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BU4010 – Quantitative Methods in Finance

BU4010 – Quantitative Methods in Finance. SEMINAR ONE AND SOLUTION Fundamentals of Business Mathematics 1 Pippa Edmonds Pippa.edmonds@online.sch.im. 1. TEST YOUR UNDERSTANDING. Compute the following: 7 + 2 * 5 (5 + 2) * 8 28 – 48/4 (7 + 3)/5 8 + 4 * 5 – 2 (8 – 4) * (3 + 7). Answers.

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BU4010 – Quantitative Methods in Finance

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  1. BU4010 – Quantitative Methods in Finance SEMINAR ONE AND SOLUTION Fundamentals of Business Mathematics 1 Pippa Edmonds Pippa.edmonds@online.sch.im 1

  2. TEST YOUR UNDERSTANDING • Compute the following: • 7 + 2 * 5 • (5 + 2) * 8 • 28 – 48/4 • (7 + 3)/5 • 8 + 4 * 5 – 2 • (8 – 4) * (3 + 7)

  3. Answers • 7 + 10 = 17 • 7 * 8 = 56 • 28 – 12 = 16 • 10/5 = 2 • 8 + 20 – 2 = 26 • 4 * 10 = 40

  4. Test Continued • Round the number 268.984 to: • Two decimal places. • One decimal place. • To the nearest whole number. • To the nearest 100. • To three significant numbers. • To four significant figures.

  5. Answers • 268.98 • 269.0 • 269 • 300 • 269 • 269.0

  6. QUESTION AND ANSWERS • You are given the price of a commodity as £5000 inclusive of Value Added Tax (VAT) at 20%. • Determine the price of the commodity exclusive of VAT to the nearest whole number. • The price of the commodity exclusive of VAT is given by dividing the price inclusive of the VAT by (1 + VAT rate) • 5000/ (1+0.2) = 5000/ 1.2 = £4167

  7. QUESTION AND ANSWER • If a commodity sells for 2500 inclusive of VAT at 17.5% and the coalition government has suddenly increased VAT to 20%. • Determine the price of the commodity exclusive of VAT to the nearest whole number. • Determine the new price of the commodity inclusive of the new VAT rate to the nearest whole number. • The price of the commodity exclusive of VAT is given by 2500/ (1 + 0.175) = £2128 • The price of the commodity at the new VAT rate of 20% is given as 2128 (1 + 0.2) = 2128 x 1.2 = £2554

  8. Test Continued • After you undergraduate degree, you and a group of three colleagues specialisingin different aspects of accounting and finance decide to set up a consulting practice. • The partnership agreement is set to split profits in the ratio 3:5:8:4. • After the first year of trading, the partnership generates a profit of £320,000. • Determine to the nearest whole number how much each partner takes home.

  9. Answer • The ratio 3:5:8:4 implies that the profits will be split into 3 + 5 + 8 + 4 = 20 parts • £320,000/20 = £16,000 • Partner 1 takes home 3 x £16,000 = £48,000 • Partner 2takes home 5 x £16,000 = £80,000 • Partner 3 takes home 8 x £16,000 = £128,000 • Partner 4 takes home 4 x £16,000 = £64,000

  10. SEMINAR SUMMARY We reviewed some basic mathematical relationships such as brackets, number signage, reciprocals and proportions. We have also identified a simple order of mathematical operations ‘BEDMAS’ or ‘BODMAS’.

  11. END OF SEMINAR

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