + y=
3 3 3 3
x=12
Which means, 12 units of items A and 10 units of item B is produced.

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Basic and applied mathematics for finance
9. A vigorous television advertising campaign is conducted during the football season to promote a
well-known brand X shaving cream. For each several weeks, a survey is made and it is found that
each week 80% 0f those using brand X continue to use it and 20% switch. It is also found that those
not using brand X, 20% switch to brand X while the other 80% continue using other brand.
a. Write transition matrix, assuming the transition percentages continue to hold for succeeding
weeks.
Solution:
Let x-be people using a well-Known brand X shaving cream.
y- be people not using a well-known brand x shaving cream.
The transition matrix P is
x y

P= 0 .8 0 .2
( )
0 .2 0 .8
b. If 20% of the people are using brand X at the start of the advertising campaign, what percentage
will be using brand X one week later? Two week later?
Solution:
The current state probability matrix is V 1:
Given that 20% are using brand X mean 80% are not. i.e,
V 1 =( 0 .2 0 . 8 )
The next state probability matrix is given by
V n =V n−1 P Where n=2, 3 , 4 .....
Hence,
V 2 =V 1 P

V 2 =( 0 .2 0 .8 ) 0 .8 0 .2
( )
0 .2 0 .8
=( 0 .2 x 0 .8+0 .8 x 0 .2 0.2 x0.2+0 .8 x 0 .8 )
=( 0 .32 0 .68 )
Therefore, this shows that in the second week 32% of people use X brand shaving cream and
68% are use other brand.

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Basic and applied mathematics for finance
 V 3 =V 2 P

V 3 =( 0.32 0 .68 ) 0.8 0.2

( )
0.2 0.8
=( 0.32 x 0 .8+0.68 x 0.2 0.32 x0.2+0.68 x 0.8 )
=( 0.392 0.608 )
Therefore, this shows that in the third week 39.2% of people use X brand shaving cream and
60.8% are use other brand.
c. Find the steady-state matrix, assuming the transition matrix remains the same?
Solution:
In the long run the system is assumed to be constant. Let the share of the system on long run be
V =( v 1 v2 )
, where v1 is the share of state x and v2 is the share of state y
Then we have

{ VP=V ¿¿¿¿ ¿
¿
Equation (1) and (2) are the same let’s take equation (2)
0 .8 V 1 −0 . 8V 2=0
⇒V 1 =V 2
Substituting in Equation (3)
V 1 +V 2 =1
⇒ V 1 +V 1 =1
⇒ 2 V 1 =1
⇒ V 1 =0 .5=V 2
Hence in the long run 50% of the customer will use X brand shaving cream and 50% will use
other brand.
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Basic and applied mathematics for finance
 Chapter 4
3. A manufacture of refrigerator must ship at least 100 refrigerators to its warehouses. Each
warehouse holds a maximum of 100 refrigerators. Warehouse A holds 25 already, while
warehouse B has 20 on hand. It costs 100 Birr to ship a refrigerator to warehouse A and 200
Birr to ship warehouse B. find the number of refrigerators that should be shipped to each
warehouse to minimalize total cost? What is the minimum cost?
Solution:
Let x- be the number of refrigerators on warehouse A.
y- be the number of refrigerators in warehouse B
therefore, the required equation is written as:
C min=100 x+200 y
subject to
25 x+20 y≥100
x+ y≥100
x, y≤100
x, y≥0
By applying graphical method, lets draw the graphs of constraints on the same coordinate plane.
For the constraint 25x+20y>100, (0, 5) and (4, 0) are intercepts. For constraint x+y>100 (0, 100) and
(100, 0) are intercepts.
y

y=100

4.

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Basic and applied mathematics for finance
 Now at each corner point lets evaluate the objective function
At point
A (0 , 100)⇒ Z=100×0+200×100=20 , 000 Br .
B (100 , 0)⇒ Z=100×100+200×0=10 , 000 Br .
C(100 , 100)⇒ Z=100×100+200×100=30 ,000 Br .
Therefore, the minimum cost is attained when x=100 and y=0 and Z=10,000 Birr
Which means the minimum cost 10,000 Birr is attained when 100 refrigerators are
shipped into warehouse A and no refrigerators is shipped to warehouse B.
5. A company manufactures three-speed, five speed and ten speed bicycle. Each bicycle passes
through three departments, fabrication, painting and planting, and finally assembly. The
relevant manufacturing data is given in the table
6.

Labor hours per bicycle Maximum labor hour

3-speed 5-speed 10-speed available per day
Fabrication 3 4 5 120
Painting & planting 5 3 5 130
Final assembly 4 3 5 120
Profit per bicycle 80 70 100

How many bicycles of each type should the company manufacture per day in order to
maximize its profit? What is the maximum profit?
Answer:
Let x-be 3-speed bicycle.
y- be 5-speed bicycle
z- be 10-speed bicycle
Thus,
Z max=80 x+70 y+100 z
Subject to
3x+4 y≤120
5x+3 y≤130
4 x+3 y≤120
x, y ≥0
Solving this linear programing by simplex algorithm method, lets introduce slack variables.
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Basic and applied mathematics for finance
 Z max =80 x+70 y +100 z+0 s 1 +0 s2 +0 s 3
3 x +4 y +s 1 ≤120
5 x +3 y +s2 ≤130
4 x+3 y +s3 ≤120
x , y , s1 , s 2 , s 3 ≥0
The initial simplex matrix is
80 70 100 0 0 0
Cj x y z s1 s2 s3 RHSV pivot row
S1 0 3 4 [5] 1 0 0 120/5=24 1/5R1
S2 0 5 3 5 0 1 0 130/5=26 R2-R1
S3 0 4 3 5 0 0 1 120/5=24 R3-R1
Zj 0 0 0 0 0 0 0
Cj-Zj 80 70 100 0 0 0
Pivot column

S1 is the leaving variable and replaced by z=100

We will continue until the Cj-Zj row is non positive.
The second simplex matrix is
80 70 100 0 0 0
Cj x y z s1 s2 s3 RHSV
z 100 3/5 4/5 1 1/5 0 0 24*5/3=40 R1-3/5R3

S2 0 2 -1 0 -1 1 0 10/2=5 R2-2R3
S3 0 [1] -1 0 -1 0 1 0 R3
Zj 60 80 100 200 0 0 2400
Cj-Zj 20 -10 0 -200 0 0
Still Cj-Zj row is not no positive we will continue to the third simplex matrix

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Basic and applied mathematics for finance
 80 70 100 0 0 0
Cj x y z s1 s2 s3 RHSV
z 100 0 7/5 1 4/5 0 0 24 R1-7/5R2

S2 0 0 [1] 0 1 1 -2 10 R2
x 80 1 -1 0 -1 0 1 0 R3+R2
Zj 80 60 100 0 0 20 2400
Cj-Zj 0 10 0 0 0 -20
The fourth simplex matrix is
80 70 100 0 0 0
Cj x y z s1 s2 s3 RHSV
z 100 0 0 1 -3/5 -7/5 11/5 10
y 70 0 1 0 1 1 -2 10
x 80 1 0 0 0 1 -1 10
Zj 80 70 100 10 90 0 2500
Cj-Zj 0 0 0 -10 -90 0

Now we can see that the Cj-Zj row is all non-positive which implies the optimum value is
obtained.
Thus the company manufactured 10 3-speed bicycle, 10 5-speed bicycle and 10 10-
speed bicycle per day and will get 2,500 Birr profit.

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Basic and applied mathematics for finance
 Chapter 5
7. What sum must be deposited today at 9% per year compounded monthly if the goal 7 years
from today is to have a compound amount of 30,000 Birr? How much interest will be earned
during this period?
Solution
Given:
r=9 %, m=12, t=7 years , A=30 , 000 Birr
Required: i. principal P
ii. Interest I
Solution
i.

A=P(1+i )n
r r
A=P(1+ )mt where i= , and n=mt
m m
which implies
A 30 , 000 30 , 000 30 ,000
P= = = 84
= =16 , 015 .37 Birr
r mt 0 . 09 12×7 (1+0 .0075 ) 1. 8732
(1+ ) (1+ )
m 12
ii.
I=A−P
I=30,000−16,015.37
I=13,984 .63 Birr
8.
9.

10. What is the value of an ordinary annuity at the end of 20 years if 100 Birr per month is
deposited in to an account that pays 3% interest rate compounded monthly? How much
interest is earned?
Given:
t=20 years , R=100 Birr , r=3 % m=12
Required:

i. F v and
ii. I
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Basic and applied mathematics for finance
 Solution:

(1+i )n −1
F v=R
i[ ] r 0.03
where i= =
m 12
=0 . 0025 and n=mt=12×20=240

( 1+0 . 0025 )240−1 1 . 0025240−1

= 100 [
0 . 0025 ] (
=100
0 . 0025 ) (=100
1. 82075−1
0 . 0025 )=32 ,830 Birr

I=F v−nR
= 32,830−240×100
= 8 ,830 Birr

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Basic and applied mathematics for finance