Addis Ababa University, College of Business and Economics, Department of

Management
2019

Group Worksheet and Assignment

Instruction:
• Form a group of 5-member and attempt all question and clearly write your answers
with visible and readable ways
• The participation of each group members has to be ensured and everyone has to be
able to discuss and get interact with the remining members.
• The final submission date of the assignment is on May 22, 2022.
• If you encounter any question beyond your scope of coverage in a class then you
need to communicate the question to the instructor through your class
representative.
• There are question with answers and you are request to explore the process used
and implemented to get the solution and accordingly try to discuss the process and
present the answer for the specific question presented with answer.

1. Mr. X wanted to buy a leather sofa for his new family room. The cost of the sofa was Birr
10,000. He was short of cash and went to his local bank and borrowed Birr 10,000 for 6
months at an annual interest rate of 12%. Find the total simple interest and the maturity
(Future) value of the loan.
2. How long will it take if Birr 20,000 is invested at 5% simple interest to double in value?
3. At what interest rate will Birr 6,000 yield 900 Birr in 5 years’ time?
4. How much money must Mr. Z has to invest today at 6% simple interest if he is to receive
Birr 3,100 as an amount in 4 years?
5. Find the interest on Birr 1,000 at 5% for 45 days.
6. What are the compound amount and compound interest at the end of one year if Birr 10,000
is borrowed at 8% compound quarterly?
7. Find the compound amount compound interest resulting from the investment of Birr 1000 at
6% for 10 years, if the account Compounded annually and semi annuall, quarterly,
compounded hourly and compounded continuously?
8. How long will it take to accumulate Birr 650 if Birr 500 is invested at 10% compound
quarterly?
9. Birr 2000 is deposited in an account. After one year of monthly compounding, the balance in
the account is Birr 2,166. What is the annual percentage rate for this account?
10. A person deposits Birr 10,000 in a savings account that pays 6% compounded semi-annually.
Three years later, this person deposits an additional Birr 8,000 in the savings account. Also,

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 Addis Ababa University, College of Business and Economics, Department of
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2019

at this time, the interest rates change to 8% compounded quarterly. How much money is in
the account 5 years after the original Birr 10,000 is deposited?
11. Find the present value of a loan that will amount to Birr 5,000 in four years if money is worth
10% compounded semi annually.
12. How much must be deposited now in an account paying 6% compounded monthly in order to
have just 20,000 Birr in the account 4 years from now?
13. If money worth 14% compounded semi-annually, would it be better to discharge a debt by
paying Birr 500 now or Birr 600 eighteen months from now?
14. How much should be deposited in an account paying 8% compounded quarterly in order to
have a balance of Birr 8,000 nine years from now?
15. What is the amount of an annuity if the size of each payment is Birr 100 payable at the end of
each quarter for one year at an interest rate of 4% compounded quarterly?
16. A newly married couple are both working and decide to have Birr 1000 at the end of a month
for a down payment on a home. The account earns 12% compound monthly. How large a
down payment will they have saved in three years?
17. A person deposits Birr 200 a month for four years in to an account that pays 7% compounded
monthly. After the four years, the person leaves the account untouched for an additional six
years. What is the balance after the 10 year period?
18. A person deposits Birr 500 a year for 10 years in to an account that pays 6% compounded
annually. After 10 years the person transfers the money into another account that pays 8%
compounded quarterly. The money is left in the second account for 8 years. What is the
balance after the 18-year period?

19. What monthly deposit will produce a balance of Birr 100,000 after 10 years? Assume that
the annual percentage rate is 6% compounded monthly. What is the total amount deposited
over the 10-year period?

20. Mrs. X has a saving goal of Birr 25,000 which she would like to reach 10 years from
now. During the first five years she is financially able to deposit only Birr 100 each month
into the savings account. What must her monthly deposits over the last five years be if she is
to reach the goal? The account pays 12% interest compounded monthly.

21. XYZ Company purchased a tract of land under a purchase agreement which requires a
payment of Birr 500,000 plus 5% interest compounded annually at the end of 10 years. The
company plans to setup a sinking fund to accumulate the amount required to settle the land
purchase debt. What should the quarterly deposit into the fund be if the account pays 15%
interest, compounded quarterly?

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Addis Ababa University, College of Business and Economics, Department of
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2019

22. A business man wishes to set aside semiannual payments to purchase machinery after two
years (two years from now). The machinery's estimated cost is Birr 5000. Each payment
earns interest at 12%compounded semiannually.

a) Find the semiannual payment

b) Find the total interest earned
c) Prepare a sinking fund schedule
23. What is the PV of an annuity if the size of each payment is Birr 200 payable at the end of
each quarter for one year and the interest rate is 8% compounded quarterly?

24. What is the cash value of a car that can be bought for Birr 200 down payment and Birr 82
a month for 18 months, if money is worth 12% interest compounded monthly?
25. How much should you deposit in an account paying 6% compounded quarterly in order to
be able to withdraw Birr 1000 every 3 months for the next 3 years?

26. What is the present value of an annuity of seven payments of Birr 1000 each made at the
end of each quarter with an interest rate of 12% compounded monthly?

27. A business person's debt is payable as follows: Birr 2,000 1 year from now and Birr 5,000
5 years from now. The business person wants to repay the debt as follows: a Birr 1,000
payment now, a Birr 2,000 payment 2 years from now, a Birr 1,000 payment 3 years from
now, and the last payment 4 years from now. If the interest rate is 12% compounded
annually, find the amount of the last payment

28. Suppose you borrow Birr 5000 from a bank and agree to repay the loan in five equal
installment including all interests due. The banks interest charges are 5% compounded
annually. How much should each annual payment be in order to retire the debt including the
interest in 5 years? Answer: Birr 774.35

29. At the time of retirement, a person has Birr 200,000 in an account that pays 12%
compounded monthly. If he decides to withdraw equal monthly payments for 10 years, at the
end of which time the account will have a zero balance, how much should he withdraw each
month? Answer; Birr 2,869.42

30. An employee has contributed with her employer to a retirement program for 20 years a
certain amount twice a year. The contribution earns an interest rate of 10% compounded semi
annually. At the date of her retirement the total retirement benefit is Birr 300,000. The
retirement program provides for investment of this amount at an interest rate of 10%
compounded semi annually. Semi-annual payments will be made for 20 years to the
employee or her family in the event of her death. Answer: Birr 2483.45, Birr 17,483.45 and
Birr 600,000 respectively.
1. What semi-annual payment should she make?

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Addis Ababa University, College of Business and Economics, Department of
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2. What semi-annual payment should be made for her?

3. How much interest will be earned on Birr 300,000 over the 40 years?

31. Eden signed a loan for Birr 10,000. The loan is to be repaid with equal yearly payments
for the first three years and equal yearly payments twice as large for the next four years. If the
interest rate is 12% compounded annually, find the yearly payments. Assume each payment is
made at the end of each year. Answer; Regular Payment Birr 1,039.69 and accumulated
interest Birr 1317.52

Amortization Schedule

Payment payment Interest Principal Balance

No. reduction
0 Birr 7,000.00
1 Birr 1,039.69 Birr 280.00 Birr 759.69 6,420.31
2 1,039.69 249.61 790.08 5,450.23
3 1,039.69 218.01 821.68 4628.55
4 1,039.69 185.14 854.55 3774.00
5 1,039.69 150.96 888.73 2885.27
6 1,039.69 115.41 924.28 1960.99
7 1,039.69 78.44 961.25 999.74
8 1,039.69 39.99 999.74 0.00
Birr 1,317.56

32. Mr. X purchased a house for Birr 115,000. He made a 20% down payment with the
balance amortized by a 30 yr mortgage at an annual interest of 12% compounded monthly.
Birr 946.32 and Birr 248,675.20 respectively

a) What is the amount that Mr. X should pay monthly so as to retire the debt at the
end of the 30th yr?
b) Find the interest charged.

33. Mrs. Y purchased a house for Birr 50,000. She made an amount of down payment and
pay monthly Birr 600 to retire the mortgage for 20 years at an annual interest rate of 24%
compounded monthly.
Required: Find the mortgage, down payment, interest charged, and the percentage of
the down payment to the selling price. Answer; Birr 20,258.87, Birr 114,258.87 and 40.52%
respectively.

34. Mr. Z has taken out a Birr 60,000, 20 year, 24% mortgage on his home.
b. How much will he pay each month to discharge this mortgage?
c. How much of the first payment is for interest and by how much does it reduce the
balance owed?

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Addis Ababa University, College of Business and Economics, Department of
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2019

d. How much of the second payment is for interest and by how much does it reduce the
balance owed? Answer: Birr 1,210.44, Birr 1,200, Birr 1199.79 and Birr 10.65
respectively.
35. Ato Tefera purchased a house for Birr 250,000. He made a 20% down payment, with a
balance to be amortized by a 30-year mortgage at annual interest rate of 12% compounded
monthly.

a. Determine the amount of his monthly mortgage payment

b. What is the total amount of interest Ato Tefera will pay over the life of the mortgage?
c. Determine the amount of the mortgage Ato Tefera will have paid after 10 years.
d. What will be Ato Tefera's equity in the house at the end of 10 years? Answer: Birr

Solution

Selling price = Birr 250,000 b. Interest=?

Down payment(20%)= 50,000 = total payment - mortgage
Mortgage Birr 200,000 = 2,057.23 x 360 - 200,000
r = 12% i = 1% = 740,602.80 - 200,000
m = 12 = Birr 540,602.80
t = 30 years n = 360
c. After 10 years there will remain (20 x 12)
a. R =? = 240 monthly payments of Birr 2,057.23 to
 i  be made. The amount of the mortgage that is
R= A  −n 
1 − (1 + i ) 
still unpaid at this time is the PV of this
series of payments, that is;
 .01 
R = 200,000  −240 
1− (1.01)−240 
1− (1.01)  A = 2,057.23  
 .01 
= Birr 2,057.23
= Birr 186,836.43.
Thus after 10 years Ato Tefera will have
d. Equity in house = down payment + paid
paid Birr 13,163.57 (Birr 200,000 -
amount
186,836.43) against the principal amount of
= Birr 50,000 + 13,163.57
the mortgage.
= Birr 63,163.57

36. Andinet and Florence are looking to purchase a home. They found one that they like that
costs Birr 150,000. They can get a 30-year mortgage at 9% and plan to make a down payment
of 20% of the selling price.

a. What will be their monthly mortgage payment?

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Addis Ababa University, College of Business and Economics, Department of
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2019

b. When Andinet and Florence go to the bank, they are offered an annual percent rate of 6%
if they take a 15-year loan rather than one for 30 years. Andinet and Florence are
skeptical because they can't afford to make twice the payment calculated for 30 years. In
actual fact, how much would their payment be if they repaid the mortgage in 15 years?
c. Andinet is 25 years old and wants to be a millionaire by the time he is 50. He is planning
to put aside a sum of money at the end of each year sufficient to accumulate a million
Birr in 25 years using an interest rate of 10%. How much must he put aside?
d. Considering your answer in part c above, suppose Andinet can only put aside Birr 10,000
per year. How high a rate of return must he realize to achieve his goal?

50. Asrat Carpet Company has in inventory 1,500 square yards of wool and 1,800 square
yards of nylon for the manufacture of carpeting. Two grades of carpeting are produced. Each
roll of superior grade carpeting requires 20 sq. yards of wool and 40 square yards of nylon.
Each roll of quality-grade carpeting requires 30 square yards of wool and 30 square yard of
nylon. If Asrat would like to use all the material in inventory, how many rolls of superior and
how many rows of quality carpeting should be manufactured? Answer: 15 and 40.

64. Let us find the feasible solution for the problem of a decorative item dealer whose LPP is
to maximize profit function.

Z = 50x + 18y
Subject to the constraints

65. Solve the following LPP using graphically method.

Maximize Z =100 + 100y.

Subject to the constraints

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Addis Ababa University, College of Business and Economics, Department of
Management
2019

66. Solve the following LPP using graphically method.

Maximize:
Z = 500X1 + 450X2
Subject to:
6 X1 + 5 X2  60

1 X1 + 0 X2  8

10 X1 + 20 X2  150

1 X1 + 0 X2  0

0 X1 + 1 X2  0

67. A tea bag producer produces two brands of Chinese diet tea bag, A and B, of mixed herbs
P and Q together. Brand A tea bag contains 20 g of herbs P and 10 g of herbs Q. Brand B tea
bag contains 50 g of herbs P and 70 g of herbs Q. The producers have 12 kg of herbs P, 15 kg
of herbs Q and 16 paper boxes. Each paper box can pack 25 brands A diet tea bags or 20
brand B tea bags. The profits generated by a box of brand A tea bag and a box of brand B tea
bag are $20 and $30 respectively. Suppose x boxes of brand A tea bag and y boxes of brand B
tea bag are produced.

(a) Write down all the constraints.

(b) Using the graph paper provided,
(i) Find x and y so that the profit will be a maximum.
(ii) Hence find the maximum profit.
68. Impact Printing makes two kinds of computer paper using premium or ordinary quality
stock. They have a contract to supply at least 5000 cases of paper. There is only enough
stock to make 4000 cases of premium paper, but ample stock for ordinary paper. Both kinds
are made with the same machine and 1200 hours of machine time are available. Premium
paper takes 18 minutes per case to make and ordinary paper takes 12 minutes per case. The
profit on each is $4/case and $3/case, respectively.

A. Write the constraints for the problem. (HINT: you need to convert the hours to
minutes so that the inequality has all minutes).
B. Write the profit equation.
C. Graph the constraints and find the corner points.
D. Find the optimum solution

69. A farmer has a field of 70 acres in which he plants potatoes and corn. The seed for
potatoes costs $20/acre, the seed for corn costs $60/acre and the farmer has set aside $3000 to

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Addis Ababa University, College of Business and Economics, Department of
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2019

spend on seed. The profit per acre of potatoes is $150 and the profit for corn is $50 an acre.
Find the optimal solution for the farmer.

A. Write the constraints for the problem.

B. Write the profit equation.
C. Graph the constraints and find the corner points.
D. Find the optimum solution

70. The automotive plant in Rockaway makes the Topaz and the Mustang. The plant has a
maximum production capacity of 1200 cars per week. During the spring, a dealer orders up
to 600 Topaz cars and 800 Mustangs each week. If the profit on a Topaz is $500 and on a
Mustang it is $800.
A. Write the constraints for the problem.
B. Write the profit equation.
C. Graph the constraints and find the corner points.
D. Find the optimum solution
71. A manufacturer of ski clothing makes ski pants and ski jackets. The profit on a pair of ski
pants is $2.00 and on a jacket is $1.50. Both pants and jackets require the work of sewing
operators and cutters. There are 60 minutes of sewing operator time and 48 minutes of cutter
time available. It takes 8 minutes to sew one pair of ski pants and 4 minutes to sew one
jacket. Cutters take 4 minutes on pants and 8 minutes on a jacket. Find the maximum profit
and the amount of pants and jackets to maximize the profit.

A. Write the constraints for the problem.

B. Write the profit equation.
C. Graph the constraints and find the corner points.
D. Find the optimum solution

72. A toy manufacturer wants to minimize her cost for producing two lines of toy airplanes.
Because of the supply of materials, no more than 40 Flying Bats can be built each day, and
no more than 60 Flying Falcons can be built each day. There are enough workers to build at
least 70 toy airplanes each day. It costs $12 to manufacture a Flying Bat and $8 to build a
Flying Falcon. What is the minimum possible cost each day?
A. Write the constraints for the problem.
B. Write the profit equation.
C. Graph the constraints and find the corner points.
D. Find the optimum solution
73. Jeremy makes two types of wood clocks to sell at local stores. It takes him 2 hours to
assemble a pine clock, which requires 1 oz of varnish. It takes 2 hours to assemble an oak
clock, which takes 4 oz. of varnish. Jermaine has 16 oz. of varnish in stock, and can work 20
hours. If he makes $3 profit on each pine clock and $4 on each oak clock, how many of each
type should he make to maximize his profits?
A. Write the constraints for the problem.

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Addis Ababa University, College of Business and Economics, Department of
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2019

B. Write the profit equation.

C. Graph the constraints and find the corner points.
D. Find the optimum solution
74. The area of a parking lot is 600 square meters. A car requires 6 square meters. A bus
requires 30 square meters. The attendant can handle only 60 vehicles. If a car is charged
$2.50 and a bus $7.50, how many of each should be accepted to maximize income?

75. Oaken Treasures makes two different kinds of chairs, rockers, and swivels. Work on
machines A and B is required to make both kinds. Machine A can be run no more than 20
hours a day. Machine B is limited to 15 hours a day. The following chart shows the amount
to time on each machine that is required to make one chair. The profit made on each chair is
also shown.

Chair Operation A Operation B Profit

Rocker 2h 3h $12
Swivel 4h 1h $10
How many chairs of each kind should Oaken Treasures make each day to maximize their
profit?

76. The Algebra 2 quiz consists of computation problems and graphing problems.
Computation problems are worth 6 points each and graphing problems are worth 10 points
each. You can answer a computation problem in 2 minutes and a graphing problem in 4
minutes. You have forty minutes to take the quiz and may choose nor more than 12 problems
to answer. Assuming you answer all the problems attempted correctly, how many of each
type should you answer to get the highest score?

77. Tee-Vee makes console and wide screen televisions. The equipment in the factory allows
for making at most 450 console televisions and 200 wide screen televisions in one month.
The chart below shows the cost of making each type of television and the profit. During the
month of November, the company can spend $360,000 to make these televisions. To
maximize profit, how many of each type of should they make?

Television Cost per Unit Profit per Unit

Console $600 $125
Wide Screen $900 $200

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Addis Ababa University, College of Business and Economics, Department of
Management
2019

78. You are the assistant manager of an appliance store. Next month you will order two types
of stereo systems. How many of each model should you order to minimize the cost?

▪ Model A: Your cost is $300. Your profit is $40.

▪ Model B: Your cost is $400. Your profit is $60.
▪ You expect a profit of at least $4800.
▪ You expect to sell at least 100 units.

79. Your school has contracted with a professional magician to perform at the school. The
school has guaranteed an attendance of at least 1000 and total ticket receipts of at least
$4800. The tickets are $4 for students and $6 for non-0sutdents, of which the magician
receives $2.50 and $4.50, respectively. What is the minimum amount of money the magician
could receive?

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