FE 1002 Model Paper Answers

Research & Development Centre for Mathematical Modeling
FE 1002: Mathematics for Finance

Model Paper
Instructions to candidates:
No. of pages
: One (05)
No. of questions
: One (02) MCQ
: One (02) Essay
Time allocation
: Two (02) Hours
Marks allocated
: 100 Marks
Answer All Questions
01.
i. Which of the following is a statement in logic?
(a) What a wonderful day!
(b) Shut up!
(c) What are you doing?
(d) Colombo is the capital of Sri Lanka
ii. Using quantifiers, , convert the following open statement into true statement.
x + 5 = 8, x N
(a) x N, x + 5 = 8
(b) For every x N, x + 5 > 8
(c) x N, such that x + 5 = 8
(d) For every x N, x + 5 < 8
iii.
~(p q) is equivalence to,

(a) ~p q
(b) p ~q
(c) ~p ~q
(d) ~p ~q
iv.
The converse of If x is zero then we cannot divide by x is

(a) If we cannot divide by x then x is zero.
(b) If we divide by x then x is non-zero.
(c) If x is non-zero then we can divide by x.
(d) If we cannot divide by x then x is non-zero.
v.
The contrapositive of the statement If 7 is greater than 5, then 8 is greater than 6,

is
(a) If 8 is greater than 6, then 7 is greater than 5.
(b) If 8 is not greater than 6, then 7 is greater than 5.
(c) If 8 is not greater than 6, then 7 is not greater than 5.
(d) If 8 is greater than 6, then 7 is not greater than 5.
vi)
Let A={2, 3, 5} , B={2} and C={ x|x is odd} , which of the following statement is
correct?
AB=B
(a) C A= B
AC={3, 5}
(b) C B= A
CB=
(c) AC
Since 2 is not odd number Ais not sub set of C
(d) A|C=B
Answer: A|C={2}=B
vii)
Let AB , and (AB)C, If aA and bB, which of the following statement must
be true,
AB(AB)=A
(a) bC
Since (AB)C, then AC
(b) aC
Then (ABC)=A
(c) a(ABC)
Since aA,
(d) b(ABC)
Answer: a(ABC)
viii)
If (qp)p is FALSE then, truth values of p, q are respectively,

(a) F, T
p
q
qp
(qp)p
(b) T,T
T
T
T
T
(c) F,F
T
F
T
T
(d) T,F
F
T
T
F
F
ix)
x ,S x C x , is equivalent to ,
(a) x ,S x C x
(b) x ,C x S x
(c) x ,C x S x
(d) x ,S x Cx
x)
AA is equal to,
(e) A
(f)
(g) Universal set
(h) None of these
02.
i)
Let f ( x ) 2 x 2 2 on [-2, 2],

(a) There is a local Minimum at x=0.
(b) There is a local Maximum at x=0.
(c) There is a local Minimum at x=2.
(d) There is a local Maximum at x=2.
Minimum
point
ii)
If u n u n1 2 , and u1 0 , find u 5 .
(a) 9
(b) 8
(c) 10
(d) -11
Answer:
u n k n1u1 C n 1 ,here k=1 , C=2 and n=5,
Then u5 151 u1 25 1 u1 2 * 4 0 8 8
iii)
The roots of the auxiliary equation of y n 2 9 y n are,

(a) 2 and -2
(b) 3 and -3
(c) 1 and -1
(d) 2 and 4
Answer: y n2 9 y n y n2 0 * y m1 9 y n 0
Then , Auxiliary equation,

m2 9 0
m 3m 3 0
roots m1 3 and m2 3
iv)
The set of all x values that satisfies the inequality x 1 1 is,

(a) x R : 1 x 3
Answer:
(c) x R : 0 x 2
1 x 1 1
(b) x R : 2 x 0
(d) x R : 3 x 0
v)
x 1 1
11 x 11 11
0 x2
The General solution of the equation u n 2u n1

(a) 2 n1 u1
(b) 2
n 1
u1 2
,n 2 ,
Solution :
n 1
(c) 2 u1
n
(d) 2 n1 n
un k
c k n 1 1
u1
k 1
n 1
Then,
u n 2 n 1 u1
0 2 n 1 1
2 1
u n 2 n 1 u1
vi)
The particular solution of the equation u n u n1 0.01, u0 0.01,

(a) u n n 10.01
(b) u n n 10.01
Solution :
u n u 0 cn
(d) u n 0.01 0.01
Then,
u n 0.01 0.01* n
(c) u n 1 n0.01
u n 0.01 1 n n 10.01
vii)
The sequence 1, 5, 13, 25, 41, 61, is best describe by the difference equation ,
(e) u n u n1 4n , n 1
1,5,13,25,41,61
(f) u n u n1 4n 1 , n 1
(g) u n u n1 4
1,1+4,5+8,13+12,25+16,41+20
1,1+4*1,5+4*2,13+4*3,25+4*4,41+4*5,
u0=1,
u1=1+4*1=, u0+4*1
u2=5+4*2=, u1+4*2
.
.
.
un=, un-1+4*n, since we started at n=0, n1
,n 1
(h) u n 4u n1 1 n 1
viii)
If f ( x , y ) x 2 y 1 , second order partial derivative f xy is equal to,

(e) 0
(f) 1
(g) 2x
(h) 2
f x 2x
f xy 0
or
fy 1
f xy 0
ix)
The general solution of the equation , u n 2u n1 u n2 0 n 2 is,

(a) u n A Bn , where A and B are constant
(b) u n A Bn 2 n , where A and B are constant
(c) u n A2 n B 2 , where A and B are constant
n
(d) u n A B 1 , where A and B are constant

n
x)
The set of all real x values that satisfies the inequality x 2 2 x 0,

(a) x R x 2 or
x 0
(c) x R x 2 or
x 0
(b) x R x 2 and
(d) x R x 2 and
x 0
x 0
03.
(a)
i)
Find the domain of the function, f x
1
, where range of the f x is
1 x2
real numbers.
f x
1
1 x2
Since range is real numbers,

1 x2 0
1 x 1 x 0
x 1 or x 1
Therefore domain of f(x) is
ii)
R-{-1,1}
Let f x , y x 2 y 2 4 xy 10 ,
Find the critical points of f x , y .

If a ,b is ab)critical point of f ( x , y ),then f x a ,b 0 and f y a ,b 0
a)
First order partial derivaitiv es

f x 2x 4 y
f x a ,b 0 2a 4b 0 a 2b A
f y 2 y 4x
f y a ,b 0 2b 4a 0 by A 2b 8b 0 b 0 ,then a 0
critical point is 0,0

c)
Find the local Maximum, Minimum or saddle points of f x , y .
We have to find the value of the operator D at (0,0) point,
Second order partial derivatives,
f xx 2, f xy 4 and f yy 2,then operator D 0,0 ,
D0,0 2 * 2 4 4 16 12 0,
2
Therefore f(x,y) has a saddle point at (0,0)
(b) Find the set of all real values that satisfies the inequality ,
x2 x 6
0
x 1
x2 x 6
0
x 1
x 3x 2 0,
x 2 3x 2 x 6
0
x 1
x 1
x 3 0,x 2 0 and x 1 0
case01 : ,

x 3 and x -2 and x -1can' t happen.
case02 : ,
x 3 0,x 2 0 and x 1 0

x 3 and x -2 and x -1can' t happen.
case03 : ,
x 3 0,x 2 0 and x 1 0

x 3 and x -2 and x -1
then - 1 x 3
04.
(a)
i)
Find a recursion relation which describe the sequence , 2, 6, 18, 54, 162,
486,
2, 6, 18, 54, 162, 486,
2, 2*3, 6*3, 18*3 , 54*3, 162*3
u0=2, u1=3 u0=6, u2=3 u1=18, u3=3 u2=54.
un=3 un-1 where n1
ii)
$100 is deposited at R present interest compound annually. If after 20

years the value of the investment is equal to $1000, find annual interest
rate R.
After 1st year the value of the investment is =$100+R*100 =(1+R)100
After 2nd year the value of the investment is =(1+R)100+R((1+R)100)
=(1+R)((1+R)100)=(1+R)2100
After 3rd year the value of the investment is =(1+R)2100+R((1+R)2100)
=(1+R)((1+R)2100)= (1+R)3100
After nth year the value of the investment is = (1+R)n100
After 20th year the value of the investment is = (1+R)20100=1000
1 R 20100 1000
1 R 20 10
20 ln 1 R ln 10
20 ln 1 R 2.3026
ln 1 R
2.3026
0.1151
20
e0.1151 1.1220
e ln 1 R
1 R 1.1220
R 1.1220 - 1 0.1220
(b)
i)
Find the General solution of homogeneous difference equation

u n2 1.2u n1 0.2u n 0 for n 2 ,
u n2 1.2u n1 0.2u n 0
Suppose that u n m n
,
Then
m n 2 1.2m n 1 0.2m n 0
m n m 2 1.2m 0.2 0
Then auxiliary equation is m 2 1.2m 0.2 0
m 2 1.2m 0.2 0
1.2 1.2 2 4 * 0.2 * 1 1.2 1.44 0.8 1.2 0.64 1.2 0.8
2
2
2
2
1.2 0.8
1.2 0.8
m1
1, m2
0.2
2
2
solution for the difference equation : A1n B0.2 n A 0.2 n B
m
Where A and B are constant
ii)
Find the general solution of non-homogeneous difference equation

u n 2 1.2u n1 0.2u n 2 n for n 2 ,
(Hint : Use Part(i) solution)
Already we have founded the solution for the reduce equation in part i),
Since f is a constant, suppose a particular solution takes a form u *n C 2 n
where C is a constant. Then by substituting to the equation we have,
C 2 n 2 1.2C 2 n 1 0.2C 2 n 2 n
2 n C 2 2 1.2 * 2 0.2 2 n
C( 4 2.4 0.2 ) 1
C
1
5
1.8 9
Thus, general solution of the equation is ,

5
u n A 0.2 n B 2 n
9
iii)
Given the simple national-income model, Y, C, It, and Gt , represent the

National income , consumption , investment and government text
respectively .
1
Yt C t I t Gt
C t 0.8Yt 1 2 t
I t 0.2( Yt 1 Yt 2 )
Gt 0.2Yt 1
2
3
4
With initial conditions Y0=100 and Y1= 102. Find the solution for national
income at time t (Yt)
A second order difference equation is obtained by substituting (2) ,(3) , and (4)
into (1), we have
Yt Ct I t Gt
Yt 0.8Yt 1 2 t 0.2( Yt 1 Yt 2 ) 0.2Yt 1

Yt 1.2Yt 1 2 t 0.2Yt 2
Yt 1.2Yt 1 0.2Yt 2 2 n
Now we have difference equation which is same as part II, Then general solution
of the difference equation
5
Yt 1.2Yt 1 0.2Yt 2 2 t is , Yt A 0.2 t B 2 t where A and B are constant .
9
Y0=100 and Y1= 102, then,
5
5
Y0 A 0.2 0 B 2 0 A B 100
(**)
9
9
5
10
Y1 A 0.21 B 21 A 0.2 B
102
(* * *)
9
9
Equation * * - * * *
0.8B -2 5/9
0.8B -13/9 B 1.8,then A 97.64
Yn 97.64 1.8 * 0.2 t 0.55 * 2 t

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Research & Development Centre for Mathematical Modeling

FE 1002: Mathematics for Finance

~(p q) is equivalence to,

The converse of If x is zero then we cannot divide by x is

Research & Development Centre for Mathematical Modeling

The contrapositive of the statement If 7 is greater than 5, then 8 is greater than 6,

If (qp)p is FALSE then, truth values of p, q are respectively,

Research & Development Centre for Mathematical Modeling

Let f ( x ) 2 x 2 2 on [-2, 2],

Research & Development Centre for Mathematical Modeling

The roots of the auxiliary equation of y n 2 9 y n are,

Then , Auxiliary equation,

The set of all x values that satisfies the inequality x 1 1 is,

The General solution of the equation u n 2u n1

The particular solution of the equation u n u n1 0.01, u0 0.01,

(d) u n 0.01 0.01

Research & Development Centre for Mathematical Modeling

If f ( x , y ) x 2 y 1 , second order partial derivative f xy is equal to,

The general solution of the equation , u n 2u n1 u n2 0 n 2 is,

(d) u n A B 1 , where A and B are constant

The set of all real x values that satisfies the inequality x 2 2 x 0,

Research & Development Centre for Mathematical Modeling

Find the domain of the function, f x

Since range is real numbers,

Find the critical points of f x , y .

First order partial derivaitiv es

critical point is 0,0

f xx 2, f xy 4 and f yy 2,then operator D 0,0 ,

Therefore f(x,y) has a saddle point at (0,0)

Research & Development Centre for Mathematical Modeling

x 3 and x -2 and x -1can' t happen.

$100 is deposited at R present interest compound annually. If after 20

Research & Development Centre for Mathematical Modeling

Find the General solution of homogeneous difference equation

Then auxiliary equation is m 2 1.2m 0.2 0

Where A and B are constant

Find the general solution of non-homogeneous difference equation

Thus, general solution of the equation is ,

Research & Development Centre for Mathematical Modeling

Given the simple national-income model, Y, C, It, and Gt , represent the

Yt 0.8Yt 1 2 t 0.2( Yt 1 Yt 2 ) 0.2Yt 1

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