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Cfm 001 Financial Mathematics Question Paper
Cfm 001 Financial Mathematics
Course:Certificate In Business Management
Institution: Kca University question papers
Exam Year:2014
UNIVERSITY EXAMINATIONS: 2013/2014
STAGE II ORDINARY EXAMINATION FOR THE CERTIFICATE
BUSINESS MANAGEMENT
CFM 001 FINANCIAL MATHEMATICS
DATE: APRIL 2014
TIME: 1 1/2 Hours
INSTRUCTION: Answer any THREE questions
QUESTION ONE: (20 MARKS)
a) Outline any three advantages and disadvantages of Arithmetic mean.
(6 Marks)
b) The managing director of Munene Wholesalers has complaints received from the trade union
that the monthly salaries of his employees at various retail outlets vary widely. The
accountant of the firm has provided the data below with respect to the two largest retail
outlets as follows.
Monthly salary
Sh”000”
Number of
Employee
Thika Branch
Number of
Employee
Westland Branch
5-10 3 1
10-15 20 22
15-20 16 15
20-25 6 8
25-30 2 8
30-35 2 4
35-40 1 2
50
60
Required
i. The mean monthly salary for each branch. (4 Marks)
ii. The standard deviation of monthly salary for each branch. (4 Marks)
iii. The coefficient of variation of monthly salary for each branch (4 Marks)
iv. Interpret the results obtained in (iii) above
(2 Marks)
QUESTION TWO: (20 MARKS)
a) State and explain any four assumptions of linear programming
(8 Marks)
b) Osha chemical Ltd uses two chemicals, Arkon and Xenon in varying proportions to produce
three products; Exe, Wye & Zed. He wishes to produce at least 150 litres of Exe, 200 Litres
of Wye and 60 Litres of Zed. Each kilogram of Akron yields 3 Litres of Exe, 5 Litres of
Wye and 3 Litres of Zed. Each kilogram of Xenon yields 5 Litres of Exe, 5 Litres of Wye
and 1 Litres of Zed. Akron costs Sh.40 per kg and Xenon Sh50 per kg.
Required
(i)
Formulate the above linear programming problem in order to minimize cost.
(4 Marks)
(ii)
Solve the problem graphically
(8 Marks)
QUESTION THREE: (20 MARKS)
a) Abdul Mwarome deposited Sh. 80,000 in a fixed deposit account. After four years, the
amount of money in his account was Sh. 97,240.50. Determine the compound interest rate
per annum
(5 marks)
b) At the beginning of 2008, James Chiba deposited sh. 1,000,000 in an investment account
which earned compound interest at 15% per annum. At the beginning of each subsequent ear
he deposits a further sh.500, 000 in the same account.
Required
Determine the amount of money in the investment account by the end of year 2012
(6 Marks)
c) Emma Arunga is considering investing Sh. 1,000,000 for a two year period. The data below
relates to interest rate of the three investment opportunities available.
Investment opportunity A:-10% simple interest per annum
Investment opportunity B:-9.5% compound interest per annum compounded
semi-annually
Investment opportunity C:-9% compound interest per annum compounded
quarterly
Required
Determine the investment option that would provide the highest return for the two year
period
(9 Marks)
QUESTION FOUR: (20 MARKS)
Moving averages are often used in an effort to identify movements in share prices.
Approximate monthly closing prices (in Sh. per share) for Toys Children Ltd. for
December 2012 through November 2013 are shown below:
Month
Price (Sh)
December 2012 40
January 2013 38
February 2013 39
March 2013 41
April 2013 36
May 2013 41
June 2013 34
July 2013 37
August 2013 35
September 2013 37
October 2013 40
November 2013 41
Required:
i.
Use a 3-month moving average to forecast the closing price for December 2013.
(6 Marks)
ii.
Use a 3-month weighted moving average to forecast the closing price for December
2013. Use weights of 0.4 for most recent period, 0.4 for the second period back and 0.2
for the third period back.
iii.
(6 Marks)
Use exponential smoothing with a smoothing constant of a = 0.35 to forecast the closing
price for December 2013.
iv.
(6 Marks)
Which of the three methods do you prefer? Why? (2 Marks)
QUESTION FIVE: (20 MARKS)
a) Distinguish between the following set of terms
i. interpolation and extrapolation (2 Marks)
ii. Qualitative and quantitative forecasting techniques (2 Marks)
iii. Compounding and discounting (2 Marks)
b) Explain any three qualitative forecasting techniques
(6 Marks)
c) Rose Ndaba expects to receive sh 120,000, 150,000 185,000 after one, two and three years
respectively. Taking a discount rate of 12%, compute the present value of these amounts.
(4 Marks)
d) Calculate the present value of investment that promises equal return of Sh.10, 000 each year
for the next 3 years. The discounting rate is 10% per annum assuming.
i. The cash flow are received at the end of each year (2 Marks)
ii. The cash flow are received at the beginning of each year (2 Marks)
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