MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS, HOCHIMINH CITY

INTERNATIONAL SCHOOL OF BUSINESS
——————————————————

MATHEMATICS FOR BUSINESS

GROUP ASSIGNMENT
Release Date: 9 AM Tuesday 16/4/2024
Due Date: 11 PM Tuesday 30/4/2024.

Instructions:
Please read and follow these instructions closely.

• This is a group assignment. You are not allowed to share your work with people outside
your group.

• Each group will submit a typed-written report which contains all the solutions, calculations,
diagrams, analysis. The first page of the report should be the cover page which includes
the names and detailed contribution of all group members.

• You should pay attention to the presentation of the report. In particular, you need to
exercise judgement on what to include in the report. Inclusion of unnecessary and irrelevant
materials will be penalized accordingly.

• Some of the questions will require the use of a computer. Students are encouraged to use
Excel to perform some of the calculations and analysis, use the online tool Desmos to draw
the graphs and use Microsoft Word to type up their report (including the mathematical
equations).

• Please report to the lecturer any group members who are not doing their fair share of work.
Members of the same group do not necessarily get the same marks.

• Deadline should be strictly adhered to. Late submissions of the report will be penalized at
10% per day.

• This assignment consists of two sections. You are to choose to do either section 1 or
section 2.

1
1 Loan Analysis [20]
At exactly 35 year of age, with $120,000 in his savings account Alex plans to buy a house. A
bank is willing to loan him the necessary funds provided that he puts up 25% of the purchase
price, uses the house as the collateral and is committed to making monthly payments for the
next 15 years.

a) With stamp duty of 2.5% of the purchase price payable by the buyer, how much is the
most expensive house that Alex can afford?

Suppose the house that Alex buys is worth $400,000. He pays the stamp duty and part of
the purchase price using all of his funds of $120,000. The rest is paid by the bank. The interest
rate is fixed at 11.4% per annum compounded monthly for the first 36 months. After 36 months,
interest rate is revised annually benchmarked from the central bank rate.

b) The monthly payments for the first 36 months is determined based on the assumption that
the interest rate is fixed at 11.4% for the full duration of the loan. Determine the monthly
payment for the first 36 months.

c) Calculate the outstanding balance immediately after the 36th monthly payment.

After 36 months, the interest rate for the next year is revised to be 10.8% per annum (com-
pounded monthly). The monthly payment for the next 12 months is calculated based on the
assumption that the interest rate will remain fixed at 10.8% for the rest of the loan.

d) Calculate the monthly payment and the outstanding balance immediately after the 48th
monthly payment.

Immediately after the 48th monthly payment, Alex receives an offer to buy his house at the
price of $450,000. Since he has only lived there for 4 years, he would have to pay 10% capital gain
tax on his profit. Furthermore, he would have to pay back the bank the outstanding loan with a
0.5% surcharge due to early termination of the loan agreement. On the other hand, owning the
house generates an effective income of $3,000 a month for Alex since he no longer has to pay
rent.

e) Should Alex sell his house if he requires at least 10% return compounded monthly on his
investment ?

f) Suppose Alex decides to sell his house. Calculate the internal rate of return of Alex’s
investment.

Alex decides not to sell his house after all. For the next 12 months, the bank sets the interest
rate to be 11.2% per annum compounded monthly. On the other hand, since his house is now
worth more, he has the option of take on an additional loan of $20,000 without further collateral.

g) Assume that the interest rate will remain 11.2% forever. Determine the monthly payments
Alex needs to make if he decides to take on the additional loan and if he decides not to
take on the additional loan.

h) Alex decides to take on the additional loan but he still wants to keep his original monthly
payment as if he did not take on the additional loan. At what age will he be able to
discharge the loan completely ? How much is his final payment ?

2
2 Numerical Evaluation of Integral [20]
Let T be a random variable that follows the Student’s t-distribution with 9 degrees of freedom
whose probability density function is given by
−5
t2

128
f (t) = 1+ .
105π 9

a) Sketch the graph of f (t) together with the graph of the probability density function φ(t)
of the standard normal distribution on the same axes.
1 t2
φ(t) = √ e− 2 .
2π

b) We need to evaluate P (T ≤ 2). Express this probability as an integral of f (t) on the

interval [0, 2] plus a constant.

c) Use the trapezoidal rule with 200 sub-intervals to evaluate the integral in part b) and hence
deduce the value of P (T ≤ 2). Give your answer to 4 decimal places.

d) The nth moment of T can be calculated by the formula

Z ∞
n
E(T ) = tn f (t)dt.
−∞

What are the values of the odd moments of T , i.e., E(T ), E(T 3 ),... ?

e) Show that Z ∞
288
Var(T ) = (1 + x2 )−4 dx
35π 0

(Hint: use the formula in part d), perform one integration by parts and one integration by
substitution)

f) You are given that Z ∞
−4 5π

1 + x2 dx = .
0 32
Determine the value of Var(T ). .

g) Verify the answer in part f) by numerical integration using the approximation

Z ∞ Z 5
2 −4
(1 + x ) dx ≈ (1 + x2 )−4 dx.
0 0

You should evaluate this integral using the trapezoidal rule for 500 sub-intervals.

———————– END OF ASSIGNMENT ———————–