2020 Further Mathematics:

Bound Reference
Emma Zanghi

Core: Data Analysis

Core: Recursion and Finance
Module: Networks
2
 Data Analysis
DATA DISTRIBUTIONS ........................................................................................................................... 4

ASSOCIATIONS BETWEEN VARIABLES........................................................................................... 10

MODELLING LINEAR ASSOCIATIONS ............................................................................................ 13

TIME SERIES .......................................................................................................................................... 15

3
 Data distributions

Categorical

Categorical variables represent characteristics or qualities of people or things – for

example, a person’s eye colour, sex, or fitness level.

Data generated by a categorical variable can be used to organise individuals into one of
several groups or categories that characterise this quality or attribute.
For example, an ‘F’
in the Sex column indicates that the student is a female, while a ‘3’ in the Fitness level
column indicates that their fitness level is low.

Categorical variables come in two types: nominal and ordinal.

- Nominal variables have data values that can be used to group individuals
according to a particular characteristic.

The variable sex is an example of a nominal variable. The data values for the
variable sex, for example M or F, can be used to group students according to their
sex. It is called a nominal variable because the data values name the group to
which the students belong, in this case, the group called ‘males’ or the group called
‘females’. 


- Ordinal variables have data values that can be used to both group and order
individuals according to a particular characteristic.

The variable fitness level is an example of an ordinal variable. The data generated
by this variable contains two pieces of information. First, each data value can be
used to group the students by fitness level. Second, it allows us to logically order
these groups according to their fitness level – in this case, as ‘low’, ‘medium’ or
‘high’.

4
Numerical
Numerical variables are used to represent quantities, things that we can count or measure.

For example, a ‘179’ in the Height column indicates that the person is 179 cm tall, while an
‘82’ in the Pulse rate column indicates that they have a pulse rate of 82 beats/minute.

Numerical variables come in two types: discrete and continuous.

- Discrete variables represent quantities that are counted.

The number of mobile phones in a house is an example. Counting leads to discrete

data values such as 0, 1, 2, 3, . . . There can be nothing in between.

As a guide, discrete variables arise when we ask the question ‘How many?’

- Continuous variables represent quantities that are measured rather than counted.

Thus, even though we might record a person’s height as 179 cm, their height could
be any value between 178.5 and 179.4 cm. We have just rounded to 179 cm for
convenience, or to match the accuracy of the measuring device.

As a guide, continuous variables arise when we ask the question ‘How much?’

Numerical or categorical?
Deciding whether data are numerical of categorical is not an entirely trivial exercise. Two
things that can help your decision-making are:

1. Numerical data can always be used to perform arithmetic computations. This is not
the case with categorical data. For example, it makes sense to calculate the
average weight of a group of individuals, but not the average house number in a
street. This is a good test to apply when in doubt.

2. It is not the variable name alone that determines whether data are numerical or
categorical; it is also the way the data are recorded. For example, if the data for
variable weight are recorded in kilograms, they are numerical. However, if the data
are recorded as ‘underweight’, ‘normal weight’, ‘overweight’, they are categorical.

5
Symmetric distributions

Positively skewed distributions Negatively skewed distributions

Outliers

6
The median
The median is the middle value in an ordered dataset

For n data values the media is located at the (n + 1/2)th position.

When
- n is odd, the media will be the middle data value
- n is even, the median will be the average of the two middle values.

Range
The range, R, is the simplest measure of spread of a distribution. It is the difference between
the largest and smallest values in the dataset.

R = largest data value – smallest data value

The interquartile range

The interquartile range (IQR) is defined as the spread of the middle 50% of data values, so
that:

IQR = 𝑄! – 𝑄#

7
Five Number Summary
A listing of the median, M, the quartiles Q1 and Q3 and the smallest and largest data values
of a distribution, written in the order

minimum, Q1, median, Q3, maximum

is known as a five-number summary.

The box plot

A box plot is the graphical display of the five number summary.

In a box plot:
- a box extends from Q1 to Q3, locating the middle 50% of the data values
- the median is shown by a vertical line drawn with in the box
- lines (called whiskers) are extended out from the lower and upper ends of the box to
the smallest and largest data values of the dataset respectively.

Using a box plot to display outliers

In a box plot, possible outliers are defined as being those values that are:
- greater than Q3 + 1.5 × IQR (upper fence)
- less than Q1 – 1.5 × IQR (lower fence)

Choosing between the mean and the median

The mean and the median are both measures of the centre of a distribution. If the
distribution is:
- symmetric and there are no outliers, either the mean or the median can be used to
indicate the centre of the distribution.
- clearly skewed and/or there are outliers, it is more appropriate to use the median to
indicate the centre of the distribution.

8
Standard deviation
To measure the spread of a data distribution around the median (M) we use the
interquartile range (IQR). To measure the spread of a data distribution about the mean (x)
we use the standard deviation (s).

The 68-95-99.7% rule

For a normal distribution, approximately:
- 68% of the observations lie within one standard deviation of the mean
- 95% of the observations lie within two standard deviations of the mean
- 99.7% of the observations lie within three standard deviations of the mean.

Calculating standardised (z) scores

To obtain a standard score for an actual score, subtract the mean from the score and then
divide the result by the standard deviation. That is:

standard score = actual score – mean/standard deviation

Converting standardised scores into actual scores

By making the actual score the subject of the rule for calculating standard scores, we
arrive at:

actual score = mean + standard score × standard deviation

9
 Associations between variables
Response and explanatory variables
When investigating the association between two variables the explanatory
variable (EV) is
the variable we expect to explain or predict the value of the response variable (RV).

Note:
- EV = x-axis
- RV = y-axis

Direction of an association

- Two variables have a positive association when the value of the response variable
tends to increase as the value of the explanatory variable increases. 

- Two variables have a negative association when the value of response variable
tends to decrease as the value of the explanatory variable increases. 

- Two variables have no association when there is no consistent change in the value
of the response variable when the values of the explanatory variable increases. 


Form
Linear

Non-linear

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Strength of a linear relationship: the correlation coefficient (r)
The strength of a linear association is an indication of how closely the points in the
scatterplot fit a straight line. If the points in the scatterplot lie exactly on a straight line, we
say that there is a perfect linear association. If there is no fit at all we say there is no
association. In general, we have an imperfect fit, as seen in all of the scatterplots to date.

To measure the strength of a linear relationship, a statistician called Carl Pearson

developed a correlation coefficient, r, which has the following properties.

- If there is no linear association, r = 0.

- If there is a perfect positive linear association, r = +1.
- If there is a perfect negative linear association, r = −1.

Classifying the strength of a linear association

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Interpreting the correlation coefficient
- If asked to interpret the value of the correlation coefficient use the following
template sentences.

Linear, positive and strong
It can be concluded that
the y variable should
increase as the x variable
increases.
Linear, negative and strong
It can be concluded that
the y variable should
decrease as the x variable
increases.
Linear, positive and
moderate
There is some evidence to
suggest that the y variable
should increase as the x
variable increases.
Linear, negative and
moderate
There is some evidence to
suggest that the y variable
should decrease as the x
variable increases.
Linear, positive and weak
There is limited evidence to
suggest that the y variable
should increase as the x
variable increases.
Linear, negative and weak
There is some evidence to
suggest that the y variable
should decrease as the x
variable increases.

The coefficient of determination

The degree to which one variable can be predicted from another linearly related variable
is given by a statistic called the coefficient of determination.

The coefficient of determination is calculated by squaring the correlation coefficient:

coefficient of determination = r2

Interpreting the coefficient of determination

The coefficient of determination (as a percentage) tells us the variation in the response
variable that is explained by the variation in the explanatory variable.

Which graph?

Type of variable
Graph
Response variable Explanatory variable
Categorical Categorical Segmented bar chart, side-
by-side (parallel) bar chart

Numerical Categorical Parallel box plots, parallel

dot plots
Numerical Categorical Back-to-back stem plot,
(two categories only) parallel dot or box plots
Numerical Numerical Scatterplot

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 Modelling linear associations
The least squares regression line
The least squares line is the line that minimises the sum of the squares of the residuals.
The equation of the least squares regression line

The equation of the least squares regression line is given by y = a + bx, where:
$%!
the slope (b) is given by 𝑏 =
%"

and

the intercept (a) is then given by 𝑎 = 𝑦' − 𝑏𝑥̅

Here:
- r is the correlation coefficient
- sx and sy are the standard deviations of x and y
- 𝑥̅ and 𝑦' are the mean values of x and y.

Interpreting the slope and intercept of a regression line

For the regression line y = a + bx:
- the slope (b) estimates the average change (increase/decrease) in the response
variable (y) for each one-unit increase in the explanatory variable (x)
- the intercept (a) estimates the average value of the response variable (y) when the
explanatory variable (x) equals 0.

Residuals
residual value = actual data value – predicted value

Residuals can be positive, negative or zero.

- Data points above the regression line have a positive residual
- Data points below the regression line have a negative residual
- Data points on the line have a zero residual.

Note: if there is no clear pattern in a residual plot, the association is linear.

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The circle of transformations

Transformation Outcome Graph

𝑥& Spreads out the high x-values y relative
to the lower x-values, leaving the y-
values unchanged. This has the effect
of straightening out curves like the one
shown opposite.
The y-squared transformation works in a
similar manner but stretches out the
scale on the y-axis.
log x Compresses the higher x-values relative
to the lower x-values, leaving the y-
values unchanged.
This has the effect
of straightening out curves like the one
shown.
The log y transformation works
in similar manner but compressing the
scale on the y-axis.
1/y The reciprocal y transformation y works
by compressing larger values of y
relative to lower values of y. This has the
effect of straightening out curves like
the one shown opposite.

The reciprocal x transformation works

the same way but in the x-direction.

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 Time series
Trend
The tendency for values in a time series to generally increase or decrease over a significant
period of time is called a trend.

Cycles

Cycles are periodic movements in a time series, but over a period greater than 1 year.

Seasonality
Seasonality is present when there is a periodic movement in a time series that has a
calendar-related period – for example a year, a month or a week.

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Structural change
Structural change is present when there is a sudden change in the established pattern of a
time series plot.

Outliers
Outliers are present when there are individual values that stand out from the general body
of data.

Irregular (random) fluctuations

Irregular (random) fluctuations include all the variations in a time series that we cannot
reasonably attribute to systematic changes like trend, cycles, seasonality and structural
change or an outlier.

Three-moving mean

To use three-moving mean smoothing, replace each data value with the mean of that
value and the values of its two neighbours, one on each side. That is, if y1, y2 and y3 are
sequential data values, then:
'# ('$ ('%
smoothed 𝑦& = !

The first and last points do not have values on each side, so leave them out.

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Five-moving mean
To use five-moving mean smoothing, replace each data value with the mean of that value
and the two values on each side. That is, if y1, y2, y3, y4, y5 are sequential data values, then:

'# ('$ ('% ('& (''

smoothed 𝑦! =
)

The first two and last two points do not have two values on each side, so leave them out.

Seasonal indices

Key fact 1
Seasonal indices are calculated so that their average is 1. This means that the sum of the
seasonal indices equals the number of seasons.

Thus, if the seasons are months, the seasonal indices add to 12. If the seasons are quarters,
then the seasonal indices would to 4, and so on.

Key fact 2
Seasonal indices tell us how a particular season (generally a day, month or quarter)
compares to the average season.
For example:
- seasonal index for unemployment for the month of February is 1.2 or 120%.
This tells us that February unemployment figures tend to be 20% higher than the
monthly average. Remember, the average seasonal index is 1 or 100%.
- seasonal index for August is 0.90 or 90%.
This tells us that the August unemployment figures tend to be only 90% of the monthly
average. Alternatively, August unemployment figures are 10% lower than the
monthly average. 


De-seasonalising data
Time series data are de-seasonalised using the relationship:

de-seasonalised figure = actual figure/seasonal index

De-seasonalising can:
- remove the seasonality from the time series plot
- reveal a clear underlying trend in the data.

Re-seasonalising data
Time series data are re-seasonalised using the rule:


actual figure = de-seasonalised figure × seasonal index

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Interpreting the seasonal indices
The seasonal index of:
- 1.03 for summer tells us that summer sales are typically 3% above average
- 1.15 for autumn tells us that autumn sales are typically 15% above average
- 1.30 for winter tells us that winter sales are typically 30% above average
- 0.52 for spring tells us that spring sales are typically 48% below average.

Correcting for seasonality

Also, using the rule

de-seasonalised figure = actual figure/seasonal index

we can work out how much we need to increase or decrease the actual sales figures to
correct for seasonality.

Correlation or causality

Correlation is where there is an association between two variables

Causation is where there is a meaningful association between two variables

- Common response – both variables are linked to a third, shared variables

- Confounding variable – too many factors to accurately tell what’s impacting the
variable

- Coincidence – simply by chance

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19
20
 Recursion
LINEAR RECURRENCE RELATIONS .......................................................................................................... 22

ARITHMETIC AND GEOMETRIC SEQUENCES .......................................................................................... 23

DEPRECIATION ........................................................................................................................................ 24

INTEREST ................................................................................................................................................. 26

LOANS ..................................................................................................................................................... 27

EFFECTIVE INTEREST RATE ..................................................................................................................... 29

ANNUITIES AND PERPETUITIES .............................................................................................................. 30

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 Linear Recurrence Relations
Terms of a sequence

o Initial (principle) value = V0 or PV

o Following terms = V1, V2, V3, …
o nth term = Vn
o Term after nth term = Vn+1
o Depreciation or payment amount= d
*(%)..0.
o Rate of increase or decrease = r | given by 1 + 1.2 × #44

Recurrence Relations

Combination of a rule that links successive terms in a sequence together and the value of
at least one of the terms in the sequence

First-order linear recurrence relations are given by the rule:

𝑉4 = 𝑃𝑉, 𝑉5(# = 𝑟 × 𝑉5 + 𝑑

Rule for the nth term

A rule that states the value of a term in a sequence based off the term number it is in the
sequence. Given by:

𝑉5 = 𝑃𝑉 + 𝑑 × 𝑛, when d is added to the previous term

OR

𝑉5 = 𝑃𝑉 × 𝑟 5 when the previous term is multiplied by r

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 Arithmetic and Geometric Sequences
Arithmetic sequence Geometric sequence

Neither arithmetic or geometric

23
 Depreciation
Flat rate depreciation
Depreciation is either a fixed amount or percentage of the purchase
price per annum. Used when the depreciation is constant throughout
the life of the asset based on time.

Recurrence relation Effective Life

𝑉4 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒, 𝑉5(# = 𝑉5 − 𝑑 The time the asset will remain useful, 𝑛; the
Depreciation amount per period time until the asset reaches either its scrap
𝑑 = 𝑟% × 𝑉4 value or is written off ($0 value).
Rate per period Rule for the future value after 𝑛 periods
6
𝑟 = × 100 𝑉5 = 𝑉4 − 𝑑 × 𝑛
7(
Depreciation over n periods
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝑑 × 𝑛 OR
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝑟% × 𝑉4 × 𝑛 OR
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝑉4 − 𝑉5

Unit cost depreciation

Based on the maximum output (units) of the item, e.g. kilometres
travelled depreciated per kilometre. Used when the depreciation is
constant throughout the life of the asset based on usage.

Recurrence relation Depreciation over n periods

𝑉4 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒, 𝑉5(# = 𝑉5 − 𝑑 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝑑 × 𝑛 OR
Rule for the future value after 𝑛 periods 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝑉4 − 𝑉5
𝑉5 = 𝑉4 − 𝑑 × 𝑛

Reducing balance depreciation

Depreciations is calculated on a per year basis using a constant rate;
used when the depreciation at the start of owning an asset is more
than later in its life.

Recurrence relation Depreciation over n periods

𝑉4 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒, 𝑉5(# = 𝑅 × 𝑉5 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = 𝑉4 − 𝑉5
Rule for the future value after 𝑛 periods Common ratio
$
𝑉5 = 𝑅5 × 𝑉4 𝑅 = 1 − 𝑟% = 1 − #44

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Depreciation: Finance Solver
To use finance solver, enter all values without pressing enter, then press enter on the value
you need to find.

Flat rate depreciation

N I (%) p.a. PV Pmt FV PpY CpY
positive positive negative negative positive c. periods c. periods

Unit cost depreciation

N I (%) p.a. PV Pmt FV PpY CpY
positive positive negative negative zero or c. periods c. periods
positive

Reducing balance loan

N I (%) p.a. PV Pmt FV PpY CpY
positive negative negative zero zero or c. periods c. periods
positive

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 Interest
Simple interest
Interest is calculated on the principal of the loan/investment for the
length of the loan/investment.
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝐼(%) × 𝑛 = 𝑟% × 𝑉4 × 𝑛 = 𝑉5 − 𝑉4

Recurrence relation Interest rate per period

𝑉4 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒, 𝑉5(# = 𝑉5 + 𝐼 #
𝑟 = 7 × 100
Interest amount per period (
$ Rule for the future value after 𝑛 periods
𝐼 = 𝑟% × 𝑉4 = #44 × 𝑉4
𝑉5 = 𝑉4 + 𝐼 × 𝑛

Compound interest
Compounding p =
Interest is calculated on the current
value of the of the loan/investment period CpY
for the length of the loan/investment. Annually 1
Six-monthly 2
Recurrence relation
𝑉4 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒, 𝑉5(# = 𝑅 × 𝑉5 Four-monthly 3
Common ratio
𝑅 = 1 + 𝑟% = 1 +
$ Quarterly 4
#44
Periodic interest rate Monthly 12
589:50; $0<=
𝑅 = >89.8?56:5@ .=$:86% Fortnightly 26
N.B. number of periods = years × compounding periods Weekly 52
Interest over n periods
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑉5 − 𝑉4 Daily 364

26
 Loans
Reducing balance loan
A compound interest loan with regular, periodic repayments.
The repayments pay off the interest first, the remainder goes
towards paying off the loan. As a loan is paid off the interest
amount decreases and the amount of the repayment that goes to
paying off the principal increases.

Recurrence relation Interest amount over n periods

𝑉4 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒, 𝑉5(# = 𝑅 × 𝑉5 − 𝑑 𝑅𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑖𝑛 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒 = 𝑉4 − 𝑉5
Common ratio 𝑇𝑜𝑡𝑎𝑙 𝑝𝑎𝑖𝑑 = 𝑑 × 𝑛
$
𝑅 = 1 + 𝑟% = 1 + #44 𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑡𝑜𝑡𝑎𝑙 𝑝𝑎𝑖𝑑
− 𝑟𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑖𝑛 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒
= 𝑑 × 𝑛 − (𝑉4 − 𝑉5 )

***Add extra if the final payment is different to other payments

Amortisation table Interest Principle

A table that shows how a loan or Period Payment Balance
paid reduction
investment changes over time.
Interest is paid first then the principal. 0 - - - V0
Payments can vary throughout.
→ Interest paid for payment n 1 Pmt r% × V0 V0 – V1 V1
𝐼5 = 𝑟% × 𝑉5A#
→ Reduction in principle 2 Pmt r% × V1 V1 – V2 V2
Find the difference between the
payment and the interest for the
current payment: 3 Pmt r% × V2 V2 – V3 V3
𝑅5 = 𝑑 − 𝐼5
Find the difference between the 4 Pmt r% × V3 V3 – V4 V4
current balance and the previous
balance: 5 Pmt r% × V4 V4 – V5 V5
𝑅5 = 𝑉5A# − 𝑉5
→ Balance
6 Pmt r% × V5 V5 – V6 V6
𝑉5 = 𝑉5A# − 𝑅5

27
Interest only loan
Some loans offer options to only pay back the interest owing on the loan for a period of
time. The balance of the loan will not decrease.
$
𝑑 = 𝑟% × 𝑉4 = #44 × 𝑉4

Change in interest rate

If the interest rate increases during the life of the loan, there is an impact on the repayment
amount or the time of the loan depending on which is kept the same, as well as the total
cost of the loan and total interest paid.

VCAA example 2004 (Finance solver)

Anna borrows $12,000 at 7.5% interest p.a., compounding monthly. The loan is to be fully
repaid over four years by equal monthly payments. The monthly repayment for this loan is
$290.15.
N I(%) PV Pmt FV PpY CpY
4 × 12 = 48 7.5% 12 000 -290.15 0 12 12
At the end of 6 months the interest rate increases to 8.0% p.a. Anna still has to completely
repay the balance of the loan within the original period of the loan.
N I(%) PV Pmt FV PpY CpY
6 7.5% 12 000 -290.15 -10 688.78 12 12
48 - 6 = 42 8 10 688.78 -292.63 0 12 12
The new monthly payment that applies is $292.63

28
 Effective interest rate
Difference between nominal and effective interest rates
Nominal interest rates are not comparable unless their compounding periods are the same.
Effective interest rates correct this by determining the equivalent simple interest rate for 1
year of interest.

Simple interest for 1 year Equating simple interest and compound

𝐼 = 𝑃 × 𝑟=BB=><C= % × 1 interest
Compound Interest for 1 Year Compounding $ 5
Þ 𝑃 × 𝑟=BB=><:C= % = 𝑃 F1 + 5) %G − 𝑃
𝑛 times per Annum 5
5 $)
$)
𝐼 = 𝐴 − 𝑃 = 𝑃 F1 + %G − 𝑃 Þ 𝑟=BB=><:C= % = F1 + %G −1
5
5 5
$)
Þ 𝑟=BB=><:C= = FF1 + %G − 1G × 100%
5

On CAS 8: Finance > 5: Interest conversion > 2:Effective interest rate > eff(nominal rate,
compounding periods)

Comparing different compounding periods

As the number of compounding periods p.a. Increase, the effective rate increases.

Example
$100 loan with annual/nominal rate of 7%
Compare the effective rate when compounding on a daily, monthly and quarterly basis.

Compounding periods Periodic rate Effective rate

Yearly, n = 1 7% ((1+7%)1-1)100=7%

Daily, n = 365 (7365)%=0.019178% ((1+0.019178%)365-1)100=7.2501%

Monthly, n = 12 (712)%=0.5833% ((1+0.5833%)12-1)100=7.229%

Quarterly, n = 4 (74)%=1.75% ((1+1.75%)4-1)100=7.1859%

Comparing different loans

Loans with different compounding periods cannot be compared without using the
effective interest rate.

Example
$100 loan at 2% per month vs $100 at 5% per quarter
Loan 1 Loan 2
((1+2%)12-1)100=26.8242% ((1+5%)4-1)100=21.5506%

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 Annuities and Perpetuities
Annuities
A compound interest investment with regular, periodic
payments taken from the investment.
Recurrence relation
𝑉4 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒, 𝑉5(# = 𝑅 × 𝑉5 − 𝑑
Common ratio
$ :
𝑅 = 1 + 𝑟% = 1 + #44 , 𝑟 = .
Interest amount over n periods
𝑅𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑖𝑛 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒 = 𝑉4 − 𝑉5
𝑇𝑜𝑡𝑎𝑙 𝑝𝑎𝑖𝑑 = 𝑑 × 𝑛
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑡𝑜𝑡𝑎𝑙 𝑝𝑎𝑖𝑑 − 𝑟𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑖𝑛 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒 = 𝑑 × 𝑛 − (𝑉4 − 𝑉5 )
Amortisation table
As per Reducing balance loan, however interest paid becomes interest earned

Finance solver
PV Negative Giving money to the bank
Pmt Positive Bank repays
FV Zero or positive No money left/money left over

Annuity investments
A compound interest investment with regular, period
additions to the principle.
Recurrence relation
𝑉4 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒, 𝑉5(# = 𝑅 × 𝑉5 + 𝑑
Common ratio
$ :
𝑅 = 1 + 𝑟% = 1 + #44 , 𝑟 = .
Interest amount over n periods
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑎𝑟𝑛𝑒𝑑 = 𝑉4 − 𝑉5 − 𝑑 × 𝑛

Amortisation table
→ Interest paid for payment n
Find the interest rate percent of the previous balance
$
𝐼5 = #44 × 𝑉5A#
→ Increase in principle
Find the sum of the payment and the interest for the current payment:
𝑅5 = 𝑑 + 𝐼5
→ Balance
𝑉5 = 𝑉5A# + 𝑅5

Finance solver

PV Negative Giving money to the bank

Pmt Negative Increasing money to the bank
FV Positive Money the bank repays

30
 Perpetuities
Special case of an annuity where the payment is equal to the
interest earnt so the account lasts indefinitely, i.e. perpetually.

Payment amount
Recurrence relation $
𝑑 = #44 × 𝑉4
𝑉4 = 𝑝𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒, 𝑉5(# = 𝑅 × 𝑉5 − 𝑑
Common ratio Principle
$
$ :
𝑅 = 1 + 𝑟% = 1 + #44 , 𝑟 = . 𝑉4 = 𝑑 ÷ #44
Interest amount over n periods Interest rate
6
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑎𝑟𝑛𝑒𝑑 = 𝑑 × 𝑛 𝑟 = 7 × 100
(

Amortisation table
Period Payment Interest earned Principle reduction Balance
0 0 0 0 10 000
1 400 400 0 10 000
n 400 400 0 10 000

Finance solver
N 1 Values are always the same
PV Negative Giving money to the bank
Pmt Positive Bank repays interest
FV Positive PV as payment is interest only

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32
 Networks
GRAPHS, NETWORKS AND TREE............................................................................................................. 34

FLOW PROBLEMS ................................................................................................................................... 37

MATCHING AND ALLOCATION PROBLEMS ............................................................................................ 38

ACTIVITY NETWORKS AND SCHEDULING PROBLEMS ............................................................................ 40

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 Graphs, Networks and Trees
Simple graphs
No loops or duplicate edges.

Isolated vertex
A graph has an isolated vertex if there is a vertex that is not
connected to another vertex by an edge.

The isolated vertex in this graph is E, because it is not connected

to any other vertex by an edge.

Degenerate graphs
Degenerate graphs have all vertices isolated. Therefore, there are
no edges in the graph at all.

Connected graphs
Each vertex is either directly or indirectly connected to every other vertex.

Bridges
A bridge is an edge that when removed makes the graph unconnected.

Subgraph
Graphs that are part of larger graphs.

Complete graphs
Every vertex has a direct connection to every other vertex.

Equivalent (isomorphic) graphs

Look different but have the same information

Planar graphs
Graphs that can be drawn without overlapping edges. Graphs that can’t are
called non-planar graphs.

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Travelling
Route
A description of your travels, given by the vertices visited in the order they are
visited.
Walk
A walk can be any type of journey within a graph, you can walk wherever you wish.
Trail
A trail is a special kind of walk, you can’t repeat any of the edges that you have
taken, but you can revisit vertices.
Path
A path is a special kind of trail, with a path you can’t repeat any edges or vertices.
---
Eulerian trails
A trail in which every edge is visited once. Vertices can be repeated.
A Eulerian trail will only exist if:
- The graph is connected
- The graph has exactly two vertices of an odd degree
Eulerian circuit
Eulerian trail (travels every edge once) that begins and ends from the same vertex.
A Eulerian circuit will only exist if:
- The graph is connected
- All the vertices have an even degree
----
Hamiltonian path
Path that visits all of the vertices in a graph only once.
Hamiltonian cycle
A cycle that visits every vertex and begins and ends at the same vertex.

Euler’s rule
For any planar graph:
v – e + f = 2 OR v + f = e + 2
where v is the number of vertices, e is the number of edges and f is the number of
faces in the graph.

Note: If asked how many faces a graph has, the graph must first be in planar form,
then the faces can be counted. Remember, the outside is counted as a face.

35
Adjacency matrix
The adjacency matrix A of a graph is an n × n matrix in which, for example, the
entry in row C and column F is the number of edges joining vertices C and F.
A loop is a single edge connecting a vertex to itself.
Loops are counted as one edge.

Trees
A tree has no loops, multiple edges or cycles.
If a tree has n vertices, it will have n − 1 edges.
A spanning tree is a tree that connects all of the vertices of
a graph.
A minimum spanning tree is the spanning tree of minimum
length in a connected graph.

Dijkstra’s algorithm
Dijkstra’s algorithm can be used to find the shortest path through a network, from a
starting vertex to a destination vertex.

distance between vertices

vertices

starting vertex no connection

between vertices

shortest distance backtracking to

find the shortest path

N.B. must add previously boxed number to distances in next row

36
 Flow problems
Flow problems involve the transfer or flow of material from one point, called the
source, to another point called the sink.
Maximum flow and minimum capacity
If pipes of different capacities are connected one after the other, the maximum
flow through the pipes is equal to the minimum capacity of the individual pipes.
Cuts
A cut is an imaginary line across a directed graph that completely separates the
source (start of the flow) from the sink (destination of the flow).
The cut capacity is the sum of the capacities of the edges that are cut. Only edges
that flow from the source side of the cut to the sink side of the cut are included in a
cut capacity calculation.

Calculating minimum capacity/maximum flow

37
 Matching and allocation problems
Bipartite graphs
Bipartite graphs have vertices that are divided into two separate groups. In
matching problems, one vertex from one group is matched or allocated to one, or
more, vertices of the second group and we use a directed bipartite graph to
represent this matching.

Hungarian algorithm
1. Subtract the lowest value in each row from every value in that row

2. If the minimum number of lines required to cover all the zeros in the table is equal
to the number of allocations to be made, jump to step 6. Otherwise, continue to
step 3.

3. If a column does not contain a zero, subtract the lowest value in that column
from every value in that column.

Column C does not have a zero,

therefore the smallest value has
been subtracted from every value in
the column

4. If the minimum number of lines required to cover all the zeros in the table is equal
to the number of allocations to be made, jump to step 6. Otherwise, continue to
step 5.

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5. Add the smallest uncovered value to any value that is covered by two lines.
Subtract the smallest uncovered value from all the uncovered values. Repeat
step 4.

N.B. 10 added to Xenefon-A and Xenefon-D. 10 subtracted from uncovered values.

6. Draw a directed bi-partite graph with an edge for every zero value in the table.

7. Make the allocation and calculate minimum cost/time.

Þ Zelda must operate machine A (20 minutes).
Þ Yolanda must operate machine D (30 minutes).
Þ Wendy can operate either machine B (40 minutes) or C (50 minutes).
Þ Xenefon can operate either machine B (30 minutes) or C (40 minutes).
N.B. Because Wendy and Xenefon can operate either B or C, there are two possible allocations.
Both allocations will have the same minimum cost.
Minimum time taken to finish = 20 + 30 + 50 + 30 = 130 minutes

39
 Activity networks and scheduling problems
Precedence tables
For any project, if activity 𝐴 must be completed before activity 𝐵 can begin then
activity 𝐴 is said to be an immediate predecessor of activity 𝐵. The activities within a
project can have multiple immediate predecessors and these are usually recorded
in a table called a precedence table.
The information in the precedence table can be used to draw a network diagram
called an activity network.

Dummy activities
A dummy activity is required if two activities share some, but not all, of their
immediate predecessors.
A dummy activity will be required from the end of each shared immediate
predecessor to the start of the activity that has additional immediate predecessors.
Dummy activities are represented in the activity network using dotted lines.

40
Scheduling
Projects that involve multiple activities are usually completed against a time
schedule. Knowing how long individual activities within a project are likely to take
allows managers of such projects to hire staff, book equipment and also to estimate
overall costs of the project. Allocating time to the completion of activities in a
project is called scheduling.

Float time is the amount of time available to complete a particluar activity that
does not increase the total time taken to complete a project.
Earliest starting time (EST)
In order for a project to be completed in the shortest time possible, it is important
that activities start at the earliest possible time. The earliest starting time, or EST, for
each activity is the earliest time after the start of the entire project that the
individual activity can start.
EST is found through forward scanning.

Add time take to EST

of previous activity

minimum time to
complete the project
9>6 and C is an immediate predecessor
to F, therefore EST for F is 9

N.B. use largest value when forward scanning

41
Latest starting time (LST)
Some activities, as we saw earlier, have some flexibility around the time that they
can start. The latest start time, or LST, for each activity is the latest time after the start
of the entire project that the individual activity can start.
LSTs for each activity are calculated using the reverse of the process used to
calculate the ESTs. This process is called backward scanning.
When EST and LST are the
same value, there is no is no
flexibility around starting
time

When LST and EST are different, Subtract activity completion time
there is slack around that from following activity’s LST.
activity’s starting time i.e. LSTG – durationF = LSTF
i.e. LST – EST = float time

N.B. begin backward scanning at the end of the project by copying the minimum completion time
into the LST box of the final vertex.
Critical path
The critical path is the sequence of activities that cannot be delayed without
affecting the overall completion time of the project.
The critical path is the path with no slack/float time.
Crashing
Sometimes, the managers of a project might arrange for one or more activities
within the project to be completed in a shorter time than originally planned.
Changing the conditions of an activity within a project, and recalculating the
minimum completion time for the project, is called crashing.

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