Sadler Apps Unit 4
Sadler Apps Unit 4
Sadler Apps Unit 4
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Number
The understanding and appropriate use of the rule of order, fractions, decimals, percentages, rounding,
truncation, square roots and cube roots, numbers expressed with positive integer powers, e.g. 23, 52, 25,
expressing numbers in standard form, e.g. 2.3 × 104 (= 23 000), 5.43 × 10 7 (= 0.000 000 543), also called scientific
-
notation, and familiarity with the symbols >, ≥ , < and ≤ is assumed.
Percentages
It is assumed that you are able to express one quantity as a percentage of another quantity and find a percentage
of a quantity. It is also assumed that you are able to increase or decrease an amount by a certain percentage by
appropriate multiplication. For example:
• To increase an amount by 25% we multiply by 1.25.
• To decrease an amount by 5% we multiply by 0.95.
The following examples of ‘typical percentage questions’ will only show the ‘decimal equivalent’ method.
In the equation y = mx + c the value of m, the gradient, tells us the amount by which y increases for each unit
increase in x.
3x + 2 y = 11
5x - 2y = 6
2x + 3 y = 12
x + 2y = 1
3x + 2y = 26
x + 4 y = 11
Solution: x = 5, y = -2 x = 4, y = 7 x = 3, y = 2
In this unit we may also encounter equations involving exponents (powers), for example
x4 = 81 2x = 64 2x = 11
Solve these mentally if the numbers involved allow it, otherwise use the solve facility of some calculators.
x4 = 81 2x = 64 2x = 11
x = 3 x = 6
solve(2 x 11, x)=
{ x 3.459431619}
=
Recursion
It is assumed that you are familiar with the idea of defining a sequence by a recursive rule or recurrence
relationship, i.e. a rule which tells us how the terms of the sequence recur. For example, the following rule
T1 = 5, Tn + 1 = Tn + 3 (or T1 = 5, Tn = Tn - 1 + 3)
tells us that the first term of the sequence is 5 and each term after that is obtained by adding 3 to the previous term
Hence the sequence is: 5, 8, 11, 14, 17, 20, 23, …
With adjacent terms having a common difference this is an example of an arithmetic sequence, also called an
arithmetic progression or AP.
Thus all arithmetic sequences are of the form:
a, a + d, a + 2d, a + 3d, a + 5d, a + 4d, a + 6d, …
In this general form we have a first term of ‘a’ and common difference ‘d’.
The nth term is then given by Tn = a + (n - 1)d.
Sequences which progress such that each term of the sequence is the previous term multiplied by some constant
number are said to be geometric sequences, geometric progressions, or GPs.
Thus all GPs are of the form:
a, ar, ar 2, ar 3, ar 4, ar5, ar6, …
In this general form we have a first term of ‘a’ and common ratio ‘r’.
The nth term is then given by Tn = a × r n - 1
.
GPs will have a recursive rule of the form T1 = a, Tn + 1 = r × Tn.
Graphs or networks
In mathematics, a network or graph is a set of points, called vertices, connected by a set of lines, called edges.
1 2
• The junctions and endpoints are called vertices (singular: vertex). 4 vertices
4 3
B
A C
A C
B
120 km
75 km 63 km D
84 km 42 km
87 km
A C F
108 km
30 km
185 km
E
Whilst it is anticipated that from your study of Unit Three of Mathematics Applications you are familiar with
many of the terms associated with graph theory (e.g. multiple edges, adjacent vertices, simple graphs, connected
graphs, planar graphs, subgraphs, bridges, walks, paths, cycles, etc.), in this unit we will be mainly focusing on
analysing weighted graphs and in one such aspect an understanding of the word tree in the context of graph
theory is important, and in another aspect bipartite graphs are significant. These two terms in particular are
further explained below:
Any connected simple graph that contains no cycles is called a tree:
The following graphs are trees:
A B C
D E
Notice that if we consider the five vertices A, B, C, D and E as being in two sets:
{A, B, C} and {D, E}
then every one of the five edges joins a vertex from one set to a vertex of the other set.
AD, AE, BD, BE, CE.
A graph in which the vertices can be split into two groups such that every edge joins a vertex from one group
to a vertex of the other group, i.e. no edges join vertices from the same group, is called a bipartite graph. Thus,
in a bipartite graph, every pair of adjacent vertices involves one vertex from one group and the other vertex from
the other group.
For example, the bipartite graph below shows which of the three areas, midwifery (Mid), accident and emergency
(A & E), and the intensive care unit (ICU), three nurses are qualified to work in.
Bivariate data
If a situation involves two data sets, for example the heights and weights of a number of people, we have
bivariate data. We might then be interested in investigating whether there is an association between the
data sets, for example, is there some association between a child’s age and their foot size? Do older children
generally have bigger feet? Does a child’s age in any way explain their foot size? In this case, age would
be the explanatory variable, also called the independent or predictor variable. Foot size would be the
response variable, also called the dependent or predicted variable.
nasutniP reeB/moc.kcotsrettuhS
10 20 30 40 50 60 70
x
Foodstuff consumption
(Kilograms per person per year)
We say that a positive linear correlation seems )noitalupop fo 000 001 rep raey reP(
to exist.
esaesid traeh ot eud shtaeD
x 57 20 13 38 51 48 58 35 29 8 28 21 10 40 41 46 53 64 66 47
y 299 124 154 156 152 295 264 208 250 84 158 175 120 220 251 202 248 290 296 268
We can then calculate (or determine automatically from our calculator) a predicted value for ‘y’ (in this case
deaths per year per 100 000 of population) for an ‘x’ value (in this case foodstuff consumption) of 45.
y = 3.0998(45) + 90.8941 i.e. approximately 230.
To emphasise the predicted nature of y this is sometimes written as ŷ, pronounced ‘y hat’. Thus for x = 45,
ŷ ≈ 230.
The ‘r ’ given in the previous calculator display is called Pearson’s correlation coefficient. It will lie in the
interval -1 ≤ r ≤ +1. This correlation coefficient is a measure of the strength and nature of the linear association,
or correlation, between the variables. It informs us how closely the relationship between two sets of data
approximates to a linear relationship.
A correlation coefficient of - 1 indicates a perfect linear relationship with a negative gradient (as one variable
increases the other decreases) and a correlation coefficient of + 1 indicates a perfect linear relationship with
a positive gradient (as one variable increases the other increases).
(The display also shows r2, the coefficient of determination. This gives the proportion of the variation
that can be explained by the linear relationship. I.e. in the previous situation the r2 value of 0.677 means that
approximately 68% of the variation in death rates due to heart disease can be explained by, or accounted for,
by the variation in the foodstuff consumption.)
If there is an association between the two variables then as one changes we should expect the other to change,
but that is not to say that the changes in one variable cause the changes in the other. There could be other
factors at work.
If we use the fact that a strong correlation seems to exist, to predict a ‘y-value’ for some ‘x-value’, we can be more
confident of this prediction if interpolation is involved, i.e. if the x-value used is within the range of x-values
covered by the given data.
If instead we are extrapolating, i.e. using an x-value outside the range covered by the x-values in the given data,
we would be less confident with any prediction made, our confidence decreasing the further the x -value is from
the range of x -values in the given data.
x y 1200
+ =
7 x 10y 9150 x, y
+ =
{ x 950, y 250}
= =
A B C D E F G
1 Physics score Maths score
2 6 19 Physics and Mathematics scores
3 9 12
50
4 11 27 45 y = 1.9829x + 4.8291
scitamehtaM ni erocS
5 12 36 40
35
6 14 42 30
7 14 34 25
20
8 16 32
15
9 16 27 10
10 17 44 5
0
11 19 41 0 5 10 15 20 25
12 Score in Physics
13
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We could display the terms of our sequence on a calculator or spreadsheet and view the progressive year by year
values, as shown below.
an+1 = an ·1.064
A B C D
a1 = 500000
1 Initial value $500,000.00
bn+1 =
2 Percentage increase 6.40
b1 = 0
3 Value at end of year 1 $532,000.00
cn+1 =
4 2 $566,048.00
c1 = 0
5 3 $602,275.07
6 4 $640,820.68
n an
7 5 $681,833.20
8 6 $725,470.52 9 8.2E +5
9 7 $771,900.64 10 8.7E +5
10 8 $821,302.28 11 9.3E +5
11 12 9.9E +5
9 $873,865.63
13 1.1E +6
12 10 $929,793.03
13 11 $989,299.78
1052614.96443211
14 12 $1,052,614.96
These tables allow us to see, for example, that the value of the house will reach one million dollars shortly after
the end of the eleventh year, i.e. early in the 12th year.
However note carefully that in this situation, with the recursive definition
Tn + 1 = T n × 1.064 and T1 = 500 000
T1 is the value after zero years. Hence we must remember that if we use the ability of a calculator to generate
the terms of the sequence, according to the recursive rule given above, then the value after n years will be given
by Tn 1. I.e. in the calculator display above, n = 13 gives the value at the end of 12 years.
+
1052614.96443211
Algorithms
Remember, an algorithm is a defined set of steps that that can be applied and systematically followed to
solve a particular type of problem. In Unit Three of Mathematics Applications we encountered an algorithm
for determining the shortest path between two vertices in a network.
Suggest what you consider to be a reasonable valuation for the painting for the year that it first
became the property of Mrs Smithson and explain how you arrived at your estimate and why you
think it reasonable.
Situation Two
A group is asked to write a report outlining the
future health needs for a particular region. One
of the things the group needs is an estimate of
the number of hospital beds the region is likely
to need in 5, 10 and 15 years time.
The number of hospital beds available in the
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region over the last twenty years, recorded
every 2 years, is known and is shown in the
following table:
Time 20 years ago 18 years ago 16 years ago 14 years ago 12 years ago 10 years ago
Number of
3270 3350 3510 3520 3760 3900
hospital beds
Time 8 years ago 6 years ago 4 years ago 2 years ago Now
Number of
4100 4420 4790 5140 5600
hospital beds
Assuming the above numbers did just about meet the needs of the community at the time, use the
figures to make predictions for the number of hospital beds this region is likely to require in 5, 10 and
15 years’ time and explain how you arrived at your predictions.
(4) Interpret the results in order to answer the original question and communicate your findings.
This also was your task.
If you did graph the data of the two situations you may have come to the conclusion that attempting to
fit a straight line to the data might not be a suitable choice of ‘model’. Perhaps you tried another model
or, with each set of points perhaps suggesting a suitable curve that could be drawn ‘freehand’ maybe
you drew such a curve and read off the required values, or maybe you simply joined adjacent points
with straight lines.
One of the situations required us to extrapolate beyond the known values so predictions obtained
in this way would have to be viewed with caution. However, though extrapolation can be unreliable,
it is sometimes the best we can do. With the situation that did not require extrapolation, but instead
required us to determine a value between known points (interpolation), our prediction should be more
reliable. However, even with interpolation, out-of-the-ordinary events and short-term fluctuations can
sometimes give values that are not in line with normal trend. For example we might expect monthly
visitor numbers to a city to peak higher than a general trend would suggest if the city were to host an
Olympic Games for a month. We might expect daily traffic flow along a particular major road to drop
below the figure a general trend would suggest if there were major roadworks taking place along the
road and diversions were in place, etc.
ecirP
$150 000
year intervals from 1970 to 2015.
The graph involves time series data. $100 000
Time Time
We will consider repeating patterns like this in more detail in the next chapter.
It can sometimes be the case that time series data is collected at intervals that are not all of the same
length (as was the case in Situation One). Consider the following situation for example:
An environmental group, concerned with the levels of a particular pollutant in a river, collected and
analysed samples from the river over a period of some years. The results are shown in the table below.
Month Jan Jul Jan Jul Jan Jul Jan Apr Jul Oct Jan Apr Jul
and year 2010 2010 2011 2011 2012 2012 2013 2013 2013 2013 2014 2014 2014
Pollutant
level 2.04 2.09 2.24 2.51 2.44 2.76 2.84 2.92 3.06 3.04 3.14 3.21 3.37
(units/m3)
Notice that in 2010, 2011 and 2012 levels were recorded half-yearly, but in 2013 levels were recorded
quarterly. The graph of this data is shown on the next page.
• Notice that the horizontal axis uses a consistent time scale throughout. The fact that from January
2013 onwards pollutant levels are given 4 times per year, rather than the 2 per year prior to this,
changes the number of points plotted per year not the scale on the axis.
Making predictions
If we want to analyse the data mathematically we might need to number the dates involved, rather than
to attempt putting Jan 2010, Jul 2010 etc. into our calculator.
Particular care needs to be taken if the frequency of data collection changes as in this pollution levels
example. Noticing that from 2013 onwards pollutant levels are given 4 times per year we could number
the data points as follows:
Data point
1 3 5 7 9 11 13 14 15 16 17 18 19
(n)
Month Jan Jul Jan Jul Jan Jul Jan Apr Jul Oct Jan Apr Jul
and year 2010 2010 2011 2011 2012 2012 2013 2013 2013 2013 2014 2014 2014
Pollution (P)
2.04 2.09 2.24 2.51 2.44 2.76 2.84 2.92 3.06 3.04 3.14 3.21 3.37
(units/m3)
3
) P( level noitulloP
1 3 5 7 9 11 13 14 15 16 17 18 19
Time (n)
The table below shows the percentage of the Australian population aged 80 or over, for the years
1995 to 2007.
Percentage of the Australian population aged 80 and over
Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Percentage 2.6 2.6 2.7 2.8 2.8 2.9 3.1 3.2 3.3 3.3 3.4 3.5 3.6
[Source of data: Australian Bureau of Statistics.]
Display this information as a line graph and comment on any trends shown.
Use your graph to suggest what percentage of the Australian population will be aged 80 or over
in the year 2020 and in the year 2050, each time discussing the likelihood of your prediction
being reliable.
Solution
Percentage of Australian
The graph is shown to the right. 4.0 population aged 80 or over
3.5
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3.0
2.5
2.0
1.5
1.0
0.5
’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07
Year
The percentage of the Australian population aged 80 or over shows an increasing trend.
For the period the data describes, i.e. 1995 to 2007, the percentage increases fairly steadily at a rate
of approximately 0.1% of the Australian population per annum. (Figures show increase of 1%
of population in 12 years.)
Continuing the trend forward to 2020, just over another 12 years, would suggest approximately
4.6% or 4.7% of the population would be 80 or over by then. With the data showing a reasonably
linear trend we could use linear regression to obtain a 2020 figure of approximately 4.7%.
This prediction involves extrapolation so the result should not be considered particularly reliable
but considering the steadiness of the increase from 1995 to 2007 the estimate may prove to be
quite good.
The reasonably steady increase of about 1% every 12 years shown in the graph suggest
approximately 7.2% of the population would be 80 or over by 2050. (Linear regression gives
7.4%.) However this requires us to extrapolate so far beyond the known points the ‘prediction’
is perhaps more an ‘educated guess’ than a reliable prediction.
→ Try to obtain more up-to-date percentages and see how they compare. ←
• The vertical axis should start from zero if possible. Sometimes this
520
may be inconvenient or impractical and in such cases a break in the 510
axis should be clearly shown (see the diagram on the right). 500
• Remember that time is plotted on the horizontal axis and that you
should use the same time scale along the entire axis.
• If you have access to a computer with spreadsheet capability explore its ability, and the
ability of your calculator, to draw line graphs and use them to draw some of the graphs
requested in the next exercise.
• Remember that predicting into the future can be hazardous. Unanticipated events
can occur. Consider for example the graph below, which shows the Dow Jones Index
(a measure of the share values of a number of large companies in the USA) for the
beginning of March 2003 to the beginning of March 2008.
12 000
10 000
8 000
6 000
4 000
2 000
These figures might lead us to expect that by the beginning of March 2009 the index would
be perhaps as high as 12 500. In fact it had fallen to just a little over 7000.
Events causing results that seem out of line with a suggested trend may not always be
unexpected. The graph on the next page shows the total expenditure, in billions of pounds,
of the people visiting London, from elsewhere in the UK, for the years 2008 to 2012.
Does the somewhat higher than trend figure for 2012 indicate increasingly higher figures
for 2013, 2014 etc. are likely, or should it be expected with 2012 being the year of the
London Olympics?
Exercise 1A
1 Ageing population
The table below shows some real and some predicted figures for the number of persons aged over
65, per 100 persons of working age, in Australia for 1971, 1981, 1991, 2001, 2011, 2021 and 2031.
3 Visitors to Australia
The table below shows the number of overseas visitors arriving in Australia for a stay of less than
12 months (called short-term visitors ) for various years from 1992 to 2013.
Year 1993 1996 1997 2000 2001 2002 2008 2009 2010 2011 2012
Men 27.0 27.6 27.8 28.5 28.7 29.0 29.6 29.6 29.6 29.7 29.8
Women 24.8 25.7 25.9 26.7 26.9 27.1 27.7 27.7 27.9 28.0 28.1
[Source of data: Australian Bureau of Statistics.]
5 Number of marriages
Let us suppose that in a particular country, the number of marriages occurring in various years
from 1910 to 2010 were as shown in the following table.
a View the graph of this time series data on a calculator or computer and confirm that the
points are suitable for linear modelling.
b With N representing the number of marriages in a year, and Y representing the year, obtain
the least squares regression line, N = mY + b , for this data, giving m to the nearest integer and
b to the nearest 1000.
6 Expanding business
The rental property manager of a real estate business researched data regarding the number of
properties managed by the business at various times from 2010 to 2015. The table below shows
the data she collected.
Mar Mar Mar Mar Mar Jun Sept Dec Mar Jun
Month and year
2010 2011 2012 2013 2014 2014 2014 2014 2015 2015
No. of properties
302 321 408 467 490 492 508 502 526 540
managed
a Commencing with March 2010 as t = 1, June 2010 as t = 2 etc. determine the equation of
the least squares linear regression line for predicting the number of properties managed for
a given value of t.
b Assuming this trend continues predict the number of properties managed by the group in
December 2017.
Year 1 2 3 4 5 6 7 8
Total births 15 750 16 170 15 971 16 227 16 451 16 332 16 815 16 213
Caesarean 2835 3017 2925 2973 3068 3612 3821 3659
Year 9 10 11 12 13 14 15 16
Total births 16 629 16 873 17 105 16 974 17 043 16 142 17 123 17 260
Caesarean 4083 4431 4862 4904 5082 4758 5161 5178
) P( egatnecreP
5178 out of 17 260, i.e. 30%. 20
(1, 18)
If this increase in the caesarean rate over this
time were perfectly linear the caesarean rates 10
would fit the graph shown on the right.
a Determine the equation of this straight line, in
the form P = mx + c, with x and P as indicated 5
Year ( x)
10 15
9 Confirm that the following paired values are not suited to linear regression.
t 1 2 3 4 5 6 7 8 9 10
Y 5 20 44 96 149 217 310 410 525 661
Explore the ability of graphic calculators to determine non-linear regression models to obtain
a model for the above data of the form Y = a × t b.
Quite a number of middle-aged or elderly people have been heard to comment that they feel the
seasons have been changing over the years. For example, some feel that January tended to be hotter
in the past. Are they correct or is it that they are only remembering the more memorable summers?
The table below shows information about January temperatures recorded at a particular location
in Perth over a period of approximately 70 years. Does the information given in the table suggest
that, during the period of time the statistics cover, summer temperatures in Perth were showing
some changing pattern?
Write a brief report justifying your opinion and include suitable graphs based on the information
in the table below.
Research and obtain appropriate time series data to answer one of the following questions, or
negotiate with your teacher an alternative question of your choice that will similarly require an
analysis of time series data.
Your answer should include the data you obtained, suitably
presented, an explanation of the analysis of that data and
a reasoned conclusion that addresses the question.
kinreB reteP/moc.kcotsrettuhS
• When is the world record for running 100 metres
likely to fall to 9 seconds?
• When is the population of the world likely to reach
10 billion?
• What is the population of China likely to be in the
year 2050?
• What trends does Australia’s unemployment rate show over time?
• How has the share price of a particular company of your choice varied with time and what
might this suggest for the future price?
• How have house prices, or rental costs, varied over time in your area and what does this suggest
for future price, or rental, movements?
−5 −4 −3 −2 −1 1 2 3 4 5 x
−1
−2
−3
4 Find the first five terms of each of the following recursively defined sequences.
a T1 = 25, Tn 1 = Tn + 2
+
b T 1 = 32, Tn 1 = Tn - 1.5
+
c T1 = 64, Tn 1 = 1.5 × Tn
+
d T 1 = 4000, Tn = Tn 1 ÷ 2
-
e T1 = 5, Tn = 2Tn 1 + 7
-
f T 1 = 16, Tn 1 = 1.5Tn - 4
+
5 Population changes
The table on the right shows the population of Perth, Population of WA and Perth
and of Western Australia as a whole, in each of the
Year WA Perth
census years from 1911 to 1991.
1911 282 114 116 181
Make a table of your own showing Perth’s population
1921 332 732 170 213
as a percentage of the WA population for each of these
census years. 1933 438 852 230 340
a Plot these percentages as a line graph, with years 1947 502 480 302 968
on the horizontal axis, and comment on the trends 1954 639 771 395 049
your graph shows. 1961 736 629 475 398
b Use your graph to suggest Perth’s population as 1966 836 673 558 821
a percentage of the WA population for i 1940 and 1971 1 030 469 703 199
ii 2020, in each case commenting on the likely
1976 1 178 340 832 760
reliability of your estimates.
1981 1 300 600 922 017
Try to find more recent data for the populations
1986 1 459 011 1 050 120
of Perth and of Western Australia, say for the census
years 2011 and 2016, and comment on how they compare 1991 1 636 067 1 188 762
with the data given here. [Source of data: Australian Bureau of Statistics]
segamInedruD/moc.kcotSi
• If the next figure, i.e. for the 2nd period of 4 months
of 2014, turns out to be 58, this is clearly a drop from
the 69 recorded for the 1st four months of 2014
but is it cause for concern?
1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd 1st
The graph shows the seasonal nature of the data with three ‘seasons’ making up one cycle.
The peaks occur at the 1st, 4th, 7th and 10th points plotted and the troughs at the 2nd, 5th and
8th points plotted. From this pattern we would certainly expect the next value, i.e. for the 2nd
4-month period of 2014, to be a trough. A figure of 58 for this 4-month period would therefore not
automatically be a cause for concern unless the drop were more than was expected.
(Note: Seasonal variation has a constant time period. A repeating pattern without a regular frequency
of occurrence would be called cyclical rather than seasonal.)
The graph indicates the general upward trend in the data as shown by the orange line below.
Visitors (1000s)
70
60
50
40
30
20
Periods of
10
4 months
1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd 1st
The placement of this line is just a ‘guesstimate’ based on ‘eye-balling’ the graph and guessing an
approximate line of best fit.
We could obtain a line of best fit using the linear regression techniques that you have encountered
previously but, with the original data being quite widely spread, and with an obvious seasonal nature,
it is better to first smooth the graph by attempting to remove the seasonal variation.
We could smooth the data by taking an average attendance for each of the three years but this will
reduce 10 data points down to just 3. Instead, because the given data has a three-point pattern to it
we create a 3-point moving average.
A 3-point moving average is found by first averaging the number of visitors for the
Smoothing time series
1st, 2nd and 3rd data points, data using moving
averages
then averaging the 2nd, 3rd and 4th data points,
then averaging the 3rd, 4th and 5th data points, etc.
In this way we move down the data points and each average will be formed using a 1st 4 months figure,
a 2nd 4 months figure, and a 3rd 4 months figure.
The first three 3-point moving averages are shown below (rounded to 1 decimal place when
appropriate). Note carefully the placement of the moving average (MA) figures.
1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd 1st
Note The three-point moving average achieved this smoothing because the
original data had a three-point pattern to it. Had the original data had
The moving average has
a four-point pattern, as we might expect if we were collecting data
smoothed the seasonal
every quarter year, we would use a four-point moving average as
component in the data,
leaving the trend component
shown in example 1 on the next page. If data was collected each
more apparent. month we might expect a 12-point pattern. If data was collected
every day we might expect a 7-point pattern.
2nd quarter 67
60
→ 53
3rd quarter 47
51 50
4th quarter 38
47.5
40
2012 1st quarter 52
46.5
2nd quarter 53 30
44
3rd quarter 43
20
41.5
4th quarter 28 4-point moving average
39.75 10
2013 1st quarter 42
37.5 Year and quarter
2nd quarter 46 11 11 11 11 12 12 12 12 13 13 13 13 14 14
36.25 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
3rd quarter 34
32.75 c The number of cattle diagnosed with the
4th quarter 23 disease is showing a decreasing trend.
29.25
2014 1st quarter 28
2nd quarter 32
1 2
110
100 250
90
80 200
70
60 150
50
40 100
30
20 50
10
1 2 3 4 5 6 7 8 9 10 2 4 6 8 10 12 14
3 4
100 1000
90
80 800
70
60 600
50
40 400
30
20 200
10
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10
5 6
400
70
60 300
50
40 200
30
20 100
10
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1 2 3 4 5 6 7 8 9 10
11 4 Fri 500
12 Sat 500
13 Thur 350
14 5 Fri 410
15 Sat 430
287
13 2014 1st 2 months 274
289
14 2nd 2 months 269
290
15 3rd 2 months 319
293
16 4th 2 months 354
–
17 5th 2 months 286
–
18 6th 2 months E
Plotting this data below shows no particular systematic, calendar related movements but plotting
the moving average data (shown dashed) still has a smoothing effect and can make an underlying
trend clearer.
Production (tonnes)
1 100000
1 000000
900000
800000
700000
600000
500000
400000
300000
5 point moving average
200000
100000
Year
1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
A B C D E F G H I J K
1 Total Wool Production
2 Year Tonnes 5-pt MA
3 1915 291300 1200000
4 1920 300800
5 1925 330700 361780
1000000
6 1930 425600 405800
7 1935 460500 437640
8 1940 511400 474860 800000
9 1945 460000 505840
10 1950 516800 565840
11 1955 580500 625140 600000
51
02
52
03
53
04
54
05
55
06
56
07
57
08
58
09
59
00
50
01
20 2000 641500 639720
91
91
91
91
91
91
91
91
91
91
91
91
91
91
91
91
91
91
02
02
02
21 2005 475200
22 2010 352700
23
Try to create your own spreadsheets to answer some of the questions in this chapter.
Note: You may find that a spreadsheet offers the facility of adding a trend line to a graph, and one
of the trend line options may be a moving average line for which you can set the period,
i.e. a 3-point, 4-point, … N-point moving average. However it may be the case that the moving
average points are plotted at the end of the period not at the centre, as we tend to show them.
Plotting values at the end of the values that are used to form the moving averages produces
the same line as shown dashed above, but moved to the right. In such a line the same values
are displayed ‘later’. The line is said to be showing the trailing moving averages. In this text we
will not use this line and will instead always plot our moving averages at the centre of the time
values used to form it, as shown above.
However, that is not to say that attaching a moving average to the end of the period used to
form it cannot be useful in some circumstances. Suppose for example that you were an athlete
monitoring your times in training. Today you might well form a three-point average involving
today’s time and the times of the previous two days. In your training diary you could well record
today’s figure as being the average of today’s time and that of the previous two days. I.e. you
would be recording the three-point moving average at the end of each three-day period used to
calculate it. But, as stated above, when plotting moving averages in this text in order to smooth
data we will plot at the centre of the time interval used to calculate it.
2 2nd 67
→ 53
3 3rd 47 → 52
51
4 4th 38 49.25
47.5
5 2012 1st 52 47
46.5
6 2nd 53 45.25
44
7 3rd 43 42.75
41.5
8 4th 28 40.625
39.75
9 2013 1st 42 38.625
37.5
10 2nd 46 36.875
36.25
11 3rd 34 34.5
32.75
12 4th 23 31
29.25
13 2014 1st 28
14 2nd 32
Exercise 2B
1 The table below shows the number of cans of soft drink a lunch bar sells in each three months
of a three-year period.
a Why would determining 4-point moving averages be suitable for this data?
b Determine the values A, B, C, D, E, F and G.
2 2nd 235
3 3rd 295
175
4 4th 141 A
178
5 5th 80 C
B
6 6th 157 D
184
7 2 1st 160 183.5
E
8 2nd 247 F
185
9 3rd 319 185.5
186
10 4th 135 185
184
11 5th 92 181.5
179
12 6th 163 181
183
13 3 1st 148 185.5
188
14 2nd 217 I
H
15 3rd 343 J
193
16 4th 165
17 5th 104
18 6th G
b Reproduce the centred 6-point moving average figures using a spreadsheet showing only two
columns, the raw data ‘units’ column (with your value for G included) and the centred moving
average column. (See the note at the top of the previous page.)
Year 1 Year 2
Summer Autumn Winter Spring Summer Autumn Winter Spring
1228 364 640 1220 1436 276 752 1132
4-point MAs
4-point CMAs
4 The monthly average price per kilogram of a particular type of fruit was monitored over a period
of four years. The data obtained is shown below.
Year 1
January February March April May June
$2.90 $2.70 $1.90 $1.80 $1.75 $1.90
July August September October November December
$1.90 $1.95 $2.00 $2.15 $2.60 $3.00
Year 2
January February March April May June
$3.30 $2.40 $1.90 $1.95 $2.00 $1.95
July August September October November December
$2.00 $2.10 $2.25 $2.35 $2.60 $2.80
Year 3
January February March April May June
$3.20 $3.60 $2.60 $2.20 $2.05 $2.00
July August September October November December
$2.00 $2.05 $2.10 $2.20 $2.60 $3.10
Year 4
January February March April May June
$3.20 $2.65 $2.05 $1.95 $2.05 $2.20
July August September October November December
$2.40 $2.50 $2.60 $2.90 $3.40 $4.30
a Why does it make sense to consider the 12-point moving averages for this data?
b Either manually, or with the assistance of a graphic calculator, spreadsheet or computer program
display the original data, and the 12-point centred moving averages, on a single graph.
c Is the underlying trend decreasing, steady or increasing?
(© State of New South Wales through the Department of Justice and reproduced
with the approval of the NSW Bureau of Crime Statistics and Research.)
a Which would smooth the data more, a three-point moving average or a five-point
moving average?
b Display on a single graph the original figures, and whichever of the three- or five-point
moving averages you felt would smooth the data more.
c Comment on any trends shown.
Notice that there seems to be a ‘1st 4 months effect’ that leads to a higher number of visitors attending
the tourist attraction in the first four months than in the other two periods of four months in each year.
The 1st 4 month number, 45 000, as a percentage of this average figure, is 128.6% (1 decimal place).
The 2nd 4 month number, 26 000, as a percentage of this average figure, is 74.3% (1 decimal place).
The 3rd 4 month number, 34 000, as a percentage of this average figure, is 97.1% (1 decimal place).
Hence we could say that for 2011 the 1st 4 months have a seasonal effect that lifts the attendance
by 29% of the average, the 2nd 4 months have a seasonal effect that drops the attendance by 26%
of the average (74% is 26% below 100%) and the 3rd 4 months have a seasonal effect that drops
the attendance by 3% of the average.
However, with the figures for 2012 and 2013 available it would be better to carry out the above process
for all three years and then average the results. This is indeed how we will determine a measure of the
effect each season has – called the seasonal effect, seasonal component or seasonal index.
The three seasonal indices for the above data are calculated on the next page.
The seasonal index for the first 4 months of a year is 124% (or 1.24), the seasonal index for the second
4 months of a year is 79% (or 0.79) and the seasonal index for the third 4 months of a year is 97% (or
0.97). This means that visitor numbers for the first four months of a year tend to be 24% above the
average 4 month numbers, for the second four months they tend to be 21% below the average 4 month
numbers and for the third 4 months of a year they tend to be 3% below the average 4 month numbers.
Note: • This particular method of determining the seasonal indices is called the average
percentage method. There are a number of other methods that are used to quantify
seasonal effects in time series data but in this unit we will use this average percentage method.
• The average of the seasonal indices should be 100%, i.e. with three seasons as shown above
the total should be 300%. This is the case for the above indices, 124 + 79 + 97 = 300.
If small errors due to rounding make an average not equal to 100, suitable adjustment
could be made.
• On occasions, though rarely in this text, the average percentage method uses the median
rather than the mean of the percentages. From the above table this would give indices of
123.87%, 79.35% and 96.77% (i.e. in this case it would make little difference, but that would
not always be the case). In this text, when asked for the seasonal indices to be calculated using
the average percentage method, the reader should assume the mean is to be used.
The seasonal indices for the 1st 2 months, 2nd 2 months etc. are
1st 2 months: 82.0% (or 0.820), 2nd 2 months: 125.7% (or 1.257),
3rd 2 months: 172.9% (or 1.729), 4th 2 months: 77.5% (or 0.775),
5th 2 months: 51.3% (or 0.513), 6th 2 months: 90.6% (or 0.906).
Notice that 82.0 + 125.7 + 172.9 + 77.5 + 51.3 + 90.6 = 600, as we would want for data involving six
seasons as then the average index is 100. However, were we to round each index to an integer we would
have indices of 82, 126, 173, 78, 51 and 91 which give a total of 601, the ‘extra 1’ being introduced due
to the rounding carried out. To avoid this situation we could choose to round the 77.5 down to 77, to
give indices of 82, 126, 173, 77, 51 and 91. However in real applications we would probably be going on
to use these seasonal indices for further calculations, so we would be able to use more accurate values
stored in the cell of a spreadsheet, and would leave all rounding until the final calculation is completed.
2 Six of the seasonal indices for data with a daily seasonal pattern are as follows:
Seasonal index for Monday: 73%
Seasonal index for Tuesday: 78%
Seasonal index for Thursday: 89%
Seasonal index for Friday: 102%
Seasonal index for Saturday: 143%
Seasonal index for Sunday: 121%
Determine the seasonal index for Wednesday.
3 A company expects the annual sales of one of their products next year to be 156 000 and, from
past years’ experience, anticipates no underlying increasing or decreasing trend, and no irregular
fluctuations in sales through the year.
a If there is no monthly seasonal effect on sales of this product roughly how many of the
product should the company expect to sell each month?
b In fact the sales are seasonal in nature with the seasonal indices for each month being
as follows:
Predict the sales numbers for this product for each month of next year.
4 A company finds that in the first quarter of the year it sells 17 360 units of a particular product.
From the quarterly sales of this product in previous years the company has calculated the seasonal
indices for sales of this product per quarter as being as follows:
Seasonal index for the first quarter: 112%
Seasonal index for the second quarter: 104%
Seasonal index for the third quarter: 98%
Seasonal index for the fourth quarter: 86%
Assuming that for this year the only anticipated change in sales from one month to the next is due to
this seasonal effect, what do these figures suggest for the likely number of units of this product sold:
a in the whole year?
b in each of the remaining three quarters of the year?
itruts/moc.kcotSi
period and the seasonal index for each day.
With the assistance of a spreadsheet, construct
completed versions of the following tables.
We calculated earlier that the seasonal index for the 1st 4 months is 124%, or 1.24. Thus the figure of
45 000 visitors includes a 24% ‘seasonal increase’. To remove this 24% increase we divide the 45 000
by 1.24 to give 36 thousand, to the nearest thousand.
The seasonal index for the 2nd 4 months is 79%, or 0.79. Thus the figure of 26 000 visitors includes
a 21% ‘seasonal decrease’. To remove this 21% decrease we divide the 26 000 by 0.79 to give 33 000,
to the nearest thousand.
Continuing in this way gives the seasonally adjusted figures shown in the table below:
Making predictions
Let us suppose that a bank decides to operate a 7-days-a-week phone helpline to give advice regarding
new home loans and that the number of calls this helpline receives in the first three weeks of operation
are as shown in the table below.
Can we use these figures to predict the number of calls n Week Day No. of calls
this helpline is likely to receive on the Monday and
1 Mon 14
Saturday of week 4 (assuming any trends of the first
three weeks continue)? 2 Tue 13
3 Wed 14
If we plot the data, as shown below, it might appear that
4 1 Thur 15
any prediction would be difficult given the fluctuating
nature of the points. 5 Fri 22
6 Sat 28
Number of calls
50
7 Sun 34
8 Mon 20
45
9 Tue 17
40 10 Wed 18
35 11 2 Thur 20
12 Fri 27
30
13 Sat 36
25 14 Sun 44
20 15 Mon 25
16 Tue 21
15
17 Wed 19
10
18 3 Thur 23
5 19 Fri 34
M T W T F S S M T W T F S S M T W T F S S 20 Sat 44
2 4 6 8 10 12 14 16 18 20 n
21 Sun 51
However, if we add the 7-point moving average data to this graph, or if we plot the deseasonalised data,
both shown on the next page, we have straighter lines, showing less fluctuation. We could then, with more
confidence, use linear regression techniques to predict future values (although we know that such prediction
would involve extrapolation and so any predicted values would need to be viewed with caution).
45 45
40 40
35 35
30 30
25 25
20 20
15 15
5 5
M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S
2 4 6 8 10 12 14 16 18 20 n 2 4 6 8 10 12 14 16 18 20 n
• With each plotted point on the line of moving averages being the average of seven points it is
perhaps to be expected that the moving average line shows less variation than the deseasonalised
data line. One ‘unusual value’ will have limited influence in changing the direction of a line
when it is but one of seven scores given equal weighting when determining the moving average.
Moving averages tend to remove seasonality and individuality. They smooth all variation, not just
seasonal variation.
• The deseasonalised data was formed using the following seasonal indices calculated using the
average percentage method explained earlier in the chapter.
Monday: 0.76 Tuesday: 0.66 Wednesday: 0.67 Thursday: 0.75
Friday: 1.08 Saturday 1.40 Sunday: 1.68
Now if we are to use either the moving average values, or the deseasonalised values, to determine a line
of best fit using linear regression techniques, any prediction we make using such a line of best fit will be
a predicted moving average value, or a predicted deseasonalised value. For these predictions to be ‘real-
life values’, rather than values that have been smoothed in some way, we will need to factor back in the
seasonal effect.
For example, if we use linear regression to determine a line of best fit for predicting D, the
deseasonalised data, given the value of n, the ‘day number’, where n = 1 corresponds to Monday of
week 1, we obtain the equation D = 0.70n + 18.0.
Thus: When n = 22 (i.e. Monday of week 4), predicted D = 33.4.
When n = 27 (i.e. Saturday of week 4), predicted D = 36.9.
Hence to ‘factor back in the seasonal effect’ the predictions will be as follows:
For Monday of week 4: Predicted number of calls = 33.4 × 0.76, i.e. approx. 25.
For Saturday of week 4: Predicted number of calls = 36.9 × 1.40, i.e. approx. 52.
Production (tonnes)
1 000000
800000
600000
400000
200000
Year
0291
0391
0491
0591
0691
0791
0891
0991
0002
0102
As the graph indicates, applying linear regression techniques to the whole data set would not
be appropriate.
Production (tonnes)
1 000000
800000
600000
400000
200000
Year
0291
0391
0491
0591
0691
0791
0891
0991
0002
0102
The straight line given by using linear regression is shown above and is not a very good fit for
the data.
Remember:
Real data
Deseasonalised data (or seasonally adjusted data) =
Seasonal index
and so
Real data = Deseasonalised data × Seasonal index
Exercise 2D
1 A company achieves profits of $25 400 in June of one year. If the June profit figures for this
company have a seasonal index of 114% what would be the deseasonalised, or seasonally adjusted,
profit for June? (Give your answer to the nearest $100.)
2 From an analysis of sales from earlier years, a company statistician determines that the number
of units of a particular product the company sells follows a seasonal pattern with the following
quarterly indices:
First quarter 0.65 Second quarter 0.76
Third quarter 0.82 Fourth quarter 1.77
Deseasonalise a figure of 132 000 units sold in the second quarter, giving your answer to the
nearest 100 units.
3 a It is announced that a particular region had 65 470 people unemployed in January ‘seasonally
adjusted’. If the seasonal index for January is 106.2% what was the ‘real number’ unemployed
for this region in January? (Give your answer to the nearest ten people.)
b In May of the same year the region had 67 140 people unemployed. If the seasonal index for
May is 96% what would the real figure of 67 140 be reported as after ‘seasonal adjustment’?
(Again give your answer to the nearest ten people.)
4 Projecting forward using smoothed data a company analyst finds that the predicted sales figure for
January will be 12 500 units. However this has not allowed for the January seasonal effect. If the
seasonal index for January is 1.18 what does this predict for the number of units sold in January?
5 Projecting forward using smoothed data the statistically astute owner of a number of orchards
predicts that the orchards will produce 16 000 kg of a particular fruit this summer, but he knows
that this prediction has not yet allowed for the seasonal effect of summer. If the summer seasonal
index is 1.48, what does this suggest the actual weight of this fruit from the orchards will be
this summer?
noillatsder/moc.kcotSi
7 A show is held each year over a long weekend, starting on the Friday and finishing on the public
holiday Monday. The attendance figures for four consecutive years are shown in the table below.
a Calculate the seasonal index for each of the four days. (Give your answers as a decimal and
correct to 4 decimal places, e.g. 1.1234.)
b Seasonally adjust the numbers in the attendance column. (Answer to the nearest 10.)
a Given that the seasonal indices are as shown below, calculate the entries for the deseasonalised
weekly takings column, to the nearest dollar.
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
82.42% 96.07% 53.94% 111.87% 145.52% 141.94% 68.24%
b Use a graphic calculator or computer spreadsheet to view a graph showing the deseasonalised
figures, D, on the vertical axis plotted against t on the horizontal axis (t is as shown in the
above table) to confirm that for the variables t and D linear regression would be appropriate.
c Use t and the deseasonalised data, D, to determine the equation of the regression line D = A + Bt.
d Use the regression equation from part c and the seasonal indices to predict the takings for
Monday, Wednesday and Saturday of week 4.
a Use a graphic calculator or computer spreadsheet to view the 5-point moving averages
(M) on the vertical axis plotted against n on the horizontal axis, to confirm that for the
variables n and M, linear regression would be appropriate.
b Use n and the 5-point moving averages, M, to determine the equation of the regression line
M = An + B.
c Create a completed version of the following to calculate the seasonal indices.
d Calculate the missing values in the final column in the first table
e Use this regression equation M = An + B and the seasonal indices to predict the absences for
each day of week five.
f Suggest some real-life events that could make these predictions unreliable.
4 Oct/Nov 36
5 2 Dec/Jan 104 76
6 Feb/Mar 88
7 Oct/Nov 36
8 3 Dec/Jan 107 70
9 Feb/Mar 67
10 Oct/Nov 34
11 4 Dec/Jan 91 64
12 Feb/Mar 67
Seasonal indices
52%
(nearest percent)
2 The rule for converting a Celsius temperature (°C) to the corresponding Fahrenheit temperature
(°F) is
9
F = C + 32.
5
What is the value of the correlation coefficient rCF?
3 What does it mean if the seasonal index for February is 0.87 (or 87%)?
4 Deseasonalise the following raw data given the seasonal indices are as stated.
Increase by 20%
↓
Increase by 40%
↓
6 Counting the year 1998 as zero, the year of manufacture and the asking price of a certain make
and model of vehicle advertised in a newspaper one day in 2014 were as follows:
Year No. 5 13 6 4 4 15 6
Asking price ($) 19 980 44 500 17 000 13 500 11 400 57 300 20 500
Year No. 11 10 7 12 10 6
Asking price ($) 39 000 32 900 25 000 35 700 36 800 25 500
Display these figures graphically with t, the year number in the above table, on the horizontal axis
and p, the asking price, on the vertical axis.
Comment on any relationships shown on your graph.
Use your calculator or a spreadsheet to determine the equation of the line of best fit in the form
p = at + b and use this to predict the likely price in 2014 for a 2007 vehicle of this make and model.
7 Using sales data from previous years a company determines that the quarterly revenues achieved
from sales of its products seem to follow a reasonably steady seasonal pattern with the following
seasonal indices:
1st quarter 0.85 2nd quarter 1.25
3rd quarter 1.12 4th quarter 0.78
The following year the company finds that the quarterly revenue figures are as follows:
1st quarter $752 000 2nd quarter $1 138 000
3rd quarter $1 176 000 4th quarter $694 000
a If the above information is all we know about the company, why are the quarterly revenues
shown above a surprise?
b If we were informed that the company had a big advertising campaign at the start of the
3rd quarter might this make the revenue figures less surprising?
b Use a graphic calculator or computer to view the graph of the seasonally adjusted figures,
which we will call S , plotted on the vertical axis, against t on the horizontal axis, and confirm
that applying linear regression techniques is appropriate.
c Use t and the seasonally adjusted sales figures to determine the equation of the regression line
S = at + b.
d Use this regression equation and the seasonal indices to predict the number of the particular
item sold for each quarter of year 4.
The Preliminary work at the beginning of this book reminded you of simple interest, compound interest
and sequences defined by giving the first term and a recursive rule. WS
The next examples and exercise 3A that follows should serve as a further reminder.
Applications of
Note: The simple interest, $I, earned when $P is invested for T years in an account paying
simple interest
PRT
R% per annum simple interest is given by I =
WS
100
If instead we use R in decimal form we use I = PRT. Using spreadsheets
to calculate interest
For example if the interest rate is 6% the first formula would use R = 6 but the second would
use R = 0.06. WS
Compound interest
EXAMPLE 1
How much interest would be earned in 4 years on an investment of $5000 at 6% per annum
simple interest?
Solution
Using I = PRT with P = 5000, R = 0.06 and T = 4
I = 5000 × 0.06 × 4
= 1200
The interest earned will be $1200.
EXAMPLE 2
What annual rate of simple interest will see an investment of $8000 earn $3600 simple interest
in 6 years?
Solution
Using I = PRT with I = 3600, P = 8000 and T=6
3600 = 8000 × R × 6
3600 = 48 000R
3600
R =
48 000
= 0.075
The required rate of simple interest is 7.5%.
Solution
Using I = PRT with P + I = 11 121.60, R = 0.054 and T = 6
P+I = P + PRT
11 121.60 = P + P × 0.054 × 6
11 121.60 = P + 0.324P
11 121.60 = 1.324P
P = 8400
The initial investment was $8400.
EXAMPLE 4
$25 000 is invested for 4 years with an annual compound interest rate of 6%. Find the amount this
account is worth at the end of the 4 years if the compounding occurs
a annually, b quarterly, c daily.
Solution
a Compounding annually.
There will be 4 compoundings in the 4 years, each of 6%.
Value after 4 years = $25 000 ×1.06 × 1.06 × 1.06 × 1.06
= $25 000 × 1.064
= $31 561.92 to the nearest cent.
b Compounding quarterly.
There will be 4 compoundings each year, each of 1.5% (= 6% ÷ 4).
I.e. 16 in the 4 years
Value after 4 years = $25 000 × 1.01516
= $31 724.64 to the nearest cent.
c Compounding daily.
There will be 365 compoundings each year, each of (6% ÷ 365).
I.e. 1460 (= 365 × 4) in the 4 years
365 × 4
0.06
Value after 4 years = $25 000 × 1 +
365
= $31 780.60 to the nearest cent.
Note: • For convenience, in this book, we will ignore leap years and assume that all years have
365 days.
• Prior to the ready availability of computers and calculators, some banking calculations,
again for convenience, were based on a concept called a banker’s year. This concept takes
a year as being 360 days and consisting of twelve equal months each of thirty days. This
concept is mentioned here for information only, it will not be used in this course.
Solution
There will be 2 compoundings each year, each of 4%.
If the account runs for T years:
$3700 = $2500 × 1.042T
Using the solve facility of some calculators gives T = 4.998 (rounded to 3 decimal places).
It would take 5 years.
Consider an investment of $8000 at 5% per annum simple interest. The annual value of this investment
forms the sequence:
$8000 $8400 $8800 $9200 $9600 …
i.e. an arithmetic progression with first term $8000 and common difference $400.
Recursive rule: T1 = $8000, Tn 1 = Tn + $400.
+
Or, if we want Tn to represent the value after n years, T0 = $8000, Tn + 1 = 1.05 × Tn.
In this way recursive rules can be useful for simple and compound interest situations.
n an n an
1 8000 1 8000
2 8400 2 8400
3 8800 3 8820
4 9200 4 9261
5 9600 5 9724.1
9200 9724.05
1 What will be the value after 6 years of $2000 invested at 6% per annum simple interest?
2 How long will it take for $800, invested in an account paying 7.5% per annum simple interest,
to become $1100?
3 What annual rate of simple interest is needed to see an investment of $5000 become $7500 in
4 years?
4 How much must have been invested in an account paying 8% simple interest if after 6 years the
total interest earned was $1152?
5 What annual rate of simple interest is needed to see an initial investment of $6600 become $7007
in 10 months?
6 A simple interest arrangement of 6.5% per annum sees an initial investment grow to $10 703 in
6 years. What was the initial investment?
Compound interest
7 $4000 is invested at 8% per annum compounded annually. Determine the value of this investment
after 6 years.
8 $500 is left in an account paying 6% per annum compounded six-monthly. How much will this
account be worth 50 years later?
9 How much interest is earned on $50 000 invested for 4 years if the interest rate is 6% per annum
compounded annually?
How much more interest would be earned in the 4 years if instead the interest is
compounded monthly?
10 How much interest is earned on $400 000 invested for ten years if the interest rate is
8% per annum compounded annually?
How much more interest would be earned in the ten years if instead the interest is
compounded daily?
11 How much must be invested now into an account paying 7.5% compound interest, compounded
annually, for the account to be worth $10 000 in five years?
12 If an amount is invested at 6% per annum compound interest, with interest compounded quarterly,
how long would it take for the initial investment to double in value?
13 At a 9% annual compound interest rate, with compounding every six months, how long would it
take for an initial investment of $5000 to first exceed $12 000?
14 Tn + 1 = Tn + 3, T1 = 5.
15 Tn + 1 = Tn - 3, T1 = 5.
16 un + 1 = un + 5, u1 = –10.
17 an = an - 1 + 2.5, a1 = 12.5.
18 Tn + 1 = 2 × Tn, T1 = 0.25.
19 Tn + 1 = 1.5 × T n, T1 = 20 480.
22 Tn + 1 = 2 × Tn + 3, T1 = 5.
25 Tn = an + un where an + 1 = an + 6, a1 = 5,
and un + 1 = un + 5, u1 = 7.
26 Tn = an × un where an + 1 = 2 × an, a1 = 5,
and un + 1 = 0.5 × un, u1 = 163 840.
27 Tn + 2 = Tn + 1 + Tn, T1 = 1, T2 = 1.
28 Tn + 2 = 2 × Tn + 1 + Tn, T1 = 2, T2 = 3.
29 Tn + 1 = (–1)nTn, T1 = 5.
30 Tn + 1 = (–1)n × T n + 2, T1 = 5.
For a nominal interest rate of i per annum and n compounding periods per year,
i n
Effective annual interest rate = 1+ - 1.
n
This is sometimes written as
i n
i effective =
1+ - 1.
n
Readers should check that with suitable rounding this formula does indeed give 0.0609 (i.e. 6.09%),
0.061 36 (i.e. 6.136%) and 0.061 68 (i.e. 6.168%), for i = 0.06 and values for n of 2, 4 and 12
respectively, as quoted above.
and n = 4.
= $108.243 (correct to 3 decimal places) 4
0.08
ieffective =
1+
-1
4
= 0.082 432 16
The effective annual interest rate is 8.243% (correct to 3 decimal places).
Note: If a question simply refers to an annual interest rate of, say, 8%, it should be assumed
that it is the nominal annual rate that is being quoted.
Exercise 3B
1 Copy and complete the following table. (1 year = 12 months = 52 weeks = 365 days.)
2 Copy and complete the following table. (1 year = 12 months = 52 weeks = 365 days.)
3 Looking at your answers for the effective annual interest rates in questions 1 and 2, are the rates
for the 8% situation simply twice those of the 4% situation?
If not, why not?
INVESTIGATE
Another type of interest rate, which at the time of writing is not specifically mentioned in the
syllabus for this unit, is the real interest rate.
Just as the effective rate is the rate once the effects of compounding have been allowed for, the
real interest rate is the rate once inflation has been allowed for.
• Remember that in the display above left, with the first term being the value after zero years, the
8th term will be the value of the investment after 7 years.
Create a spreadsheet like the one shown above right. Try to make your spreadsheet adaptable to
other situations of this type such that by simply changing the amounts in cells D1, D2 and D3 the
annual balances are automatically recalculated.
EXAMPLE 7
At the beginning of one month, $1000 is invested into an account paying interest at 7.5% per
annum, compounded monthly, and an extra $100 is invested at the end of that first month and
the end of every month thereafter. How much is the account worth at the end of the month two
years later, just after the $100 deposit for that month is made? (For the purposes of this question
assume that a year consists of 12 equal months.)
Solution
Initial value = $1000
0.075
Value at end of 1st month = $1000 × 1 +
+ $100 i.e. $1106.25
12
Value at end of 2nd month = $1106.25 × 1.006 25 + $100
Thus with T n the value of the investment at the end of the nth month
Tn + 1 = 1.006 25 × Tn + $100. T0 = $1000.
Either using the facility of some calculators to display the terms of recursively defined sequences,
or by using your version of the spreadsheet shown above right, with appropriate entries suitably
changed (see next page):
Value at end of 24th month = T24
= $3741.96 (nearest cent).
Hence two years after the initial investment, and just after the $100 deposit for that month has
been made, the account will be worth $3741.96.
Some calculators have built-in financial programs that allow some standard financial calculations to be
performed automatically, given appropriate information.
The display on the right shows typical information that would be
displayed for the situation just encountered. Compound Interest
N 24
The N in the display is the number of investment periods, in this
case 24 months. I(%) 7.5
I (%) is the annual interest rate as a percentage, in this case 7.5. PV –1000
The initial investment of $1000 is shown as PV, for present value. Pmt –100
This is shown as a negative amount because from the investor’s FV 3741.964308
point of view it is money being deposited (outgoing), not money
PpY 12
being received.
CpY 12
The additional investment per month (Pmt) is $100, and again from
the investor’s point of view this is shown as a negative (outgoing).
Payments per year and compoundings per year are each 12.
Provided the program has the correct settings, e.g. the payment date set as being at the end of each
compounding period, not at the beginning, when asked to determine the final value ( FV) the calculator
returns the final value as $3741.96, as before.
1 $4000 is invested into an account paying interest at 8% per annum, compounded annually, and
an extra $200 is invested at the end of each 12 months. Thus:
Amount in account at end of 1 year = $4000 × 1.08 + $200 ← T1
Amount in account at end of 2 years = ($4000 × 1.08 + $200) × 1.08 + $200 ← T2
Express Tn 1 in terms of T n and determine (to the nearest cent) the amount in the account at the
+
end of ten years, after the $200 for that year has been added.
2 $5000 is used to open an investment account paying interest at 6% per annum, compounded
monthly, and an extra $100 is invested at the end of each one-month period thereafter. Thus,
the value of the account progresses as follows:
Initially = $5000 ← T0
At the end of 1 month = $5000 × 1.005 + $100 ← T1
At the end of 2 months = ($5000 × 1.005 + $100) × 1.005 + $100 ← T2
a Express Tn + 1 in terms of Tn.
b The account is closed at the end of three years, without the $100 for the end of the final
month being made. Determine the final value of the account.
3 At the beginning of 2014 Tenielle opens a savings account by depositing $2500 into an account
paying 8% per annum, compounded annually. Tenielle plans to follow that initial deposit with
further deposits each of $1000 made at the end of every period of one year thereafter.
Assuming Tenielle keeps to her plans with regards to the further deposits, how much is the
account worth at the beginning of 2025 (i.e. just after the $1000 deposit for the end of 2024
has been made)?
4 At the beginning of 2014 Sanchez opens a savings account by depositing $500 into an account
paying 7.8% per annum, compounded annually. Sanchez plans to follow that initial deposit with
further deposits each of $500 made at the end of every period of one year thereafter.
Assuming Sanchez keeps to his plans with regards to the further deposits, how much is the account
worth at the end of 2020, i.e. just before the $500 deposit is made?
5 At the beginning of one month $5000 is invested into an account paying interest at 9% per
annum, compounded monthly, and an extra $200 is invested at the end of that month and the
end of every month thereafter. How much is the account worth at the end of the month three
years later, just after the $200 deposit for that month?
6 $5000 is used to open an account paying interest that is compounded annually, and an additional
$1000 is to be added to the account at the end of every one-year period thereafter. Using a
spreadsheet, or a calculator able to display the terms of a recursively defined sequence, or financial
programs available on some calculators or internet sites, find the annual interest rate required for
this account to be worth
a $10 000 after 3 years (including the final $1000 payment),
b $100 000 after 25 years (including the final $1000 payment).
Unit cost depreciation of $60 000 per 100 000 units of production
Initial value: $500 000
Value after 100 000 units of production: $440 000
Value after 200 000 units of production: $380 000
Value after 300 000 units of production: $320 000 etc.
Exercise 3D
1 An asset has an initial value of $220 000. Determine its value at the end of each of the first three
years using a flat rate depreciation of $25 000 per year,
b reducing balance depreciation of 15% per year.
2 An asset has an initial value of $80 000. By how much does the asset depreciate in each of its first
three years if the depreciation method used is a flat rate depreciation of $10 000 per year?
b reducing balance depreciation of 20% per year?
3 A printing machine initially worth $30 000 is expected to be worth just $2000 after it has been
used to produce one million copies.
Using the unit cost depreciation method what will be the value of the machine after it has produced
a 250 000 copies? b 500 000 copies? c 750 000 copies?
4 Some calculators with financial capabilities, and some online financial calculators, can work out
depreciation schedules. Investigate.
Solution
Initial amount owed: $7000
Amount owed after 1 year: $7000 × 1.094 - $800 = $6858
Amount owed after 2 years: $6858 × 1.094 - $800 = $6702.65 (nearest cent)
Amount owed after 3 years: $6702.65 × 1.094 - $800 = $6532.70 (nearest cent)
We have Tn + 1 = Tn × 1.094 - $800,
and T0 = $7000
Using the recursion capability of some calculators, or a spreadsheet:
Exercise 3E
1 Use the display on the right to determine what goes in the
blank spaces A to I in the following: Compound Interest
PpY 12
CpY 12
ysedih/moc.kcotsrettuhS
according to the rule
Tn 1 = 1.01(T n) - P,
+
for n ≥ 0,
where T0 = A,
and $Tn is the amount owing after n months.
Find the amount owing at the end of each of the first four months if $50 000 is borrowed at
a monthly interest rate of 1% and $800 is repaid at the end of each month.
5 Hisham takes out a loan for $24 000 agreeing to repay $350 at the end of each monthly period,
after monthly interest is added at 1% of the outstanding balance. How much will he still owe on
this loan after 5 years?
Suppose instead that Hisham had made monthly repayments of $375. How much would he still
owe after 5 years in this case?
7 To the nearest cent what constant monthly amount needs to be repaid to see a loan of $10 000,
with compound interest of 6% per annum compounded monthly, paid off in 2 years?
8 To the nearest cent what constant monthly amount needs to be repaid to see a loan of $50 000,
with compound interest of 12% per annum compounded monthly, paid off in 10 years?
9 To the nearest cent what constant monthly amount needs to be repaid to see a loan of $235 000,
with compound interest of 9% per annum compounded monthly, paid off in 25 years?
10 The spreadsheet below left is for the situation of borrowing $4000, paying interest of 1% per
month and repaying $100 per month. The spreadsheet below right shows the same situation but
now with $150 repaid each month.
A B C D A B C D
1 Amount borrowed $4,000.00 1 Amount borrowed $4,000.00
2 Interest rate per month 1.00% 2 Interest rate per month 1.00%
3 Monthly repayments $100.00 3 Monthly repayments $150.00
4 Balance at end of month 1 $3,940.00 4 Balance at end of month 1 $3,890.00
5 2 $3,879.40 5 2 $3,778.90
6 3 $3,818.19 6 3 $3,666.69
7 4 $3,756.38 7 4 $3,553.36
8 5 $3,693.94 8 5 $3,438.89
9 6 $3,630.88 9 6 $3,323.28
10 7 $3,567.19 10 7 $3,206.51
11 8 $3,502.86 11 8 $3,088.58
12 9 $3,437.89 12 9 $2,969.46
13 10 $3,372.27 13 10 $2,849.16
14 11 $3,305.99 14 11 $2,727.65
15 12 $3,239.05 15 12 $2,604.92
16 13 $3,171.44 16 13 $2,480.97
17 14 $3,103.15 17 14 $2,355.78
18 15 $3,034.19 18 15 $2,229.34
19 16 $2,964.53 19 16 $2,101.63
20 17 $2,894.17 20 17 $1,972.65
21 18 $2,823.12 21 18 $1,842.38
22 19 $2,751.35 22 19 $1,710.80
23 20 $2,678.86 23 20 $1,577.91
24 21 $2,605.65 24 21 $1,443.69
25 22 $2,531.70 25 22 $1,308.13
26 23 $2,457.02 26 23 $1,171.21
27 24 $2,381.59 27 24 $1,032.92
Create such a spreadsheet yourself, or adapt one you have already created, and find how much
needs to repaid per month in order to pay the loan off in exactly two years.
Suppose instead the interest rate was 1.2% per month. How much would need to be repaid per
month now to repay the loan in exactly two years?
grebmoolB/segamI ytteG
Using a calculator with the ability to perform financial calculations,
Compound Interest
or a similar financial capability on a computer or online, we can
determine that their monthly repayments would be $3473.17, to N 300
the nearest cent. I(%) 8
Before entering into such an arrangement John and Maxine PV 450000
would probably have first worked out what they could afford
to pay per month. PMT –3473.172987
Let us suppose that Kym and Hasim have $35 000 saved to put FV 0
down as a deposit on a house. They feel they can afford to pay P/Y 12
$2000 per month towards the cost of a loan. They plan to get
C/Y 12
a loan for a term of 25 years making regular monthly payments
and are told the interest rate is 7.6% per annum compounded
monthly.
What value house can they afford?
Compound Interest
As the display on the right indicates, Kym and Hasim can afford
N 300
a loan of $268 000, to the nearest $1000.
I(%) 7.6
Therefore, with their deposit of $35 000, they could afford a house
costing $303 000 (= $268 000 + $35 000). PV 268273.4425
PMT –2000
FV 0
P/Y 12
C/Y 12
If we round the ∑INT amount shown in the display to the nearest I% 7.6
dollar, we again get $331 388. PV 268000
Wondering where the extra $0.4392 came from?
PMT –1997.961464
Well, one calculation used 300 lots of $1997.96 and the other used
P/Y 12
300 lots of $1997.961 464 ….
Explore your calculator with regard to amortization and investigate C/Y 12
online amortization calculators. BAL
• The slight rounding down of $1997.961 464 to $1997.96 means INT
that in theory there would still be a very small amount ($1.3051)
PRN
remaining on the loan after the 300th payment. In practice, to
clear the loan on the 300th payment, the final payment would be ΣINT –331388.4392
$1997.96 + $1.31, i.e. $1999.27. ΣPRN
The total interest amount of $331 388
(= 300 × $1997.96 - $268 000) quoted at the top of the page has not allowed for this change in the
final payment. Thus a more accurate calculation of the total interest would be
$331 389.31 (= 299 × $1997.96 + 1 × $1999.27 - $268 000),
a total directly obtainable from ∑INT in the amortization calculation with PM1 = 1, PM2 = 300
and monthly repayment of $1997.96.
However, the $331 388 would often be considered a satisfactory approximation.
• Under different rounding regimes slight variations are possible.
If we round each month to the nearest cent, as some online If you do ever think of taking out
amortization calculators do, the final payment becomes a loan to buy a house you should
$1999.06 and the total interest is then seek expert advice specific to
your situation. The work here just
$331 389.10 (= 299 × $1997.96 + 1 × $1999.06 - $268 000). introduces the mathematics.
• Amortization can also be written amortisation. However,
we will use the z spelling here as that is how your calculator
is likely to show it.
6 Juan and Denise borrow $450 000 at a fixed interest rate of 8.34% per annum, compounded
monthly. They plan to pay off the loan in exactly 25 years by making the same monthly
repayments for 25 years.
How much will each monthly repayment be (nearest cent) and how much interest will they pay
in total (nearest $10)?
7 Chris and Terri borrow $380 000 at a fixed interest rate of 7.2% per annum, compounded monthly.
They plan to repay the loan by making the same regular repayments each month for twenty years.
How much will each repayment be (nearest cent) and how much will they repay in total
(i.e. interest plus loan repayment) over the twenty years, to the nearest $10?
How much quicker would they have paid off the loan if they had paid $100 per month more?
INVESTIGATE
In the above cases we have only considered the cost of the house. However other expenses are
incurred when purchasing a house, for example, stamp duty, insurance, settlement agent fees,
purchaser’s share of the rates. Investigate and write a brief report.
1 $8000 is invested for 5 years with an annual compound interest rate of 8%. Find the amount this
account is worth at the end of the 5 years if the compounding occurs
a annually, b quarterly, c monthly.
2 What does it mean if the seasonal index for Autumn is 1.08 (or 108%)?
4 Find the first five terms of each of the following recursively defined sequences.
a T1 = 7, Tn + 1Tn + 12.
= b T 1 = 100, Tn +
T n - 15.
1 =
e T1 = 4, Tn = 2Tn 1 + 3. -
f T 1 = 200, T n 1 = 1.5Tn - 4.
+
80 80
60 60
40 40
20 20
5 10 15 t 5 10 15 t
Graph C Graph D
100 100
80 80
60 60
40 40
20 20
5 10 15 t 5 10 15 t
8 In 1971 one Australian dollar, A$, could purchase approximately 400 Japanese yen.
In 2012 one Australian dollar could purchase approximately 80 Japanese yen.
The average numbers of yen, ¥, that could be purchased for each A$ 1 in each of the years from
1971 to 2012 were approximately as follows:
With the assistance of a computer spreadsheet, display the above data graphically, together with
the five-point moving averages.
Write a few sentences summarising the data.
How does today’s exchange rate compare?
INVESTIGATE
How much does a person need to have saved in superannuation to live comfortably in retirement?
What sort of annual income will a retired couple require?
What does the internet suggest as answers to these questions?
When a person is employed their employer must pay a certain percentage of their wage into
a superannuation account. Thus during the employment years a person’s superannuation account is
in its accumulation phase. Then, when the employee retires, they draw money from the superannuation
account as a self-funded pension, possibly supplemented by the government pension, to give them an
income in retirement. The superannuation account is then in its pension phase. Of course in both the
accumulation phase and the pension phase any funds in the account can earn interest. Thus in the
pension phase interest is earned by the account and, at the same time, money is periodically withdrawn
from the account.
Annuities At retirement Susie invests the $750 000 she has saved in her superannuation account in an account
giving interest of 6% per annum compounded annually from which she will withdraw $60 000 after
one year, and after each year thereafter. How much will be left in the account immediately after the
tenth withdrawal (rounded to the nearest dollar)?
If she wants the account to last her at least 35 years, withdrawing a constant amount each year,
what should this constant amount be (rounded down to a multiple of $100)?
Solution
Initial amount invested: $750 000
Account balance after 1 year: $750 000 × 1.06 - $60 000
Account balance after 2 years: ($750 000 × 1.06 - $60 000) × 1.06 - $60 000
We have Tn + 1 = Tn × 1.06 - $60 000,
and T0 = $750 000
Using the recursion capability of some calculators,
a spreadsheet or the inbuilt financial programs of some an+1 = 1.06•an – 60000
calculators, we find that: a0 = 750000
Immediately after the tenth withdrawal there will be bn+1 =
$552 288 in the account, to the nearest dollar. b0 = 0
cn+1 =
c0 = 0
n an
6 6.5E+5
Compound Interest 7 6.2E+5
8 6.0E+5
N 35 9 5.8E+5
10 5.5E+5
I(%) 6
552288.075864291
PV –750000
Pmt 51730.39423
FV 0 Varying the withdrawal amount to reduce the balance to zero in
35 years, or using a calculator with an inbuilt financial capability,
PpY 1
we can determine that Susie can withdraw up to $51 700 each
CpY 1 year (rounded down to a multiple of $100) for the account to
last at least 35 years.
rimogarD nailuI/moc.kcotsrettuhS
$500 000
$450 000
$400 000
$350 000
$300 000
$250 000
$200 000
$150 000
$100 000
$50 000 Annual payment of $51 730.39
5 10 15 20 25 30 35
Can your calculator display a graph of this type from the terms of a recursively defined sequence? Investigate.
Annuities
In the previous example Susie managed her own income stream by making a deposit into an account,
withdrawing a fixed amount each year to live on and allowing the balance of the account to earn
interest. A compound interest investment from which regular payments are made for a fixed period
of time is called an annuity.
Making regular payments to pay off a loan, as encountered in the previous chapter, is a bit like an annuity.
The finance company invests money with us in the form of a loan and we make regular payments back.
However the word annuity is usually used in the context of using a sum of money to set up a regular income.
By making a one-off payment a person can enter into an annuity arrangement whereby they will
receive a guaranteed fixed regular amount for an agreed period of time. Such arrangements can be very
useful for generating a steady income in retirement.
Fixed term annuities make regular payments for a fixed period of time. If the person who purchased
the annuity dies before the end of the fixed period of time the remaining payments, or the remaining
balance, would pass to a beneficiary.
Whole life annuities make regular payments to the purchaser of the annuity for as long as they live.
Under this sort of annuity the payments stop when the person dies, i.e. upon the death of the purchaser
such an annuity has no residual value. If the person dies soon after the annuity commences the finance
company ‘wins’ but if the person lives well beyond normal life expectancy the person ‘wins’. Life
annuities can be seen as an insurance in case one lives a long time. Even if the person does live a long
time, regular income is assured. The finance company spreads the risk of paying out for more years
than expected by having annuities with a lot of people.
EXAMPLE 2
A person wishes to deposit $200 000 into an account that will earn interest of 8% per annum,
compounded annually, withdrawing $25 000 at the end of the first year, $25 500 at the end of the
second year, $26 010 at the end of the third year, and so on with each annual withdrawal being
a 2% increase on the withdrawal of the previous year.
a What will be the balance of the account immediately after the fifth withdrawal?
b How long will it take for the balance in the account to reduce to zero?
Solution
a Initial amount invested: $200 000
Account balance after 1 year: $200 000 × 1.08 - $25 000 I.e. $191 000
Account balance after 2 years: $191 000 × 1.08 - $25 000 × 1.02 I.e. $180 780
Account balance after 3 years: $180 780 × 1.08 - $25 000 × 1.022 I.e. $169 232.40
We have Tn + 1 = T n × 1.08 - $25 000 × 1.02n,
and T0 = $200 000
Using a calculator able to display the terms of a recursively defined sequence, or a spreadsheet,
or by working the terms through:
T4, the account balance after 4 years = $156 240.79 (nearest cent)
T5, the account balance after 5 years = $141 679.25 (nearest cent)
Immediately after the fifth withdrawal the balance will be $141 679.25.
Perpetuities
Suppose we invest $5000 in an account paying 8% per annum compounded annually, and we withdraw
$400 at the end of each year.
Initial amount invested: $5000
Account balance after 1 year: $5000 × 1.08 - $400 I.e. $5000.
Account balance after 2 years: $5000 × 1.08 - $400 I.e. $5000.
Account balance after 3 years: $5000 × 1.08 - $400 I.e. $5000. Etc.
In this case the annual withdrawal of $400 could continue forever because each year the interest earned
exactly equals the amount paid out. This sort of annuity is called a perpetuity, the word perpetuity
meaning lasting forever.
Consider the case, for example, of someone wishing to fund an annual award of $400 to be given to
a deserving student in a school for some reason. By donating $5000 into an account paying 8% per
annum the interest produced will fund the award forever, i.e. in perpetuity, endlessly.
Exercise 4A
1 An ex-pupil of a school wishes to invest a sum of money into an account paying 7.5% interest,
compounded annually, so that every year thereafter $600 can be made available from the account
as an award to a deserving student.
Explaining your reasoning determine how much money needs to be invested to make this
perpetual award possible.
2 Someone who has made their fortune from mining wishes to set up an account that will allow
a research grant of $75 000 to be paid every year thereafter to fund research at a University School
of Mines Department. So that the grant can be perpetual the account, which pays 8% per annum
interest, compounded quarterly, needs to generate annual interest of at least $75 000.
Explaining your reasoning determine how much the initial ‘one-off’ investment needs to be
(rounded up to the next dollar).
3 What initial investment is required into an account that pays annual interest of 6%, compounded
monthly, if the interest earned each year is to pay for an annual perpetual award of $15 000?
5 At retirement, Kelvin invests the $620 000 he has in his superannuation account in an account
giving interest of 5.8% per annum compounded annually, from which he will withdraw $50 000 at
the end of every twelve months to live on. Using a recursive rule determine how much will be left
in the account immediately after the tenth withdrawal (rounded to the nearest ten dollars).
For how many years will Kelvin be able to withdraw $50 000 per year?
For how many years would Kelvin have been able to withdraw $50 000 per year if instead the
interest rate had been 7.8%?
6 Julie is left $765 000 in a will and decides to invest $700 000 of this money in an account paying
5.4% interest compounded annually. Julie plans to retire early and use this money to live on by
withdrawing $50 000 at the end of the first year and each year thereafter until the account balance
is exhausted. Use a recursive rule to determine for how many years will she be able to withdraw
$50 000 from this account.
If instead Julie withdrew $45 000 at the end of each year for how many years could she do this?
Can you foresee any problems with the plan to withdraw a constant amount each year for a long
period of time?
7 Use the financial capability of some calculators or computer programs to determine, to the nearest
dollar, how much should be invested in an annuity earning 12% annual interest, compounded
annually, to provide a regular annual income of $45 000 for exactly 25 years. (The first payment is
to be at the end of the first 12 months).
8 Repeat the previous question but now for an interest rate of just 6% per annum compounded
annually.
9 Use the financial capability of some calculators or computer programs to determine, to the nearest
dollar, how much should be invested in an annuity earning 8% annual interest, compounded
monthly, to provide a regular monthly income of $3000 for exactly 20 years. (The first payment is
to be at the end of the first month).
10 Repeat the previous question but now for an interest rate of just 5% per annum compounded
annually.
12 A finance company offers an annuity in which a person deposits a lump sum of $500 000 into
an account and interest is compounded monthly at the rate of 0.4% per month. At the end of the
first month and every month thereafter, the account pays out $4000 with the final payment, which
might be less than $4000, reducing the balance to zero. (In the event of the death of the annuity
holder remaining funds will be paid into the estate of the deceased.)
a Use a recurrence rule to determine how many $4000 payments will be made and what the
final payment will be (assuming the person does not die in the meantime).
b Repeat part a but now determine the answer using a calculator with financial capability
or computer based financial software.
13 To the nearest dollar, how much should be invested in an annuity paying 10% annual interest,
compounded annually, to provide a regular annual income of $42 000 paid at the end of each year,
for exactly 25 years?
Determine the answer by
a using a recursive formula with an initial ‘guess’ of $400 000
b using the financial capability of some calculators or computer programs.
14 Tony wins $500 000 on the lottery and decides to use $400 000 of it to purchase a 15-year annuity
that pays a fixed amount every year for fifteen years, commencing one year after the initial
purchase. The annuity adds interest to the account balance at 8% per annum, compounded
annually, and deducts the regular payment at the end of each year. At the end of the 15 years
the account balance is zero.
How much does Tony receive each year (to the nearest dollar)?
Determine the answer by
a using a recursive formula with an initial ‘guess’ of $50 000
b using the financial capability of some calculators or computer programs.
jalaT/moc.kcotSi
16 A person wishes to deposit $250 000 into an account that will earn interest of 7.5% per annum,
compounded annually, withdrawing $25 000 at the end of the first year, $26 000 at the end of the
second year, $27 040 at the end of the third year, and so on with each annual withdrawal being
a 4% increase on the withdrawal of the previous year.
a What will be the balance of the account immediately after the eighth withdrawal?
b How long will it take for the balance in the account to reduce to zero?
EXAMPLE 3
Suppose that $250 000 is invested into an account paying 8% interest, compounded quarterly,
with $40 000 withdrawn from the account at the end of the first year and at the end of every
year thereafter.
Determine the balance of the account immediately after the sixth withdrawal.
Solution
Initial amount invested: $250 000
Account balance after 1 year: $250 000 × 1.024 - $40 000 I.e. $230 608.04.
Account balance after 2 years: $230 608.04 × 1.024 - $40 000 I.e. $209 617.56 (nearest cent)
We have Tn + 1 = Tn × 1.024 - $40 000,
and T0 = $250 000
n an
Compound Interest
2 2.1E+5
N 6
3 1.9E+5
I(%) 8 4 1.6E+5
5 1.4E+5
PV –250000 6 1.1E+5
PMT 40000 106866.654903457
FV 106866·6549
P/Y 1
C/Y 4
Notice that in the previous example our use of the multiplication factor 1.024 brought our quarterly
compounding up to its equivalent effective annual compounding and thereby had the frequency of
compounding matching the frequency of payment.
Now suppose that payments occur more frequently than compounding. For example payments
occurring every quarter, compounding occurring annually and an annual interest rate of 8%. We
can again adjust the compounding period to match the payment period by finding the quarterly
multiplication factor that will produce an annual compounding of 8%. This quarterly multiplication
factor is 1.019 426 547 because,
if x4 = 1.08 then x = 1.019 426 547.
However, whilst we would need this equivalent multiplication factor if we were using a recursive
approach, the use of a calculator with built-in financial capability gives a ready alternative that avoids us
having to calculate this figure, as shown in the next example.
rimogarD nailuI/moc.kcotsrettuhS
Suppose that $250 000 is invested into an account paying 8% interest, compounded annually,
with $10 000 withdrawn from the account three months later and a further $10 000 each
quarter thereafter.
Determine the balance of the account after three years.
Solution
The display shows that after 3 years (12 quarterly
Compound Interest
payments of $10 000, i.e. 4 payments per year) an account
paying 8% interest per annum, compounded annually N 12
(1 compounding per year), and initially worth $250 000, I(%) 8
will be worth $181 238.775 after three years.
PV –250000
PMT 10000
FV 181238·775
P/Y 4
C/Y 1
2 For this question use a recursive approach (or a spreadsheet of your own creation) and make
$500 000 your ‘first guess’ at the amount invested.
To the nearest dollar, how much needs to be invested in an account paying interest of 6% per
annum, compounded quarterly, for $45 000 to be withdrawn at the end of every year for 25 years?
5 Upon retirement John switches his superannuation fund of $480 000 into an account paying
9% per annum compounded monthly. After three months, and every three months thereafter John
wants the account to pay him $15 000, for as long as possible.
How many payments of $15 000 will this scheme allow John to receive and what will be the final
payment that closes the account?
RESEARCH
Do some research and write a brief report on some of the following questions.
• What incentives and rules does the Government of Australia put in place to ensure / encourage
people to put money into superannuation?
• What is the current average balance that people have in superannuation?
• Why is an ageing population a challenge for governments?
• What is the retirement age in Australia? What is it in other countries?
rebmoCcMsalociN/moc.kcotSi
or at least reduce her hours somewhat.
She asks for your advice regarding how long the money would
last under each of five schemes she has in mind.
Determine how many months she could withdraw the stated
monthly withdrawal in each of the following schemes.
Scheme 1 Put the money in a box under the bed and withdraw $1500 each month to live on.
Scheme 2 Invest the entire $120 000 in an account paying 8% interest per year, compounded
monthly, and withdraw $1500 at the end of each month to live on.
Scheme 3 Same as scheme 2 but this time suppose the account pays interest of 9% per annum
compounded monthly.
Scheme 4 Use $20 000 of the $120 000 to pay for flights
and accommodation for an around the world holiday,
invest the rest in an account earning 9% per annum
otohPnakuS/moc.kcotsrettuhS
interest, compounded monthly, and withdraw $1500
each month during the holiday and thereafter.
1 How much interest is earned in four years if $4000 is invested in an account paying 12% per
annum compounded monthly?
2 A time series graph showing the number of people attending a particular music festival each year,
for ten years, suggested that linear regression could be used to summarise the relationship between
N, the numbers attending, and t the year number where t = 1 is used for the first year in the ten-
year period.
The least squares regression line for the data had equation:
N = 855t + 9459
Interpret the ‘855’ in this equation.
3 Giving each answer as a percentage correct to three decimal places, calculate the effective interest
rate if the annual nominal rate is 6% and interest is compounded
a quarterly, b monthly, c daily.
4 To the nearest cent, what ‘one-off’ lump-sum payment must be invested into an account paying
compound interest of 8% per annum compounded quarterly for the investment to be worth $5000
two years later?
5 If we use the recursion relation Tn 1 = Tn × 1.065, T0 = $4300, the value of Tn gives the value of an
+
account n years after a deposit was made to open the account, with interest compounded annually.
a What was the amount of the deposit?
b What was the annual interest rate?
c Find the balance of the account after interest had been added at the end of the sixth year
(to the nearest cent)?
d What annual interest rate would achieve the balance that was the answer to part c but after
just two years? (Give your answer as a percentage correct to three decimal places).
6 The table below relates to a savings account which Waylon opens by making an initial deposit and
then adding a further fixed amount at the end of each month.
Interest earned is compounded monthly with the same monthly interest rate throughout.
Determine the initial investment, the fixed monthly interest rate and the fixed monthly deposit.
c Use the ordered pairs (t, S) to determine the equation of the regression line
S = At + B.
d Use this regression equation and the seasonal indices to predict sales for the three 4-month
intervals of 2015.
(A spanning tree of a graph is a subgraph that connects all of the vertices and is itself a tree.)
The spanning tree shown requires a total length of 85 km (= 11 km + 7 km + 22 km + 8 km + 10 km
+ 9 km + 10 km + 8 km).
E
23
B 35
12
25
23 30
10 H
25 F
20 C
A 17
34 27
15
33
21 G
D
1 B 94
G
26 40
30 E 20
33
40 C 50
A H
26
40
30
23
52
50
F
D
2 C 400 G
220
B 500
150
200 250 F 600
300 I
A 270
400 D 200 370
280 H
250
E
3 30
20
14 22
30
11
23
30
12
17 15
20 15
14 25
19
4 20 16
5
30 14 19
23
15
8 18
9
10
14
12 18 17
13
18
45
G 40
40
40
A 42 C 22
30 E 45 I
25 35 16
36 60
B 50 D
6 320
220 700
320
250
270
300 420
300
360 150
550
200
330
240
200
7 A market gardener wishes to replace the old piping currently connecting his seven-outlet
irrigation system. Rather than replacing all of the existing piping he wishes to replace the system
with the minimum total length of piping that will keep all seven outlets connected, either directly
or indirectly. He will then close off those unnecessary parts of the existing system.
The graph on the right shows the existing G 100 F 55 E
system. Points A to G are the outlets and the
numbers indicate the length of each section 40 45
50 120 65
in metres.
C 80
115 D
Which sections should he replace with new A
piping, which should he close off, and what 35 90
120
total length of new piping will be needed?
B
65 A2 55 B1 50
P2 P1
70
75 35 30
40 40
60 50
A1 A3
B2
40 60
70
Paths are to be built so that all of these features are linked. On a copy of the above diagram
indicate the network of paths that spans all of the features whilst minimising the total length
of pathway.
What is this minimum length of pathway?
9 The network below shows the system of tunnels that exist linking the seven entrances of an old
silver mine. The numbers on the edges show the length of each section of tunnel in metres.
C 80 D
30
50 75 55
B 45
100
E
eseorfynnad/moc.kcotSi
G
40 60
55
65
80
A
F
The mine is a popular tourist attraction but all of the tunnels are in need of repair if they are
to remain open for visitors.
The owners cannot afford to repair all of the tunnels so instead decide to repair the minimum
total length possible, while still allowing entrance to the repaired system to be possible from all
seven of the existing entrances.
The tunnels not being repaired will then be closed off to visitors.
They ask you to determine which tunnels should be repaired and which shut down.
a On a copy of the network show the tunnels the owners should repair.
b What is the total length of tunneling that will be closed off to visitors?
1 A B C D
2 A B C D E
A – – 21 20 A – 38 – 62 32
B – – 39 35 B 38 – 37 – 35
C 21 39 – 24 C – 37 – 40 22
D 20 35 24 – D 62 – 40 – 41
E 32 35 22 41 –
3 A B C D E F
4 A B C D E F G
A – 450 – – – 470 A – 2.6 – – – 3.6 4.0
B 450 – 300 – – 400 B 2.6 – 5.0 – – – 2.8
C – 300 – 500 200 400 C – 5.0 – 5.0 3.0 – 3.5
D – – 500 – 420 700 D – – 5.0 – 5.3 – –
E – – 200 420 – 310 E – – 3.0 5.3 – 5.7 3.9
F 470 400 400 700 310 – F 3.6 – – – 5.7 – 2.8
G 4.0 2.8 3.5 – 3.9 2.8 –
5 A B C D E F G H I
A – 650 – – – 370 400 – –
B 650 – 600 – – – 340 350 –
C – 600 – 220 – – – – 380
D – – 220 – 560 – – – 390
E – – – 560 – 700 – 300 210
F 370 – – – 700 – – 410 –
G 400 340 – – – – – – –
H – 350 – – 300 410 – – 250
I – – 380 390 210 – – 250 –
Name the five roads that would be used in your C – 9.5 – 6.1 7.0 5.3
minimum spanning tree. D 8.9 – 6.1 – 3.5 –
E – – 7.0 3.5 – 3.8
F 9.1 4.5 5.3 – 3.8 –
A B C D E F G H
A – 4.2 – – 7.2 4.1 – –
B 4.2 – 6.0 – – 2.0 – –
C – 6.0 – 4.4 – 6.3 3.0 –
D – – 4.4 – 6.8 – 5.0 6.0
E 7.2 – – 6.8 – – – 2.3
XFLOG/moc.kcotSi
F 4.1 2.0 6.3 – – – 3.5 2.8
G – – 3.0 5.0 – 3.5 – 2.5
H – – – 6.0 2.3 2.8 2.5 –
Find the minimum cost of the spanning tree if the D $410 $310 $140 0 $190 $100
cost of the direct cable links between vertices are E $210 $145 $315 $190 0 $115
as in the table on the right. F $325 $225 $200 $100 $115 0
kesuzi/moc.kcotSi
a Based on these distances determine the minimum length of track required for this network.
b In this ‘minimum length network’ which six pairs of towns would have a direct rail link?
(By direct rail link we mean able to journey from one town to the other without having
to pass through any of the other towns on the way.)
10 The table below indicates the distances, in kilometres, along roads that exist between ten locations,
A to J. (A dark shaded cell in the table indicates that there is no direct road between the locations.)
A B C D E F G H I J
A 60 30 70
B 45 20 40
C 65 28 35 30
D 60 65 46 18 20 43
E 30 45 46 42
F 20 18 42 41
G 70 20 38
H 28 43 38 54
I 35 54
J 40 30 41
The roads are in need of upgrading and it is decided that, rather than upgrade all of the roads, only
those roads needed to ensure that all ten locations are linked by upgraded roads, either directly or
indirectly, will be upgraded.
Which roads should be upgraded if the total length of road to be upgraded is to be kept to
a minimum and what would this minimum length be?
1 The following employment data gives the number of people in full-time employment in Australia
each quarter from January 2010 to April 2013, with the exception of July 2011 for which the
information is missing from the table.
a Use linear regression techniques to determine the equation of the least squares line of best fit,
N = an + b.
b Interpret your value of a in your answer for part a.
c Use your regression line to predict the employment figure for July 2011 and for January 2015
stating which answer you would expect to be the more reliable and why.
d View the given data on a graphic calculator or computer and write some appropriate comments.
2 In an attempt to determine how long an investment of $350 000 placed in an account paying
6% per annum, compounded monthly, would last if $1500 was withdrawn after one month and
at the end of every month thereafter, Jim put this information into a financial calculator, as
shown below left. When he asked the calculator to determine N, the number of withdrawals the
calculator returned ‘Error’, as shown below right. Explain.
I% 6 I% 6
PV –350000 PV –350000
FV 0 FV 0
P/Y 12 P/Y 12
C/Y 12 C/Y 12
4 To the nearest cent, what ‘one-off’ lump-sum payment must be invested into an account paying
compound interest of 8% per annum, compounded monthly, for the investment to be worth
$5000 four years later?
5 Amy takes out a loan of $15 000. Interest of 8.2% of the outstanding balance is added at the end
of each year and then Amy’s regular annual repayment of $2500 is taken from the outstanding
balance.
a How much does Amy still owe on this loan immediately after she makes the $2500 repayment
at the end of year six?
b If instead Amy wishes to pay the loan off in the six years what does her regular annual
repayment need to be?
C C
When the network is reasonably simple we can determine the maximum flow by mental reasoning
as we have done above. However, for more complicated networks we need a procedure, or algorithm,
to follow. Before such an algorithm is suggested for you, try to develop a procedure for yourself to
determine the maximum flow through the network below from a source at A to a sink at G. The
network shows the units of electrical power that can be delivered along the various links between
relay stations.
200
C F
Note: In reality, in situations like these there is often more than one source from which we can obtain
the water or the power or whatever it is that is involved. In addition there is frequently more
than one sink where this water or power is required. However, in this book we will restrict our
attention to situations in which there is just one source and just one sink.
C 280 F
450
400 200 G 600 H
200
300 B 150 E
A
200 150 150
100
To approach the problem systematically we consider the separate routes in turn, from the top of the
diagram to the bottom. We send the maximum flow we can along each route and note the remaining
capacity of each pipe involved.
Consider route ACFGH. C 280 F
450
This route can carry a maximum of 280 400 200 G 600 H
units (because that is all that CF can carry). B E
200
A 300 150
D
0 20
20
We can send 100 units along ADH. C 280 0 F 170
150
30 170
120 450 320
400 130 0 50
70 G 600 H
200
150 0 200
300 B 150 E
A
180 50 0
200 130 50
100 0 150 150
Notice in this diagram that 680 units (the maximum flow) leaves A, 680 units arrives at H
and at all of the other vertices the total number of units entering is the same as the total
number leaving.
D
• Considering separate routes, one after another, will not necessarily guarantee that we obtain
the maximum flow.
For example, in the network on the right, if we were to B
consider route ABDC first and direct 40 units along 40 50
40
this route, we obtain a total flow of just 40 units,
A C
which is clearly not the maximum. To direct 40 units 40 D 40
along ABDC in this way is clearly not the wisest thing
to do but in some more complicated networks the ‘wisest’ strategies may not be so obvious.
However, the method outlined here, with a little common sense applied, should give the
maximum flow for most networks you are likely to meet in this course. Later in this chapter,
we will see a way of checking our value to see if it is the maximum flow.
EXAMPLE 1
1 100 80 60 2 B
A B C X 40 30
A X
60
3 B 4 B
50 40
40 50
30 10 40 X
A
A X C
60 40 30 20
C
D
For each of the networks shown in questions 5 to 10 use a systematic approach to determine the
maximum flow from the source at A to the sink at Z.
5 C 350 D 6 B 150 E
7 C 8 D
B
B 50 E
9 B 10 E 30 B
250 100 10 55
10 30
100
250 100
Z
A C Z 100 F A
E 300
100 50
250 250 65
D 200 F D 70 C
14 The network shown below represents a system of water pipes connected to a main supply at A.
The arcs in the network represent the pipes in the system and the numbers on the arcs give the
maximum capacity of that section of pipe in units per minute.
B 6 E
7 8
5 2
A G
4 7
D
5 6 4 5
C 6 F
What is the maximum amount of water that could be delivered at point G per minute given that
the only restriction is the capacity of the pipes?
One of the three 5-units-per-minute pipes is to be upgraded to an 8-units-per-minute pipe.
What would be the effect of each of these three possible upgrades on the maximum flow at G?
First draw vertical lines through the source on the left and through the sink on the right. A cut is then
made by starting above the network and drawing a line that cuts only arcs of the network and finishes
below the network. (The cut disconnects source from sink.)
The value, or capacity, of the cut I II
C 280 F
is found by summing the cut arcs.
450
400 200
The diagram on the right shows two G 600
200 H
such cuts, I and II, and their values. 300 B 150 E
A
The next diagram shows two more cuts, 200 150
100 150
III and IV.
D
Note that IV cuts EF from ‘below to 800 730
above’ (imagine EF horizontal with
its direction of flow being from left to III IV
C 280 F
right, i.e. source to sink). This is not 450
included when determining the value 400 200 G 600
200 H
of the cut. (The value comes from those 300 B 150 E
arcs that are cut from ‘above to below’.) A
200 150
100 150
We can use the fact (not proved here)
that the maximum flow equals the 900
730 D
minimum cut to check our maximum
flow. A cut value and a flow value can
V
only be the same when the cut value C 280 F
is a ‘min’ and the flow value a ‘max’. 450
400 200
Hence, if we can find a cut equal to G 600
200 H
our maximum flow then our value 300 B 150 E
A
must indeed be the maximum. 200
100 150 150
When we met this network earlier
we calculated the maximum flow as 680 D
The networks below were all encountered in Exercise 6A. For each network confirm the stated
maximum flow by finding a cut of the same value.
2 C 350 D 3 B 150 E
300 200
400 200
100
A 100 100 40 Z 170
A C Z
200 100
150
250 400
50 E
B D
4 C 5 D
B
B 50 E
Maximum flow 500 units
Maximum flow 170 units
6 B 7 E 30 B
250 100 10 55
100 10 30
250 C 100
Z
100 F A
A E Z
300
100 50 65
250 250
D 70 C
D 200 F
Maximum flow 100 units
Maximum flow 550 units
Year 1 Year 2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
688 498 248 406 733 632 352 483
3 (Use a calculator with a built-in facility to calculate compound interest calculations or a suitable
online finance calculator.)
A loan of $500 000 is taken out to finance the purchase of a house. Interest is charged at 8.5% per
annum with interest compounded monthly.
a How much must be repaid per month if the loan is to be paid off in 25 years?
b What is the total amount of interest paid in the 25 years? (Answer to the nearest $10.)
4 A ‘one-off’ investment to open a savings account, in which interest is calculated annually, is such that
if n years later the value of the account is $Tn then the value one year after that, $Tn 1, is such that +
5 Under a reducing balance (fixed percentage) depreciation scheme of 12% per annum, how much
does an asset initially worth $120 000 depreciate in each of its first three years?
B4
I6
A5
C4 H4
D6 G1 J3
E7
F2
• In this network the ten tasks are labelled A to J and are represented by the directed edges, or arcs.
The number on each arc shows the time in days that is allowed for the task.
• The network indicates any task that must be completed before another can commence. Thus
task H, for example, has 4 days allowed for it and requires task B to be completed before it can be
commenced (and task B required A to be completed before it could be commenced). Provided these
‘prior task commitments’ are met other tasks can be going on at the same time. For example tasks A,
D and E can all be going on at once.
What is the least number of days required for the job to be completed according to the time allocations
on the above schedule?
Poor weather may cause task C to take 6 days rather than 4. If this occurs what will be the least number
of days for the job now?
If task I were to be completed in 5 days rather than 6, and all others were to be completed using the
allotted time, what will be the least number of days for the job now?
If task J were to be completed in 1 day rather than 3, and all others were to be completed using the
allotted time, what will be the least number of days for the job now?
llewnraB luaP/moc.kcotsrettuhS
EXAMPLE 1
Find the minimum completion time and the critical path for the project network shown below.
The arcs P, Q, …, Y represent the tasks involved and the numbers on the arcs indicate the time in
hours that the task requires.
Q8 U3 W9 V18
R8
P6 X4 Y6
S12
T9
What is the maximum number of extra hours that could be allocated to task S, over and above the
12 in the network, without extending the minimum completion time?
Solution
Work through the network from the start and at each vertex record the least time needed to reach
that stage in the project with all prior tasks completed. Check that you understand the placement
of the numbers in the circles below.
Earliest this stage can be Earliest this stage can be reached is
reached is 6 hours into 14 hours into the project, to allow
the project, to allow task prior tasks (Q and P) to be finished.
P to be finished. 14
Q8 U3 W9 V18
R8
0 6 18 23 32
P6 X4 Y6
S12
T9
Earliest this stage can be reached is 18 hours into the project, to allow prior tasks U, R and S
(and hence Q and P as well) to be finished. The critical path to this stage will be P-S because
that requires the full 18 hours. Other paths require less and thus have some ‘room for delay’
(P-R requires 14, P-Q-U requires 17). This ‘room for delay’ is known as float or slack.
14
Q8 14
U3 W9 V18
R8
0 6 18 23 32
0 P6 6 22 X4 26 Y6 32
S12
T9
26 (= 32 – 6) is the latest time that we can reach this stage and still
complete the project in 32 hours, the minimum completion time.
Earliest this stage can be reached with all prior tasks complete is 23 hours
into the project. Thus there is some slackness available here.
Any vertex for which the earliest time the vertex can be reached is the same as the latest time the
vertex can be reached lies on the critical path. If we journey from start to finish, through such
vertices we can obtain the critical path, P-Q-V. If any of these tasks are delayed the minimum
completion time will be extended.
Consider task S and notice that this task will be ready to start 6 hours into the project and does not
have to finish until 22 hours into the project. Thus we could allow 16 hours for this 12-hour task.
Thus we could allocate an extra 4 hours for task S, over and above the 12 in the network. Task S is
said to have a float, or slack time of 4 hours.
Consider task X. We say that X has an earliest start time (EST) of 18 hours and a latest start time
(LST) of 22 hours (26 - 4). X has 4 hours float.
Consider task W. It has an earliest start time (EST) of 14 hours and a latest start time (LST)
of 17 hours (26 - 9). W has 3 hours float.
All activities on the critical path have zero float time.
Note: • In the above example the diagram is drawn twice and comments are included in boxes.
The reader would not have to include such comments and would only need one diagram.
• The float, or slack, considered here is the time by which an activity can be delayed, from
its early start time, without altering the project’s minimum completion time. It is sometimes
referred to as the total float of an activity.
The numbers in the circles may at first glance give the impression that there is no float, or
slack, in the system but with two arcs from the second vertex to the third vertex the critical
path is determined by taking task C, the task that takes the greater time. Thus A - C - D is
the critical path. Task B has 2 units of float, a fact that can be missed if we only look at the
numbers in the circles.
Exercise 7A
1 The times for tasks P to Z shown in the project network below are in days.
R4
S4 X4
Q5
P7 W3 Y1
T6 U7
Z4
V4
2 The times for tasks A to H shown in the project network below are in hours.
B7
A4 C3 G3
D1
E1
F2 H5
C5 J3
A3 K3
E4 H4
N2
D2 F3 L3
G4 M5
4 The times for the tasks P to Z shown in the project network below are in hours.
Q7 R5
T6
P6
S5 U 13
Z7
W 11 V9
Y2
X7
B7 H8
C9
A7 G8 J6
D6
E 10 F 10
6 The times for tasks P to Z shown in the project network below are in hours.
S 25
R 12
P 20 Q 17
U 18 W 17
T 10 V 10 Z 10
X 20 Y 15
T8
P5 U4 Y4
Q5 V5
R5
Z5
W5
S6
X6
a Determine the minimum completion time and critical path(s) for the above project network.
b How much slack time do activities Q and R have?
8 The times for the tasks shown in the project network below are in days.
C 20 H6
G9
A3
J 10
D 10 E8
K8
B5
F 17
10 A cook prepares a meal consisting of casserole, dumplings, fruit salad and chilled wine according
to the project network shown below.
Prepare meat and veg Cook meat and veg
20 mins 75 mins
a If the meal has to be ready for 6 p.m. what is the latest time that the first activity can commence?
b What is the latest time that the warm wine can be placed in the fridge for chilling?
c With the wine in the fridge and just as she puts the meat and veg in the oven to cook and is
about to start preparing the dumplings, the cook’s phone rings. What is the maximum time
she can spend on the phone without delaying the completion time? (Assume that she cannot
prepare the dumplings and be on the phone at the same time.)
ONICNAG/moc.kcotSi
EXAMPLE 2
Construct a network for a project consisting of activities A to H listed below.
Solution A
Activities A and B start together:
B
C
Activities C and D can both commence
A
when A is complete:
D
B
C
Activities F and E can both commence
A F
provided both B and D have finished:
D
B E
C
Activity G can commence provided C G
A F
and F are both complete:
D
B E
C
Activity H can commence provided E G H
and G are both complete: A F
D
B E
C8
Complete the project network by adding G5 H3
the final circle, the arrows and the A7 F4
D3
activity times:
B9 E7
C
With B in place tasks C, D and E follow: D
B
A E
C
Tasks G and H can be placed: D
B
A E
G
F
H
C
The remaining tasks can be placed: D
B
A E I J
G
F
H
C10
And the network can be completed: D3
B4
A7 E4 I5 J4
G3
F6
H7
8 A company decides to interview three of the many applicants for a job. The three people are
Mr James, Ms Kerry and Ms Maine.
The interview process will involve the following tasks:
10 A printing company has the job of printing a book for a client. Once they receive the original
pages from the client they carry out the following activities:
ydribbm/moc.kcotSi
that it has an aircraft at an airport terminal.
Construct a project network for the ‘on ground’
tasks listed below and determine the minimum
completion time.
Which tasks should they attempt to speed up if they are to reduce the time at the terminal?
12 Though generally avoided in this text, the following situation is one requiring the introduction of
a ‘dummy activity’ of zero weight for a network diagram to be formed. Use this idea to represent
the following as a project network with dummy activity Q, and determine the critical path and
shortest completion time.
• Tasks A (5 hours) and B (4 hours) start together.
• Task C (7 hours) can commence when both A and B are completed.
• Task D (6 hours) can commence when task A is completed.
Represent this information as a project network and determine the minimum completion time.
1 Explain what it means to say that the seasonal index for January is 1.12.
2 A loan for $280 000 is taken out with compound interest charged at a rate of 10% per annum
compounded monthly. If repayments of $2800 are made at intervals of one month after the start
of the loan, how much is owed five years after its commencement?
3 An analysis of the number of cars a particular manufacturer sells in each month, over a number
of years, gives the seasonal index for January as 92% and for February as 88%.
The following year the manufacturer sells 2031 cars in January and 1997 cars in February.
Express the number of cars sold in these two months as seasonally adjusted numbers.
80 80
60 60
40 40
20 20
5 10 15 t 5 10 15 t
Graph C Graph D
100 100
80 80
60 60
40 40
20 20
5 10 15 t 5 10 15 t
5 Determine the maximum number of units that can be delivered at the sink, G, from the source, A,
for the network shown below.
B 100 D 150 F
300 E 500
A G
100
150 150
C
If the capacity of arc AC could be increased from the 150 units shown in the diagram to 250 units
how would this alter the maximum number of units that can be delivered from A to G?
7 Following the large number of fires that have occurred in a particular state forest over recent
years it is decided that five lookout positions need to be established in the area. A system of
roads is to be developed so that each of the lookout positions is connected to every other lookout
position, either directly or indirectly, by road. The road distances between each pair of lookout
positions would be as given in the table below, in kilometres.
Which pairs of lookout positions should have direct road connections constructed if the total
length of construction is to be kept to a minimum?
4 6
8 4
14
A Z
6 F
6
6 9
7
B 4 D
BEWTSEB/moc.kcotsrettuhS
Which swimmer would you have swimming each leg of the relay to give the fastest possible time for
the team, based on the season personal best times?
Suppose instead that Alex’s season personal best time for the butterfly is 1.08.17. I.e. the table of season
personal best times would now be as follows:
Assignment problems
Suppose a company wishes to use two transport companies, A and B, for two deliveries, 1 and 2,
giving one delivery to each transport company. The locations of each pick-up point and delivery
point in relation to each transport company, and the transport company costs, means that for each
job, each of the transport companies quotes a different price. The quoted prices are as follows:
Delivery 1 Delivery 2
Company A $145 $180
Company B $164 $191
A B
$1 64
80 $1
$
19
541
1$
1 2
Can you see which allocation of the two jobs will minimise the total cost (remembering that we must
give one delivery to each company)?
If we write AB to indicate company A doing delivery 1 and company B doing delivery 2, there are only
two allocations that are possible:
AB and BA
AB: Company A doing delivery 1 and company B doing delivery 2.
Total cost = $145 + $191
= $336
BA: Company B doing delivery 1 and company A doing delivery 2.
Total cost = $164 + $180
= $344
Cheapest solution: Company A doing delivery 1 and company B doing delivery 2 for a total cost of $336.
Is this the solution you chose just by considering the table of costs?
Now, writing ABC to mean company A does delivery 1, B does delivery 2 and C does delivery 3, there
are six possible ways the assignments can be organised:
ABC: $170 + $160 + $270 = $600
ACB: $170 + $170 + $210 = $550 ←
Which worker should be assigned to each machine to maximise the total number of components
produced by the three workers?
Try to find a solution before turning the page where a solution is presented. Perhaps set up a
spreadsheet showing the various arrangements and their totals.
EXAMPLE 1
Solution
Writing ABCD to mean machine A is on task 1, machine B is on task 2, machine C is on task 3 and
machine D is on task 4, there are 24 possible ways the machines can be assigned to the tasks:
ABCD: 15 + 21 + 8 + 11 = 55 CABD: 12 + 18 + 11 + 11 = 52
ABDC: 15 + 21 + 10 + 13 = 59 CADB: 12 + 18 + 10 + 15 = 55
ACBD: 15 + 19 + 11 + 11 = 56 CBAD: 12 + 21 + 9 + 11 = 53
ACDB: 15 + 19 + 10 + 15 = 59 CBDA: 12 + 21 + 10 + 12 = 55
ADBC: 15 + 24 + 11 + 13 = 63 CDAB: 12 + 24 + 9 + 15 = 60
ADCB: 15 + 24 + 8 + 15 = 62 CDBA: 12 + 24 + 11 + 12 = 59
BACD: 13 + 18 + 8 + 11 = 50 ← DABC: 14 + 18 + 11 + 13 = 56
BADC: 13 + 18 + 10 + 13 = 54 DACB: 14 + 18 + 8 + 15 = 55
BCAD: 13 + 19 + 9 + 11 = 52 DBAC: 14 + 21 + 9 + 13 = 57
BCDA: 13 + 19 + 10 + 12 = 54 DBCA: 14 + 21 + 8 + 12 = 55
BDAC: 13 + 24 + 9 + 13 = 59 DCAB: 14 + 19 + 9 + 15 = 57
BDCA: 13 + 24 + 8 + 12 = 57 DCBA: 14 + 19 + 11 + 12 = 56
Assign machine A to task 2, B to task 1, C to task 3 and D to task 4. Total time 50 hours.
Are you able to set up a spreadsheet for the above listing that would be adaptable for any other
‘four machine, four task’ situation?
1 Load 1 Load 2
Firm A $150 $120
Firm B $120 $110
The following tables show the number of components each operator, A, B, C, … can produce in a day
when operating machines 1, 2, 3, … .
Assign operators to machines such that in each case each operator is assigned to a different machine
and the total number of components produced in a day is maximised.
4 Machine 1 Machine 2
Operator A 80 90
Operator B 85 100
Step 2: Subtract the smallest number in each row from every number in that row.
Hence we subtract 100 from each element of row 1,
110 from each element of row 2,
90 from each element of row 3,
and 120 from each element of row 4.
150 0 40 20
This gives the matrix: 110 0 40 0
130 0 70 40
140 20 50 0
Step 3: Subtract the smallest number in each column from every entry in that column.
Hence we subtract 110 from each element of column 1,
0 from each element of column 2,
40 from each element of column 3,
and 0 from each element of column 4.
40 0 0 20
This gives the matrix: 0 0 0 0
20 0 30 40
30 20 10 0
40 0 0 20
0 0 0 0
20 0 30 40
30 20 10 0
Follow the steps of the algorithm as shown below to see that it gives the same solution:
I.e., as before, firm A to do load 1 ($100), firm B to do load 3 ($100) and firm C to do load 2 ($140).
Total cost $340.
1 2 3
A 8 5 17
B 11 7 18
C 9 8 15
1 2 3 4 1 2 3 4 1 2 3
A 8 7 15 6 A 60 50 120 70 A 80 60 90
B 10 6 15 7 B 50 60 100 80 B 100 70 110
C 11 10 12 5 C 55 80 140 80 C 90 100 100
D 9 7 13 8 D 80 80 110 70
↓
↓ ↓
80 60 90
8 7 15 6 60 50 120 70 100 70 110
10 6 15 7 50 60 100 80 90 100 100
11 10 12 5 55 80 140 80 ↓
9 7 13 8 80 80 110 70
20 0 30
↓ ↓
30 0 40
2 1 9 0 10 0 70 20 0 10 10
4 0 9 1 0 10 50 30 ↓
6 5 7 0 0 25 85 25
2 0 6 1 10 10 40 0 20 0 20
30 0 30
↓ ↓
0 10 0
0 1 3 0 10 0 30 20 ↓
2 0 3 1 0 10 10 30
4 5 1 0 0 25 45 25 0 0 0
0 0 0 1 10 10 0 0 10 0 10
0 30 0
↓ ↓
↓
0 1 3 0 10 0 20 10
Multiple solutions.
2 0 3 1 0 10 0 20
Assign B to 2
4 5 1 0 0 25 35 15
Cost = 70
0 0 0 1 20 20 0 0 Then either
Assign A to 1. Cost = 8 Assign A to 2. Cost = 50 A to 1 (cost 80) and
Assign B to 2. Cost = 6 Assign B to 3. Cost = 100 C to 3 (cost 100).
Assign C to 4. Cost = 5 Assign C to 1. Cost = 55 Or
Assign D to 3. Cost = 13 Assign D to 4. Cost = 70 A to 3 (cost 90) and
C to 1 (cost 90).
Total cost = 32 Total cost = 275
Either way:
Total cost = 250
Exercise 8B
For each of questions 1 to 4 use the Hungarian algorithm to allocate the companies A, B, C, … to the
tasks 1, 2, 3, … such that each company is allocated a different task and the total ‘cost’ is minimised,
where the units of ‘cost’ of each item being assigned to each task is as given by the numbers in the table
or bipartite graph. As well as stating the assignments of company to task, also state the total cost.
1 Task 1 Task 2
Company A 95 72
Company B 105 86
3 A B C D
10 15 10 14 9 12 14 15 8 15 10 13 9 11 10 14
1 2 3 4
5 Task 1 Task 2
Company A 250 120
Company B 240 90
8 A 44
1
9 A 16 1
40 26
43
33
31
29
51
34 B 30 2
B 2
42 29
43
35
38 33
20
C 3 C 32 3
42
44
20
45
23
D 36 4
a Just by looking at the table try to write down what you think the optimal allocation of
existing reps to new offices would be.
b Clearly showing your use of the Hungarian algorithm determine the optimal allocation.
11 a Allocate four delivery jobs to four courier companies with each company getting one of the
jobs and total costs being kept to a minimum, and state this minimum, given that the cost
of each job with each company is as shown below.
b Suppose the job description for job 4 changed, causing every one of the four courier
companies to increase their price for job 4 by $50, all other jobs remaining the same as
in the above table. Would this alter the optimum allocation of company to job? If it would,
state the new allocation.
c Suppose instead that it was job 2 that had its job description changed and this caused all
four companies to multiply their price for that job by 4, all other jobs remaining as in the
table. Would this alter the optimum allocation of company to job? If it would, state the
new allocation.
d Suppose instead that just one of the companies is to be used for all four jobs. Which
company would this be if again the aim is to minimise total cost?
grebmoolB/segamI ytteG
history of the representatives and their
existing profile in the areas suggest that
the number of houses each representative
should sell in a year, were they assigned
to a particular area, would be as follows.
Allocate the representatives to the areas in such a way that will maximise the total number of
houses the five representatives should sell in a year.
What will this maximum total be?
13 A mining company employs four new engineers, Ashok, Daniel, Kirsten and Shani, and wishes
to locate one at each of its four major mining locations. Travel and relocation expenses are
available to all four and the company decides to send the engineers to the location that minimises
the total travel and relocation costs. These costs are estimated to be as follows.
000 21$
000 41$
$1
$9 00
00 00
0 00
70
$1
0008$
00 $1
00 $13 0
000 000
$1 00
0
0
$1 000
$70
00
$15
Location Location Location Location
1 2 3 4
Allocate each crane to a location such that the total distance travelled is minimised.
15 A car making company has five factories, A, B, C, D and E each producing all of the five major
models of car that the company produces:
The Arcain The Bijou The Charger The Devine The Exeon
512g/moc.kcotsrettuhS
The company wishes to reorganise the factories and have one factory only producing the Arcain,
another only producing the Bijou and so on.
Estimates suggest that the numbers each factory could produce of each model in a year, if they
were dedicated to only producing the one model, would be as follows.
The Bijou is the best-selling model so the company knows it wants to locate the construction
of that model at its biggest factory, Factory C.
Allocate a factory to each model so each factory produces only one model, all five models
are produced, the Bijou is at factory C, and the total number of models produced in a year
is maximised.
EXAMPLE 2
The director of a company decides that he wants a representative from the company at each of the
three international trade conferences that are coming up. The director wishes to send a different
manager to each, chosen from the four managers the company has based at its various branches,
making the selection on the basis of the arrangement that keeps travel costs to a minimum. The
associated travel costs are as follows:
Solution
Inserting a dummy column with all entries equal 1040 780 2140 0
to zero gives the square matrix on the right. 1150 560 1750 0
With a zero in each row subtracting the lowest 1780 1250 1350 0
number in each row from every entry in that row 1560 790 1215 0
will leave the matrix unchanged.
Subtract the smallest number in each column 0 220 925 0
from every number in that column. 110 0 535 0
740 690 135 0
520 230 0 0
Instead of making a dummy column with all entries equal to zero, try the previous example with
the dummy column having all of its entries equal to the largest number in the matrix (i.e. 2140).
Does that give the same solution?
EXAMPLE 3
An international company has three locations across the world, each with its own director. The
three directors decide they should each make a fact-finding trip to one of four other countries to
explore export opportunities. They choose four countries and decide that between them they will
visit three of these four with each director visiting one country. The associated travel costs for each
director to visit each country are as follows:
Allocate each director to one of the countries so that each is attending a different country from the
other two and total travel costs are kept to a minimum.
Solution
Inserting a dummy row with all entries equal 10100 13300 11500 7200
to zero gives the square matrix on the right. 9300 8200 7900 6300
12700 11700 14200 9500
0 0 0 0
24 23 15 20 18 25 20 17 21 28 18 24
Under this minimal total time arrangement, if all three people start their assigned task at the same
time, how many minutes later will all three have finished (assuming any early finishers do not assist
others with their task)? Is there a different allocation arrangement that would reduce this ‘time to
finish three jobs when working simultaneously’?
kuylyryK rymydoloV/moc.kcotsrettuhS
The company has four such diggers available,
one at the Horton storage facility, one at the
Peel storage facility, one at the Washton storage
facility and the fourth at the Wimsley storage
facility. The distances, in kilometres, that each
of these storage facilities is from each of the
worksites is given in the following table:
Clearly showing your use of the Hungarian algorithm, assign three of the diggers, one to each
worksite, such that the total distance to be travelled by the diggers to the worksites is minimised,
and state this minimum distance.
LmmoT/moc.kcotSi
4 Four people from A, B, C, D and E are to be assigned jobs 1, 2, 3 and 4 with a different person for
each job and one of the five people ‘missing out’.
The profit that will be made from each person doing each job is as shown in the table below.
Supposing you are going to use the Hungarian algorithm to assign people to jobs according to
the above requirements and in a way that maximises the profit to the company.
Which are you going to do first:
• put in the dummy column and then subtract each number from the largest number, or
• subtract each number from the largest number and then put in the dummy column, or
• doesn’t it matter?
Investigate, and find the solution to the assignment problem too, stating which person gets which
job and the maximum profit.
Tasks
1 2 3 4 5 6 7 8 9 10
Worker A 17 21 9 28 15 19 33 45 15 14
Worker B 15 19 10 25 17 15 28 37 28 19
Worker C 22 22 13 21 17 22 47 46 17 17
Worker D 16 22 10 23 16 17 29 39 22 21
Worker E 18 20 9 29 21 18 32 40 23 14
Worker F 18 21 11 30 17 24 33 38 19 15
Worker G 17 23 12 22 16 18 45 40 24 21
Worker H 25 20 15 23 15 28 29 42 25 22
Worker I 16 20 10 25 14 17 32 55 20 18
Worker J 17 24 12 28 17 21 28 36 20 15
1 Copy and complete the following table. (1 year = 12 months = 52 weeks = 365 days.)
2 To the nearest dollar, how much should be invested in an annuity paying 10% annual interest,
compounded annually, to provide a regular annual income of $65 000 for exactly 20 years?
Determine the answer by
a using a recursive formula with an initial ‘guess’ of $560 000, and
b using the financial capability of some calculators or computer programs.
3 Suppose instead that the annual interest rate in the previous question had been 7.5% rather than
10%. Initially make a guess at how much would need to be invested to provide the same annual
income, i.e. $65 000 for exactly 20 years, and then use recursion to determine the correct answer,
to the nearest dollar.
4 A loan for $8000 is taken out with compound interest charged at a rate of 8% per annum
compounded monthly. If repayments of $250 are made at intervals of one month after the
start of the loan how much is owed immediately after the fifteenth repayment has been made?
7 The network below shows a system of pathways that allow units to flow from a source A to a sink X.
The units that can flow along each pathway are as indicated by the numbers next to each pathway.
Find the maximum number of units that can flow from A to X (and check your answer by finding
a cut equal to your maximum flow).
C 100 G
200
300
A X
400 600 E
B 400 F
If the capacity of pathway EX were to be increased by 300 units, how would this alter the
maximum flow from A to X?
8 Four swimmers, Julie, Micah, Fran and Marta are chosen to swim the medley relay for their
school at the interschool swimming carnival. Each of the girls will swim one ‘leg’ of the relay.
One will swim 50 metres backstroke, one will swim 50 metres breaststroke, one will swim
50 metres butterfly and one will swim 50 metres freestyle.
To decide which girl swims each leg, the coach times each of them over 50 metres of each style.
The times recorded, in seconds, were as follows:
Use these times to suggest the most appropriate allocation of girls to strokes and suggest the total
time for such a team.
okjodaR okjleZ/moc.kcotsrettuhS
numbers of live cattle exported from Australia per
year over the period of time from 1988 to 2013.
10 Five police vehicles, A, B, C, D and E have to be sent to five locations, 1, 2, 3, 4 and 5, with one
police vehicle per location. The estimated time, in minutes, for each police vehicle to reach each
location, from where they are now, is given in the following bipartite graph.
A B C D E
7 12 7 11 8 6 9 12 12 12 6 12 9 10 11 6 9 9 11 9 7 11 9 10 11
1 2 3 4 5
Allocate the police vehicles to the locations in such a way that the sum of the five travel times is
minimised, and state the time taken for each vehicle to reach its allocated location.
12 Calculate the total length of the minimum spanning tree for the network shown below and show
the minimum spanning tree on a diagram. (The numbers on each edge gives the length of that
edge in units.)
D
25 H
17 J
15
17
18 21
B 16 23
F
11 12
I
12
13 17
10 9
A
7
8 G
5
C E
13 A company identifies a number of tasks involved in the completion of a particular project. The
project network below shows these tasks labelled A to J with the numbers on each arc indicating
the number of days each task requires.
B5
D3
A7 C4 H4 I3 J2
Start Finish
E2
F5 G7
a Determine the minimum time to complete the project and the corresponding critical path.
b How many extra days could task E be allowed to take, over and above the 2 days already
allowed for, without delaying the completion time stated in part a?
a Determine the seasonal indices for each two-month period of the year using the average
(mean) percentage method. Give answers in decimal form and correct to four decimal places.
b Use the seasonal indices to deseasonalise the number of units used for each two-month
period. Give each deseasonalised figure to the nearest ten units.
c View the deseasonalised figures plotted against n to check that linear regression would be an
appropriate model to use for this data pair.
d Use n and the deseasonalised data, D, to determine the least squares regression line D = an + b.
(Give a correct to two decimal places and b to the nearest ten.)
e Use your regression line, and the seasonal indices to reseasonalise the data, to predict the
number of units used for i the 1st two months of year 4,
ii the 4th two months of year 4.
f Suggest some events that could occur that would lead us to expect that the actual values for
year 4 could differ markedly from our predicted values.
16 A minimum spanning tree is needed for the network shown below. The number on each edge is
the cost, in $1000s, of making the connection. Find the minimum spanning tree for the network
and state its total cost.
F
E 30 35
I
40 50
H
B 38 45
45 30
20 34
C 12
A 30
G J
D 36 25
Before work is started on constructing the minimum spanning tree, it is found that a direct
connection could be made from H to I. What would the cost of this connection need to be for it
to be worthwhile to include in a new minimum spanning tree?
18 A port authority wishes to build a railway network linking seven locations in the dockside complex.
The network is to be constructed so that it will be possible to travel by rail from any one of the
seven locations to any of the other six, perhaps not directly, but at least by going via other locations
in the network. The locations are Goods In, Goods Out, Waiting, Customs, Dock 1, Dock 2 and
Dock 3. The distances involved for the feasible rail connections from any of these locations to any
of the others are given in metres in the table below.
a Based on these distances determine the minimum length of track required for this network.
b In this ‘minimum length network’, which six pairs of locations would have a direct rail link?
(Direct rail link means able to journey from one location to the other without having to pass
through any of the other locations on the way.)
yawytra/moc.kcotsrettuhS
Allocate a transport company to each job with a different company for each job, one company
missing out, and minimising the total cost of the four jobs according to the quotes given above.
Also state what this minimum cost will be.
1 a No, the increase cannot be attributed to the natural increase in the population. Numbers are given per 100 persons of
working age, thus the increase cannot simply be attributed to increase in population.
b Number of persons over age 65
40 per 100 persons of working age
30
20
10
Year
1971 1981 1991 2001 2011 2021 2031
c The number of persons over age 65 per 100 persons of working age shows an increasing trend with time. The
increase is steady at approximately 2 more people per 100, for each ten years from 1971 to 2011, and then increases
to about 5 more people per 100, for each ten years from 2011 to 2031.
2 a Line graph showing the population
of Western Australia, 1915 to 2005
2 200 000
2 000 000
1 800 000
1 600 000
noitalupoP
1 400 000
1 200 000
1 000 000
800 000
600 000
400 000
200 000 Year
5191
5291
5391
5491
5591
5691
5791
5891
5991
5002
b The population shows an increasing trend over the years from a population of just over 300 000 in 1915 to just over
2 million in 2005.
Earlier 10 year intervals in this time show an increase in population of about 60 000 people per ten years. Later 10
year intervals show an increase in population of about 300 000 people per ten years.
c The figures suggest that the population of Western Australia in 1950 was approximately 580 000. This prediction
involves interpolating between two known points (1945, 490 000) and (1955, 669 000). Hence the prediction should
be very reliable.
noitalupoP
perhaps be safer to predict in a range, say 2.8 million to 1 400 000
3.2 million. 1 200 000
1 000 000
800 000
600 000
400 000
200 000 Year
5191
5291
5391
5491
5591
5691
5791
5891
5991
5002
5202
3 a The number of short term visitors shows an increasing trend with time.
The increase seems reasonably steady from 1992–1997, Graph showing the number of short term
then the rate of increase slows, with numbers actually visitors arriving in Australia each year
declining in 2003 before picking up again. From 2005
to 2010 numbers of visitors are reasonably steady before 7 000000
increasing again from 2011 to 2013.
srotisiv mret trohs fo rebmuN 6 000000
5 000000
4 000000
3 000000
2 000000
1 000000
Year
2991
4991
6991
8991
0002
2002
4002
6002
8002
0102
2102
4102
b The graph suggest visitor numbers of approximately 4 600 000 for 1999.
This prediction involves interpolation so it should be reliable.
The flattening of the graph around 2005 to 2010 makes extrapolation to 2020 difficult to do with any confidence.
The 2013 figure perhaps suggests the upward trend continues so a prediction of approximately 7 500 000 for 2020
might be reasonable.
We are not extrapolating that far beyond the known values but extrapolation is involved so our prediction could not
be relied upon with any great confidence.
20
10
Year ( x)
5 10 15
Over the sixteen years the percentages of births delivered by caesarean section show
an increasing trend with most of the increase being from year 5 to year 11.
For the first five years the percentage remains level at around 18%.
For the last four years the percentage remains level at around 30%.
8 a Average age of vehicles
12
11
sraey ni egA
10
7
Year
1990 2000 2010 2020
sraey ni egA
Predicted values given by the ‘best straight line’ as 10
determined using linear regression would overestimate
ages for the early and late years, and underestimate 9
ages for the middle years – see diagram on the right
in which the least squares linear regression line is 8
shown as a broken line.
7
Year
1990 2000 2010 2020
c Predicted average age of vehicle for 1999 would be Average age of vehicles
about 9.9 years. We have data for 1998 and 2000 12
so our value for 1999 involves interpolation.
It should therefore be a prediction that could 11
be relied on with confidence.
sraey ni egA
10
We cannot predict with any great confidence what
the average age of vehicles will be in 2020 as 2020 9
is well beyond the years plotted (i.e. extrapolation
is involved). If decline in later years were to continue, 8
the figure for 2020 might perhaps be around 7.8.
No great confidence in reliability of this 7
prediction though. Year
1990 2000 2010 2020
9 Viewing the graph of Y plotted against t confirms the unsuitability of linear regression.
Y = 4.69 × t 2.145 .
1 $2316.50
2 $3276
3 A: y=x B: y = 2x + 1 C: y = 0.5x + 1 D: x = 3 E: y = 2 F: y 2x - 3
= -
Year 1911 1921 1933 1947 1954 1961 1966 1971 1976 1981 1986 1991
% 41% 51% 52% 60% 62% 65% 67% 68% 71% 71% 72% 73%
0291
0391
0491
0591
0691
0791
0891
0991
Extrapolation is involved and 2020 is a long way
beyond known values. Estimate may not be too
reliable.
(Note: Linear regression gives 86% but not
a particularly suitable model.)
Exercise 2A PAGE 23
400
300
200
3 point moving average
100
Performance number
5 10 15
c Many factors such as cost, venue and actor availability, would need to be considered before we could decide if a sixth
week would be ‘a good idea’. However, attendance figures suggest a 6th week could possibly have given attendance
similar to week 1 so on that basis alone, and if the attendance of week 1 was considered acceptable, a 6th week could
have been a good idea.
30
25
20
15
4-point moving average
10
5
Year 1 Year 2 Year 3
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd
Q Q Q Q Q Q Q Q Q Q Q Q Q Q
c Decreasing.
300
250
200
100
50
c Increasing.
Exercise 2B PAGE 29
1 Consumption of soft drink could well be seasonal in nature. Hence, with the data involving consumption per quarter
year a 4-point average would be most suitable.
a A = 6940, B = 6892, C = 6788, D = 6763, E = 5511, F = 6638, G = 6662
2 a A = 176.5, B = 180, C = 179, D = 182, E = 183, F = 184, G = 181,
H = 190, I = 189, J = 191.5
4 a We would expect the production of fruit to be dependent on the weather and hence follow a seasonal pattern. Hence
determining a seasonal moving average makes sense and with data collected on a monthly basis a 12-point moving
average is sensible.
b Price per kg
$5.00
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
12-point centred moving average
$1.00
$0.50
2991
4991
6991
8991
0002
2002
4002
6002
8002
0102
2102
Exercise 2D PAGE 43
(You may occasionally find that an answer you obtain varies slightly from the answer given here depending on when, and to
what degree, rounding occurred.)
1 $22 300 ( = $25 400 ÷ 1.14 and then given to the nearest $100).
2 173 700 units ( = 132 000 ÷ 0.76 and then given to nearest 100).
3 a 69 530 people. b 69 940 people.
4 The analysis predicts that 14 750 units will be sold in January.
5 The figures suggest that the actual weight of the fruit this summer will be 23 680 kg.
6 a Seasonal index for Jan- Apr: 107.25%
Seasonal index for May- Aug: 75.56%
Seasonal index for Sept- Dec: 117.20%
b Jan–Apr May–Aug Sept–Dec
Year 1 1.71 1.71 1.69
Year 2 1.74 1.87 1.76
Year 3 1.80 1.69 1.84
Year 4 2.03 2.01 1.99
7 a Seasonal index for Friday: 0.6436 Seasonal index for Saturday: 1.0540
Seasonal index for Sunday: 1.1555 Seasonal index for Monday: 1.1469
Friday Saturday Sunday Monday
Year 1 14 290 14 080 14 070 14 690
Year 2 15 240 14 980 14 950 15 520
Year 3 14 680 14 440 14 890 14 660
Year 4 15 290 16 030 15 610 14 600
$1000
$800
$600
$400
$200
5 10 15 20 t
Seasonal indices
52% 142% 106%
(Nearest percent)
1 $247.50
2 1
3 A seasonal index of 0.87 for February means that whatever it is that we are measuring for February tends to be
13% below the monthly average.
10 000
t (t = 0 is year 1998)
5 10 15
7 a The given revenues have a total of $3 760 000 and thus a quarterly average of $940 000. The first quarter is
20% down on this quarterly average (compared to the 15% down the seasonal index suggests), the second quarter
is 21% up (compared to the expected 25%), the third quarter is 25% up (compared to the expected 12%) and the
fourth quarter is 26% down (compared to the expected 22%). Thus the third quarter revenue is a surprise when
compared to what we might expect from the seasonal indices.
b If all other factors remained the same then the third quarter increase in the revenue share above expectation could
be as a result of the advertising campaign being successful.
Exercise 3A PAGE 56
Exercise 3B PAGE 59
3 The effective annual interest rates for 8% are not simply double the rates for 4%.
in
Doubling the value of ‘i’ in the formula 1 +
- 1 will not simply double the answer.
n
1 Tn + 1 = 1.08 × Tn + $200 $11 533.01 is in the account at the end of ten years.
2 a Tn + 1 = 1.005 × Tn + $100 b Final value of account is $9817.01. (= T36 - $100)
3 $22 474.58 (nearest cent). 4 $4780.04 (nearest cent). 5 $14 773.77 (nearest cent).
6 a 10.164% (correct to three decimal places). b 7.590% (correct to three decimal places).
Exercise 3D PAGE 65
1 a End of first year $195 000 b End of first year $187 000
End of second year $170 000 End of second year $158 950
End of third year $145 000 End of third year $135 107.50
2 a First year depreciation is $10 000 b First year depreciation is $16 000
Second year depreciation is $10 000 Second year depreciation is $12 800
Third year depreciation is $10 000 Third year depreciation is $10 240
3 a $23 000 b $16 000 c $9000
Exercise 3E PAGE 67
400
350
300
250
Raw data
5-point moving average
200
150
100
50
Year
0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Comments summarising the data, and about today’s exchange rate, are not included here. Compare your comments to
those of others in your class.
Exercise 4A PAGE 81
1 If $8000 (or more) is invested at 7.5% per annum then the interest earned will be $8000 × 0.075 i.e. $600 (or more).
Hence the interest each year will equal (or exceed) the award amount. The balance in the account will then remain at
(or exceed) $8000 thus allowing the award to continue ‘in perpetuity’.
2 1.024 = 1.082 432 16. Thus 8% per annum, with quarterly compounding, increases an initial investment by 8.243 216%.
If the initial investment is $A we require 8.243 216% of $A to equal $75 000.
Thus $A = $909 839.0725, i.e. $909 840 rounded up to the next dollar.
The one off investment needs to be $909 840 (or more).
(Other approaches are possible, for example trial and adjustment.)
3 $243 199.29 (or more).
4 a Increase P. b An increase in R. c A decrease in A .
5 There will be $436 670 left in the account after the tenth withdrawal (nearest ten dollars).
Kelvin can withdraw $50 000 per year for 22 years. (Then, at end of the 23rd year, the withdrawal would be less than
$50 000 and would close the account.)
Had the interest rate been 7.8% Kelvin would have been able to withdraw $50 000 per year for 45 years. (Then, at the
end of the 46th year, the withdrawal would be less than $50 000 and would close the account.)
Exercise 4B PAGE 87
Answers not given here. Compare your answers with those of others in your class.
1 $2448.90
2 The 855 is the gradient of the line of best fit. It informs us that over the ten years under consideration the number of
people attending the music festival increased at approximately 855 people per year.
3 a 6.136% b 6.168% c 6.183%
4 $4267.45
5 a $4300 b 6.5% c $6274.31 d 20.795%
6 The initial investment was $1600, at a fixed monthly interest rate of 1.5% with a fixed monthly deposit of $250.
Exercise 5A PAGE 96
188 units
2
1920 units
137 units
122 units
or
or
9 a C D
B
E
G
A
F
b The total length of tunnelling that will be closed off to visitors is 445 metres.
10 a Graph showing roads and distances not given here. b 1890 km
1 a N = 29.14n + 7668
b The value of a, 29.14, means that linear modelling of the data suggests that during the time period the data covers
the number of people employed full time is increasing at the rate of approximately 29 140 people per quarter.
c July 2011 has an n value of 7. The line of regression gives N = 7872.
Linear modelling gives a predicted employment figure for July 2011 of 7872 thousand.
January 2015 has an n value of 21. The line of regression gives N = 8280.
Linear modelling gives a predicted employment figure for January 2015 of 8280 thousand.
We would expect the July 2011 prediction, which involves interpolation, to be more reliable than the January 2015
prediction, which involves extrapolation. The latter involves predicting beyond known data points and events could
happen in the meantime making such predictions unreliable.
d Viewing the data graphically, as shown on the right, suggests N
that linear modelling may be unwise. The overall trend seems 8100
more curved than straight. We could perhaps use two linear
models but even then the apparent late downturn in employment 8000
suggests that extrapolating ahead of the given data based on
7900
a linear model could well be unwise.
The placement of the linear regression line shows why the 7800
predicted figure for July 2011 was below the real figures on
either side of it. Hence using a linear model for this data even 7700
made an interpolated prediction doubtful.
7600
7500
4 8 12 n
2 At 6% per annum, i.e. 0.5% per month, the initial $350 000 will earn interest of $1750 by the end of the first month.
Hence a withdrawal of $1500 will leave more than $350 000 in the account for the next month. The account will
continue to grow each month and the task set for the calculator, to find how many payments it takes to give a final
balance of zero, is impossible. Hence the ‘Error’ response.
3 a = 67, b = 76, c = 80, d = 71.5, e = 81, f = 76, g = 80, h = 78,
i = 69, j = 82, k = 80, l = 86, m = 84, n = 82, o = 53.
4 $3634.60
5 a At the end of year six and immediately after her regular repayment, Amy still owes $5636.26 on the loan.
b To pay off the loan in exactly six years Amy’s annual repayments need to be $3264.44.
A E
400
14 16 units
Upgrade AC to 8 units: Increase the maximum flow to 19.
Upgrading BD or FG: Will not alter the maximum flow.
1 I: 150 units, II: 130 units, III: 160 units, IV: 140 units, V: 180 units.
2 450 3 4
500
550
5 170 6 7
100
550
1 As percentages, and to the nearest percent, the seasonal indices for the first, second, third and fourth quarters are 141%,
112%, 59% and 88% respectively.
Numbers for the first quarter tend to be 41% up on the quarterly average, for the second quarter 12% up on the
quarterly average, for the third quarter 41% down on the quarterly average and for the fourth quarter 12% down on the
quarterly average.
2 241 units
3 a $4 026.14 needs to be repaid per month for the loan to be paid off in 25 years.
(Note: Rounding up from $4026.135 417 so final payment will be a little under $4026.14.)
b A total of $707 840 (nearest $10) interest is paid during the 25 years.
Note: $4026.14 × 12 × 25 - $500 000 gives $707 842.
Allowing for reduced 300th payment gives $707 837.27.
Different rounding regime, e.g. on some online amortization calculators, gives $707 837.52.
4 a $12 000 b 7.2% c $18 211.68
5 $14 400 in first year, $12 672 in second year, $11 151.36 in third year.
6 1250 L/ minute. 200
B C
(The maximum flow is 1250 L/min but
the maximum flow diagram shown here is 400 300
not the only possible way of achieving it.) 600 200 700
150 50
D 250 E
A F
500
n 3-pt MA (M)
2 000 000
7 1 894 900
8 1 930 000
500 000
9 1 938 800
10 1 937 900
n
11 1 923 600
3 6 9 12 15 18
12 1 944 700
13 1 964 700
14 2 010 700
15 2 037 400
16 2 076 800
17 2 126 800
18 –
1 a 24 days b PTUWY c 3
2 a 12 hours b AEFH c 12 hours (i.e. no change) d 1
3 a 17 days b ACHLN c 17 days (i.e. no change)
4 a 27 hours b PSVZ c No (cut by 1 hour, P W X Y becomes critical)
d P
5 a 30 days b ACGJ c 14 days into the project. d 16 days into the project.
e 2 days f 4 days g 3 days h F
6 a 74 hours b PQRS c 10 hours d 29 hours
e 19 hours f 57 hours g 10 hours
7 a 17 minutes, P T Y and S X Z b 2 minutes each.
8 a 44 days b BCGJ c 14 days d 2 days
e 4 days
9 a 3 h 10 min b 12:10 p.m. c 11:05 a.m.
10 a 4:25 p.m. b 4:55 p.m. c 45 mins
1 a R3 2 a
Q6 S5
P7 S4 W7 T4
Q5 V5 X2 X4
W2
U3 Z5
R8 Y3
T6 U9
V7
b 19 weeks, P - R - W - X b 21 days, R - U - W - Z - Y
c 4 weeks c 23 days
3 a 4 a E15
A16 B21
A10
B2
D25 G16 1
F11
C28 C16
H17
E5 G17
F25
D35
b 78 minutes, A - B - D - G b 52 days, C - E - B
c 3 minutes c 8
5 a E10 6
G5 Y4 R10
A6 F3 Q6
D7 B7 P5 T4 S2 V4
Z4
I4
W3
H9 C4 X10 U9
b 21 hours, A - E - G 27 minutes, P - W - X - U
c D and H
9 a W14
Q4 R4
X7
S7 U3
Y9 Z3
T9
V11
b 26 hours, T - U - W
c i Two hours over the allocated three.
ii Three hours over the allocated three.
b 16 days, B - C - D - F - G - H - I
c 8 days
d Reduce by one day.
11 F15
B15 G25
C8 H12
A5 D5 I5
E10
J8 K8
12
A5 D6
Q0
B4 C7
Critical path is A - Q - C
Minimum completion time is 12 hours.
13 F1 G1
A10 H1
B3 C1 I3 J2
D3
E1
1 A seasonal index for January of 1.12 means that whatever it is that was used to determine the index, e.g. sales numbers,
gross takings, number of people, prices etc., increases in January by 12% of the monthly average.
2 Five years after the commencement of the loan the amount owed is $243 862.70 (to the nearest cent).
3 Seasonally adjusted figures are 2208 for January and 2269 for February.
4 a A, C. b B, D. c A, C, D. d C e D
5 The maximum number of units that can be delivered is 750.
Increasing the capacity of AC to 250 units increases the max flow by 50 units (to 800 units).
6 Connections need to be: A to B, B to Base, Base to D, D to C. $460 000
7 The following pairs of lookout positions should have direct road connections constructed: 1 and 2, 1 and 5, 2 and
3, 3 and 4.
8 The greatest number of vehicles that could arrive at Z per hour, having come from A, is 2700.
2 a $553 382
b $553 382
3 Correct answer is $662 642, to the nearest dollar.
4 Immediately after the fifteenth repayment has been made the amount owed is $4908.28 (to the nearest cent).
5 27 hours, B - E - J - M
6 a The greatest number of messages that can go from A to G in an hour is 850.
b The greatest number of messages that can go from A to D in an hour is 650.
7 The maximum flow from A to X is 1200 units.
The extra capacity along EX increases the maximum flow from A to X by 150 units.
8 Fran should swim backstroke (54.2 seconds).
Marta should swim breaststroke (48.2 seconds).
Julie should swim butterfly (43.6 seconds).
Micah should swim freestyle (42.4 seconds).
Total time 188.4 seconds.
900000
800000
700000
600000
500000
400000
300000
Raw data
5 point moving average
200000
100000
0
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Compare your comments describing any trends in the numbers of live cattle exported from Australia per year over the
period of time from 1988 to 2013 with those of others in your class.
10 Vehicle A to location 3 7 minutes.
Vehicle B to location 2 9 minutes.
Vehicle C to location 1 6 minutes.
Vehicle D to location 5 9 minutes.
Vehicle E to location 4 10 minutes.
11 a 6850
b 1st Quarter 4932
2nd Quarter 6028
3rd Quarter 7261
4th Quarter 9179
12 The total length of the minimum spanning D
H 17
tree for the given network is 100 units. 15 J
The minimum span is shown on the right. 18
B F
11 I
10 9
A
7 8 G
C 5 E
b 1st two 2nd two 3rd two 4th two 5th two 6th two
months months months months months months
Year 1 3460 3190 3120 3370 3180 2760
Year 2 3860 3870 3940 3810 4100 4280
Year 3 4200 4560 4580 4380 4310 4690
c Viewing the graph indicates linear modelling is suitable. (It could be argued that the sixth deseasonalised value is
an outlier and hence exclude it from the calculation of the regression line but answers given here are based on the
inclusion of all points.)
d D = 95.52n + 2960
e i 1st two months of year 4, n = 19, estimatedN = 1710 (nearest ten).
ii 4th two months of year 4, n = 22, estimated N = 9500 (nearest ten).
f Compare your possible events with those of others in your class.
15 a 21 weeks, A - D - H - I - J - L b 11 weeks c 19 weeks
16 $256 000
F
E
I
H
B $256 000
A C J
D
G
Direct connection from H to I is worth doing if it can be done for less than $38 000 as it could then replace EC in the
minimum span.
17 Either assign Machine A to product 3 (3300 units)
Machine B to product 4 (4100 units)
Machine C to product 1 (4000 units).
or assign Machine A to product 4 (3300 units)
Machine B to product 3 (4100 units)
Machine C to product 1 (4000 units).
(Either way gives the total number of units produced as 11 400.)
18 a 1155 m b Goods In - Dock 1, Customs - Goods Out, Customs - Waiting,
Customs - Dock 3, Dock 1 - Dock 2, Dock 2 - Customs.
19 Allocate DG Transport to job 4. ($16 500)
Allocate Haulage and Co. to job 2. ($12 800)
Allocate JA Movers to job 1. ($18 000)
Allocate Move it and Shift it to job 3. ($25 000)
Total cost $72 300.
B E
backward scan (project networks) 122 earliest start time 122, 123
bipartite graphs xii, xiii, 142 edges xi
bivariate data xiii effective annual interest rate 58–9
borrowings 64–7 explanatory variable xiii
extrapolation xv, 4
C
F
calculators
annuities 79, 84–6 finance, and moving averages 32
compound interest 55, 60–2, 66–7 fixed term annuities 79
geometric sequences xvii–xviii flat rate method 64
superannuation 78 float 122, 123
centred moving averages 28–9 forward scan (project networks) 122
coefficient of determination xv 4 point moving average 22, 28
P
K