Bangladesh University of Professionals (BUP)

Term Paper
1st Semester 2024
Business Mathematics (ALD - 1103)

Topic
Topic: Understanding of Topics done in this semester

Submitted To:

Umma Hania
Assistant
Professor
Department of Accounting & Information Systems (AIS)
Faculty of Business Studies (FBS)
Bangladesh University of Professionals (BUP)

Submitted By
Sakif Ishmam
ID: 24211409169
Section: A
AIS 2024
Date of Submission: June 30, 2024
 Acknowledgements

First and foremost, I express my gratitude to Almighty Allah for granting me the strength and

health to complete this term paper. I would also like to extend my heartfelt thanks to our course

instructor, Umma Hania Miss, Assistant Professor of the Faculty of Business Studies at

Bangladesh University of Professionals, for providing me with the opportunity to work on this

term paper. This type of assignment, whether through classroom tutorials or term papers,

effectively introduces students to real-life applications of mathematical principles. A mentor’s

guidance is essential to achieving successful outcomes, and I appreciate her support and the

suggestions she provided, which have significantly enhanced my work. Lastly, I would like to

thank my friends and family for their additional assistance.

Sincerely,

Sakif Ishmam
 Table of Content

Topic: Understanding of Topics done in this semester...............................1

Acknowledgements.................................................................................................. 2
Abstract.................................................................................................................... 4
Introduction............................................................................................................. 4
Ratio, Proportion, Percentage, Profit & Loss, Discounts, Weighted Averages..4
Ratio..................................................................................................................... 4
Proportion.............................................................................................................5
Percentage............................................................................................................ 5
Profit and Loss..................................................................................................... 5
Discounts.............................................................................................................. 6
Weighted Averages............................................................................................... 6
Exercise................................................................................................................ 6
Sets in Mathematics.................................................................................................9
Types of Sets...................................................................................................... 10
Operations on Sets..............................................................................................11
Mathematics of Finance........................................................................................ 11
Simple Interest....................................................................................................11
The Future Value................................................................................................ 14
The Present Value...............................................................................................16
Bank Discounts.................................................................................................. 17
Effective Rate of Simple Interest....................................................................... 18
Compound Interest............................................................................................. 19
Ordinary Annuities: Future Value...................................................................... 20
Matrix..................................................................................................................... 27
 Abstract
This term paper explores advanced applications of business mathematics, focusing on linear
programming, financial mathematics, and statistical analysis. These topics are crucial for
understanding complex business scenarios and making informed decisions. The paper discusses
the theoretical aspects and practical applications of these mathematical concepts, demonstrating
their relevance in real-world situations.

Introduction
Algebra is a part of maths that uses symbols and rules for changing those symbols. It focuses on
understanding relationships between quantities and solving problems. Equations and inequalities
are key parts of algebra. Equations show that two things are equal, while inequalities show that
one thing is bigger or smaller than another. These ideas are important in maths and are used in
fields like physics, engineering, economics, and computer science.

This paper will give a detailed look at algebraic equations and inequalities. It will cover different
types of equations and inequalities, explain how to solve them, and show how they are used in
various fields. It starts with a look at linear equations, the simplest type of algebraic equations.

Ratio, Proportion, Percentage, Profit & Loss,

Discounts, Weighted Averages
Ratio

Ratios are very helpful in accounting and finance as they let us compare and simplify different
numbers. By breaking down bigger values into smaller, more manageable ones, ratios help us
maintain balance, manage performance, make decisions, and compare against standards.

- Definition: A ratio is a comparison of two numbers, indicating how many times one number is
contained within the other.

- Properties: Simplification by dividing both terms by their greatest common divisor is a key
property of ratios.

- Applications: Ratios are employed in various fields, such as business, engineering, and
sciences, to maintain consistency and proportionality.
Proportion

Proportions are equations that state two ratios are equal, essential for maintaining the balance in
quantitative relationships.

- Definition: A proportion is an equation that states two ratios are equivalent.

- Properties: Ratios, like fractions, can be simplified by dividing both terms by their greatest
common divisor.

- Applications: Proportions are used in scaling, creating models, and solving real-world problems
where maintaining consistency is crucial.

Percentage

Percentages are crucial for comparing quantities and understanding proportions. They help us
interpret data and understand growth rates in economic indicators such as GDP growth, inflation
rates, and interest rates..

- Definition: A percentage is a ratio expressed as a fraction of 100, indicated by the percent

symbol (%). For example, 45% equals 45/100.

- Properties: Percentages can be easily converted to and from decimals and fractions.

- Applications: Commonly used in calculating discounts, interest rates, and statistical data
analysis.

Profit and Loss

Grasping the concepts of profit and loss is essential for assessing financial performance, making
investment choices, and planning finances effectively.

- Definition: Profit is the financial benefit gained when revenue surpasses costs and expenses. A
loss happens when expenses and costs are higher than the revenue.

- Formulas:

● Profit = Total Revenue - Total Costs

● Loss = Total Costs - Total Revenue

- Profit Margin: This is the ratio of profit to revenue, usually shown as a percentage.

- Applications: Profits are used to measure business success, assess investment returns, and plan
finances. Examining losses helps pinpoint inefficiencies, cut costs, and enhance strategies.

Discounts

Discounts lower prices for customers but can be a cost for businesses. They are commonly used
to increase sales or clear out inventory.

- Calculation: We will also look at how to accurately figure out discounts.

Weighted Averages

Weighted averages are a kind of average where some values have more influence on the result
than others, based on their importance or how often they occur. Unlike simple averages where
each value has the same impact, weighted averages prioritise more significant or frequent values.

- Applications: Weighted averages are helpful when working with data sets where some values
are more important than others.

Exercise

Let us explore practical exercises to see how these concepts work in real-life situations. This
approach will help us learn how to solve these problems effectively

1. Three containers hold different amounts of liquid. The ratio between the first container,
the second container, and the third container is 4:6:8. If the total amount of liquid in all
three containers is 180 liters, how much liquid does each container hold?

Solution:
 2. A baker buys ingredients for a cake costing Rs. 300. She sells the cake for Rs. 450. What
percentage of profit does she earn?

Solution:
 3. A factory has enough raw materials to last for 50 workers for 30 days. If 10 more
workers join after 10 days, how long will the materials last?

Solution:
 Sets in Mathematics
The mathematical field known as axiomatic set theory deals with issues related to sets, which are
collections of distinct objects. Set theory serves as the foundation for many branches of
mathematics and underpins other advanced mathematical concepts. Sets are typically represented
by capital letters, with their elements enclosed in curly brackets. For example, A={1,2,3}.

Definition: A set is a collection of distinct objects considered as a single entity. It allows us to

determine whether a particular object belongs to the set.

Elements: An element is an object that belongs to a set. If x is an element of set A, it is denoted

as x ∈ A.

There are two primary methods of representing sets:

 1. Roster Form: This method lists all the elements of a set within curly brackets. For
example, S = {January, June, July}.

2. Set Builder Notation: This method describes a set by specifying the properties that its
elements must satisfy. It is particularly useful for large or infinite sets. For example, S =
{x | x is a month that begins with J}, meaning S includes January, June, and July.

Types of Sets

There are various types of sets, each with distinct properties and uses. Here are the ten most
important ones:

1. Finite Set: A set with a limited number of elements. Example: A = {1, 2, 3, 4, 5}.

2. Infinite Set: A set with an unlimited number of elements. Example: N = {1, 2, 3, 4, 5,

…}.

3. Null Set: Also known as the empty set, it contains no elements. It is denoted by ∅ or {}.
Example: A = ∅.

4. Singleton Set: A set containing exactly one element. Example: A = {5}.

5. Equivalent Set: Two sets with the same number of elements. Example: A = {a, b, c} and
B = {1, 2, 3}.

6. Disjoint Set: Two sets with no elements in common. Example: A = {1, 2, 3} and B = {4,
5, 6}.

7. Universal Set: The set that contains all elements under consideration, usually denoted by
U. Example: If A = {1, 2, 3} and B = {4, 5, 6}, then U = {1, 2, 3, 4, 5, 6}.

8. Subset: Set A is a subset of set B if all elements of A are also elements of B. It is denoted
as A ⊆ B. Example: A = {1, 2} is a subset of B = {1, 2, 3, 4}.

9. Proper Subset: Set A is a proper subset of set B (denoted A ⊂ B or A ⊊ B) if every

element of A is also in B, and A is not equal to B. Example: If B = {1, 2, 3}, then {1, 2}
and {2} are proper subsets of B, but {1, 2, 3} is not because it is equal to B.

10. Power Set: The power set of a set A is the set of all possible subsets of A, including A
itself and the empty set. It is denoted as P(A). Example: If A = {1, 2}, then P(A) = {∅,
{1}, {2}, {1, 2}}.
Operations on Sets

Operations on sets are basic actions performed on sets to produce other sets. The most common
set operations include:

1. Intersection: The intersection of two sets A and B is a set containing all elements that
are in both A and B. It is denoted as A ∩ B. Example: If A = {1, 2, 3} and B = {2, 3, 4},
then A ∩ B = {2, 3}. The De Morgan's law for intersection is: n(A ∩ B) = n(A) + n(B) -
n(A ∪ B).

2. Union: The union of two sets A and B is a set containing all elements that are in A, B, or
both. It is denoted as A ∪ B. Example: If A = {1, 2, 3} and B = {3, 4, 5}, then A ∪ B =
{1, 2, 3, 4, 5}.

3. Difference: The difference of two sets A and B (also known as the relative complement)
is a set containing all elements that are in A but not in B. It is denoted as A − B or A ∖ B.
Example: If A = {1, 2, 3} and B = {3, 4, 5}, then A − B = {1, 2}.

4. Cartesian Product: The Cartesian product of two sets A and B is the set of all ordered
pairs formed by taking an element from each set. It is denoted as A × B. Example: If A =
{1, 2} and B = {3, 4}, then A × B = {(1, 3), (1, 4), (2, 3), (2, 4)}.

Mathematics of Finance

Simple Interest

Simple interest is a fundamental concept in the mathematics of finance. It is a straightforward

method for calculating the interest charged on a loan or the interest earned on an investment. The
interest amount is determined by multiplying the principal amount by the interest rate and the
time period in question. In this paper, we will explore the classification of simple interest, its
applications, and its significance within the broader scope of financial mathematics.

Formula: I=P⋅i⋅n Where,

● I = Interest
● P = Principal
● i = Interest rate
● n = Number of years
When calculating interest rates, it is important to ensure that the values are expressed in
percentage form. Let's consider an example of determining both the interest rate and the interest
amount. This formula is particularly useful when the nominal interest rate, regardless of how it is
compounded, and the number of compounding periods (or n) are known.

1. What will be the interest rate if $2,500 earns $60 interest in 1 year?

Solution:
In calculating simple interest, two primary methods are used to determine the time period
involved: the exact method and the ordinary method. These methods differ in the day basis used
for annual interest calculations, resulting in slight variations.

The exact method, also known as the 365-day method, calculates interest based on the actual
number of days in a year, which is 365. This method is considered more accurate as it accounts
for the precise duration of the time period.

The ordinary method, also referred to as the 360-day method or the bankers' method, calculates
interest on a 360-day basis. While easier to use and commonly employed in banking and finance,
it is less precise compared to the exact method.

1. Determine the interest on $2000 for 45 days at an interest rate of 8% using (i) the exact
method (ii) the ordinary method.

Solution:
The Future Value

The future value (FV) in finance represents the amount of money an investment or loan will
grow to at a specific point in the future, factoring in the interest earned or paid over time. For
simple interest calculations, the future value is easy to determine using the interest formula. In
essence, it indicates the total amount that needs to be repaid on a loan at a designated future date.

Formula is: FV = P + Pin or P(1 + in).

1. Let's calculate the future value of a $15,000 investment at a 5% interest rate for 18
months.

Solution:
The Present Value

The present value is the current worth of a future amount of money or series of cash flows,
discounted at a specified interest rate. It helps determine how much should be invested today to
obtain a certain future amount. For instance, if you aim to receive $700 at a 5% interest rate after
8 months, the required investment today is the present value.

The formula to calculate present value is:

P = F/(1+in)

1. How much will Fran need to invest now in an employees' savings account with a 7
percent interest rate in order to have $700 in one year?

Solution:
Bank Discounts
In many loan agreements, the interest charge is not calculated based on the amount the borrower
receives, but rather on the total amount that will be repaid. This method of interest calculation is
referred to as the bank discount, and the sum the borrower actually receives is known as the loan
proceeds. For instance, if an individual repays a $5000 loan but only receives $3500 initially
while $1500 is taken as a bank charge, the $3500 represents the loan proceeds and the $1500 is
the bank discount.

The formula for calculating the proceeds P is given by: P=F(1−dn)

Where:

● F is the face value of the loan (the amount to be repaid)

● d is the bank discount rate
● n is the time period in years
1. Consider a scenario where $2000 is borrowed for 9 months at a 10% discount rate. What
will be the proceeds?

Solution:
Effective Rate of Simple Interest

The effective interest rate (EIR) represents the true interest earned or paid on an investment or
loan over a given period. For simple interest, the effective rate reveals the genuine cost or return
of a financial instrument by considering the impact of time. Essentially, the effective rate
provides a clear picture of the actual simple interest for the year.

Formula:
Compound Interest

It refers to the interest calculated on the initial principal, which also includes all the accumulated
interest from previous periods on a deposit or loan. This "interest on interest" effect can lead to
exponential growth of wealth over time, making it a powerful mechanism for both savings and
debt.

Formula:

● A = future value of the investment/loan, including interest

● P = principal investment/loan amount
● r = annual interest rate (as a decimal)
● n = number of times interest is compounded per year
● t = number of years the money is invested or borrowed

1. Determine the future value of an investment of $1500 at an annual interest rate of 5%

compounded quarterly for a period of 8 years.

Solution:
Ordinary Annuities: Future Value

An annuity certain, also referred to as a certain and period annuity, ensures payments for a set
period, regardless of the annuitant's survival throughout that time. This type provides a fixed
number of payments over a predetermined duration, such as loan transactions and rent payments.
Essentially, an annuity that starts and ends on specified dates is known as an annuity certain.

A simple annuity, or a regular annuity, involves a series of equal payments made at regular
intervals over a specific period. Payments are typically made at the end of each
period—monthly, quarterly, semi-annually, or annually. Simple annuities are commonly used in
loans, mortgages, and investments due to their straightforward structure and predictability.

An ordinary annuity, also called an annuity in arrears, is characterized by equal payments made
at the end of each period over a specified term. This structure is prevalent in financial products
like mortgages, car loans, and bond interest payments.

Given the parameters:

● n = Number of periods
● i = Interest per period
● R = Payment per period
 ● F = Future value of the annuity

1. If $200 is deposited in an account at the end of every month for the next 3 years, how
much will be in the account at the time of the final deposit if the interest rate is 6%
compounded monthly?

Solution:
 Ordinary annuities: sinking fund
A typical annuity can be utilized to create a sinking fund, which is a deliberate financial strategy
where money is set aside at regular intervals to pay off a future debt or expense. This approach is
commonly employed by businesses, governments, and individuals to ensure that funds are
readily available for future obligations without needing a substantial lump sum payment at the
end.

1. How much should be deposited in a sinking fund at the end of each month for 4 years to
accumulate $15,000 if the fund earns 6% compounded monthly?

Solution:
Present Value in the Ordinary annuity

To determine the present value of an ordinary annuity, the new equation:

1. What initial sum needs to be deposited in an account with a 6% annual interest rate,
compounded quarterly, to enable monthly withdrawals of $1,500 for 15 years, with the
first withdrawal occurring at the end of the first month?

Solution:
Mortgage payments
Mortgages are financial agreements where a lender provides funds to a borrower for purchasing
real estate, with the property itself serving as collateral. The borrower typically pays back the
loan over a specified period, making regular payments that include both principal (the original
loan amount) and interest (the cost of borrowing). If the borrower fails to repay according to the
agreed terms, the lender may have the right to foreclose on the property to recover their
investment.

1. An $85,000 townhouse is to be purchased by paying $15,000 in cash and securing a

$70,000 mortgage for 25 years at an annual interest rate of 8.5% compounded monthly.
A) Determine the monthly payment on the mortgage.
B) Calculate the total amount of interest that will be paid over the life of the loan.
 Matrix

A matrix is a rectangular array of numbers arranged in rows and columns. For example: