SATA TECHNOLOGY AND BUSINESS COLLEGE

DEPARTMENT OF ACCOUNTING AND FINANCE

FINAL EXAM OF MATHEMATICS FOR FINANCE (ACFN 112)

NAME: _______________________ID. NO: _________SECTION: __________

Date: 10/24/2021
Max. Point: - 70%
Maximum Time Allowed: 2:00 Hour
General Instructions:
 Switch off your cell phone.
 Make sure that the exam booklet has 3 parts and 5 pages including the cover pages
and answer sheet.
 You are not allowed to have any pieces of paper in the exam hall.
 Write the answer for part I, II, & III on the answer sheet only.
 Neatly hand writing has value.
 Sharing any material is not allowed
 Any attempts of cheating will result “F” grade
Part I: Say True or False based on given statements (1.5Pts. each)
1. The non-negativity constraints typically apply in LP model, weather or not explicitly
stated.
2. For a given amount, the lower the discount rate, the higher the present value
3. Limited resources are modeled in optimization problems as a decision variable.
4. Linear Programming (LP) is mathematical representations of LP problems.
5. Linear Equations are equations with a variable and a constant with degree two.
6. The compound interest concept is that the principal remains fixed throughout the whole
period.
7. A mortgage is a fund into which a series of equal periodic payments are made in order
to accumulate specified amount in at some point in the future.

By: Wudneh Amare 24 October 2021

 8. The graphic method can be used only to solve problems that involve two decision
variables.
9. Interest computed using exact method will always earn you a higher interest than the
interest that will be earned if ordinary method is used.
10. The basic concept of mathematics of finance is that money has time value.
11. Linear functions are always represented by a straight line and used to represent one to
one simple relationship.
12. Nominal interest rate is a rate of interest that is actually paid or earned.
13. Linearity requirement stated that, each decision variable has a linear impact on objective
function.

Part II: Choose the Best Answer from The Given Alternatives (1.5pt. Each)

1. The concept of compound interest refers to:

A. Earning interest on the original C. Investing for a multiyear period of

investment. time.
B. Payment of interest on previously D. Determining the interest rate of the
earned interest. investment

2. A production optimization problem has 4 decision variables and resource b1 limits how
many of the 4 products can be produced. Which of the following constraints reflects this
fact?
A. f(X1, X2, X3, X4)  b1 C. f(X1, X2, X3, X4) = b1
B. f(X1, X2, X3, X4)  b1 D. f(X1, X2, X3, X4)  b1

3. While identifying constraints from a given linear programing problem and if encountered
with a constraint having only one variable such constraint is referred to as:
A. Individual constraint C. System constraint
B. non-negativity constraint D. None of the above

4. On a break-even chart, the break-even point is located at the point where the total
A. Revenue line crosses the total B. Revenue line crosses the total
fixed cost line contribution margin line

By: Wudneh Amare 24 October 2021

 C. Fixed cost line intersects the total D. Revenue line crosses the total
variable cost line cost line
5. Assumed that non-integer values are acceptable, which assumption of linear programing
model pertains this phrase?
A. Linearity C. Certainty
B. Divisibility D. Non-negativity

6. How much should be deposited in an account paying 8% compounded instantaneously in

order to have a balance of Birr 8,000 nine years from now?
A. 16,435.465 C. 3,894.018
B. 3,921.797 D. 16,354.546
7. What rate compounded monthly is equivalent to 8% compounded quarterly?
A. 7.95% C. 6.95%
B. 8.95% D. 5.95%

8. If there is a difference between the minimum required amount and the optimal solution, we
call the difference:
A. Surplus C. Optimal
B. Slack D. None of the above

9. What is the effective rate of money invested at 6% compounded quarterly?

A. 6.14%
B. 5.76%
C. 7.23%
D. 3.33%
10. Aba tatek wanted to buy a leather sofa for his new family room. The cost of the sofa was
Birr 10,000. He was short of cash and went to his local bank and borrowed Birr 10,000 for
6 months at an annual interest rate of 12%. What will be the total simple interest?
A. 500.66 C. 566
B. 600 D. 431
11. Refer question NO 10 once again and what will be the maturity value?
A. 10,600 C. 10,566
B. 10,500.66 D. 10,431

By: Wudneh Amare 24 October 2021

 12. A bank states that the effective interest on savings accounts that earn continuous interest is
10%. What will be the nominal rate?
A. 9.51%
B. 5.91%
C. 1.95%
D. All
13. Find the interest on Birr 1,000 at 6% for 45 days assuming the year as a leap year?
A. 7.377
B. 7.5 D. None of the above
C. 7.397
14. Based on question number 13 what will be the interest if exact method is used?
A. 7.397 C. 7.377
B. 7.5
D. None of the above
15. Based on question number 13, find interest if ordinary method is used.
A. 7.5 C. 7.377
B. 7.397 D. None of the above
16. The time interval between successive conversions of interest in to principal is called
A. Interest period
B. Compounding period
C. Conversion period
D. All
E. All except’’ C’’

Part III: Workout Questions (solve the given problems based on its
requirements 30 points)

1) Old Pirates Company wishes to produce two types of souvenirs: Type A and Type B.
Each type of souvenir A will result in a profit of birr 1 and, each type of souvenir B will
result in a profit of birr 1.20. To manufacture type A souvenir, it requires two minutes in
machine one and one minute on machine two but that of type B souvenir requires one
minute on machine one and three minute on machine two. There are three hours available

By: Wudneh Amare 24 October 2021

 on machine one and five hours available on machine two for processing the order. How
many souvenirs of each type should Old Pirates Company make so as to maximize the
profit given the constraints?
A. Formulate the appropriate linear programming model for the above case (5pts)
B. Solve the problem formulated in requirement A graphically (5pts)
2) If money worth 8% compounded semi-annually, would it be better to discharge a debt by
paying Birr 500 now or Birr 600 eighteen months from now? (5pts)
3) Daniella steal, who is amongst the richest investors in Taliban town has two opportunities
to invest his money. The first investment opportunity A (opp A) pays 15% compounded
monthly and the second investment opportunity B (opp B) pays 15.2% compounded
semiannually. Which one do you think is the better investment opportunity to Daniela,
assuming all else is equal? (10pts).
4) Prepare Amortization schedule for birr 5500 loan payable semiannually at 15% interest
rate within three years? (5pts)

Answer Sheet

Name: __________________________________ Id No: ________ Sect______________

True Or False Multiple Choice

1. 8. 1. 8. 14.
2. 9. 2. 9. 15.
3. 10. 3. 10. 16.
4. 11. 4. 11.
5. 12. 5. 12.
6. 13. 6. 13.
7. 7. 14.

By: Wudneh Amare 24 October 2021