Index Numbers

1. Profits have been as follows ($m)

1990 1991 1992 1993 194
4.1 3.7 3.5 3.8 3.9
When converted to index numbers with base 1990, what is the index for 1994?

2. In 1990, a price index based on 1980 = 100 had a value of x. During 1990, it was rebased at 1990 = 100, and in
1998 the new index stood at 112. If the total price movement between 1980 and 1998 was an increase of 40 per
cent, what was the value of x in 1990, that is, before rebasing?

3. In 2000, a retail price index was 178 with 1990 = 100. Covert a weekly wage of $400 back to 1990 constant
prices, giving your answer correct to the nearest penny.

4. If an index with 1990 = 100 has values of 108 in 1995 and 128 in 1999, find the index for 1999 if the base is
changed to 1995.

5. In 1992 the retail price index was 133.5 with 1987 = 100. Convert weekly wages of $300 back to 1987 constant
prices.

6. If the base year is 1995 and the current year is 1999, find the base-weighted quantity index for 1999 given the
following totals:
wQ0 wQ1
Total 230 245
7. Use the following data to calculate a current quantity-weighted relative price index:
Item Po P1 W
F 8 12 14
G 4 9 13
8. Complete the following table in which values are being expressed as a chain-base index, giving your answers to
the nearest whole number.
Year 1997 1998 1999 2000 2001
Value 72 75 81 84 89
Chain index
9. Complete the following table in which a chain-base index is being converted to one with fixed base 1996. Give
your answers correct to the nearest whole number.
Year 1996 1997 1998 1999
Chain index 102.1 103.4 101.9 103.7
1996 = 100
10. Complete the following table which shows two index number series being spliced together to give a single series
based in 1997. Give your answer correct to one d.p.
Price Index Price index
Year
(1991 = 100) (1997 = 100)
1994 138
1995 142
1996 147
1997 150
(1997 = 100)
1998 109
1999 113
2000 119

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Financial Mathematics
11. A building society adds interest monthly to accounts even though interest rates are expressed in annual
terms. The current rate is stated as 4.8 per cent per annum. If an investor deposits $2,500 on 1 January,
Calculate the value of the account on 31 August, giving your answer correct to the nearest penny.

12. A bond increases from $3,500 to $4,000 over 3 years. Complete the following calculation of the effective
annual rate of interest:
a. Three-year ratio = c. Effective annual rate (to one d.p) =
b. Annual ratio =

13. Complete the following calculation of net present value (NPV) at a 5 per cent discount rate.
Time Cash flow ($) Discount Factor (5%) Present value
0 (10,000) 1.000
1 4,000
2 5,000
3 4,000
NPV
14. All answer s should be given correct to two d.p. An amount of 500 was invested at the start of each of 60
consecutive months. Compound interest at a nominal annual rate of 12 per cent is payable.
a. If interest is compounded annually, what will be the value of the first year’s $6,000 by the end of the 5-
year period?
b. If interest is compounded annual, what total sum will have accumulated after 5 complete years?
c. If interest is compounded monthly, what total sum will have accumulated after 5 complete years?

15. Given two projects of which you know the net present values and ignoring all other factors, which project would
you select?
a. The one with the larger net present value
b. The one with the smaller net present value
c. Present value is not relevant to such a decision

16. A fixed-interest, 10-year $100,000 mortgage is to be repaid by 40 equal quarterly payments in arrears. Interest is
charged at 3 per cent per quarter on the outstanding part of the debt.
a. Viewing the mortgage as an annuity, use the PV of an annuity formula to calculate its present value as a
function of the quarterly repayment $B. You should work to four d.p.
b. If the present value calculated in (a) was 24B, calculate the value of B to two d.p.

17. Find the effective annual rate of interest to two d.p. if interest is charged at 3 per cent per quarter.

18. In which one or more of the following ways could a price index of 235 be interpreted?
a. There has been a 35 per cent increase since the base year.
b. There has been a 135 per cent increase since the base year.
c. There has been a 235 per cent increase since the base year.
d. Price now are 2.35 times that they were in the base year.

19. A one-year investment yields a return of 15%. The cash returned from the investment, including principle and
interest, is $2070. What is the interest?

20. What is the ‘internal rate of return’ of an investment?

a. The discount rate at which the investment should be appraised.
b. The rate charged on loans used to finance the investment.
c. The probability of making a profit on the investment
d. The discount rate at which the net present value of the investment is zero.

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Regression and Correlation
21. If the correlation coefficient is 0.95, what is the coefficient of determination?

22. If n = 10, ∑x = 8, ∑y = 650, ∑xy = 525, ∑x2 = 18 and ∑y2 = 43,000, calculate the product moment correlation
coefficient, giving your answers correct to three d.p.

23. The value of the correlation coefficient between x and y is 0.9. Which of the following is correct?
a. There is a weak relationship between x and y
b. X is 90% of y
c. If the values of x and y were plotted on a graph, the line relating them would have a slope of 0.9
d. There is a very strong relationship between x and y.

24. The examination placing of seven students were as follows:

Placing
Student Literature French
1 2 1
2 1 3
3 4 7
4 6 5
5 5 6
6 3 2
7 7 4
The rank correlation coefficient (to 3 decimal places) is _________.

25. The coefficient of rank correlation ranges in values from _____ to _____.

26. What is the equation of the least-squares regression line of y on x for the following four data pairs?
x y
1 4
2 6
3 10
4 10

Y = ___________________

27. A rank correlation coefficient is being calculated, using the formula

If ∑d2 = 50 and n = 10, R will (to 2 decimal places) = ___________.

28. The coefficient of determination, r2, must always fall within the range, Lowest Value = ________ and Highest
value = ___________.

29. A company’s weekly costs ($C) were plotted against product level (P) for the last 50 weeks and a regression line
valuated to be C = 1,000 + 250P. Which statement about the breakdown of weekly costs is true?
a. Fixed costs are $1,000. Variable costs per unit are $5.
b. Fixed costs are $250. Variable costs per unit are $4.
c. Fixed costs are $250. Variable costs per unit are $1,000.
d. Fixed costs are $1,000. Variable costs per unit are $250.

30. If Y = a + bX, it is best to sue the regression of Y upon X where X is the dependent variable and Y is the
independent variable. True / False

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Time Series
31. The actual value at a certain point is 1,500 and the seasonal factor is 1.17. Using the multiplicative model, the
seasonally adjusted figure (to the nearest whole number) is _______.

32. In the multiplicative model A = T X S X R, which of the following is /are correct?

a. S is estimated by averaging A – T values for the particular season.
b. T may be estimated by a moving average.
c. T may be estimated from an appropriate regression equation.
d. R is estimated from A/T.
e. The seasonally adjusted value is given by A – S.

33. If the trend is estimated to be 2,308 for a quarter with a seasonal component of 1.06, estimate the actual value
using the multiplicative model and giving your answer correct to four significant figures.

34. In a time series showing sales in $000, the quarterly values of actual sales divided by trend in sales are as follows:

Year Quarter Actual / trend

2000 1 0.937
2 0.709
3 1.095
4 1.253
2001 1 0.934
2 0.727
3 1.088
4 1.267

Calculate the average seasonal ratios correct to four d.p. using the multiplicative model. Do not adjust the ratios
to make them total four.

35. Adjust the following average seasonal ratios so that they total 4.
1st quarter 0.8
nd
2 quarter 0.6
rd
3 quarter 1.0
th
4 quarter 1.2

36. Suppose the actual minus trend values in a time series analysis with a 3-year cycle are as follows:
1990 1991 1992 1993 1994 1995 1996 1997 1998
7.3 -1 -1 8.3 -1.1 -0.3 8 -8 0
Designating 1990 as year 1 of a cycle, calculate the cyclical components for the 3 years of the cycle, using an
additive model and giving your answers correct to the nearest whole number.

37. In data with a 4-year cycle, the cyclical components using the additive model are given to be
Year 1 Year 2 Year 3 Year 4
10 15 -5 -20
If 2000 is year 1 of a cycle and if the trend for 2004 is predicted to be 70, predict the actual value for 2004.

38. What is the formula for seasonally adjust data in a multiplicative model. Us e the symbols A for actual Value, T
for trend, S for seasonal component and R for residual.

39. Based on twenty past quarters, the underlying trend equation for forecasting is : Y = 23.87 + 2.4x
If quarter 21 has a seasonal factor of times 1.08, using a multiplicative model, then the forecast for the quarter,
in whole units, is _____________.

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40. The component parts of a time series model are :
(A) The trend
(B) The Cyclical component
(C) The seasonal component
(D) The residual component

Associate each of the following with the appropriate component

(P) The impact of a strike
(Q) An economic cycle of ups and downs over 5 years
(R) A long-term increase of 5 per cent annum
(S) An increase in sales over Christmas

Probabilities
41. In a student survey, 40% of the students are male and 80% are CIMA candidates. The probability that a student
chosen at random is either female or a CIMA candidate is __________.

42. Next year, sales may rise, fall or remain the same as this year, with the following respective probabilities: 0.56,
0.23 and 0.21. The probability of sales remaining the same or falling is __________.

43. In a survey, 60% of households have a digital camera and 80% have a DVD player. The probability that a
household chosen at random has either a digital camera or a DVD player is __________ (to 2 d.p)

44. From past records it is known that 15% of items from a production line are defective. If two items are selected at
random, the probability (to 2 d.p) that only one is defective is _____________.

45. A sales representative visits two independent firms – L and W. The probability of making a sale at L is 0.3 and the
probability of making a sale at W is 0.4. The probability (to 2 d.p) of making no such sale at all is _______.

46. Invoices produced within a firm are known to contain erors : 3% contains a very serious error, 6% a serious error
and 12% a minor error. The probability that a randomly selected invoice will have a serious error or a minor error
is ______.

47. A company is bidding for three contracts which are awarded independently of each other. The board estimates
its chances of winning contract X as 50%, of winning contract Y as 1 in 3 and of winning contract Z as 1 in 5. The
profits from X, Y and Z are estimated to be $50,000, $90,000 and $100,000 respectively. The expected value to
the number of profits from all three contracts will be ($’000) ___________.

48. A company recommends its employees to have free influenza vaccinations but only 50% do so. The effectiveness
of the vaccine is known to be 90%. The probability of any non-vaccinated employee getting influenza by chance
is 0.3. An employee catches influenza. What is the probability that she was vaccinated?

49. With reference to events A and B, how would you best describe mutually exclusive outcomes?
a. A and B are dependent events
b. A and B are independent events
c. The occurrence of event A excludes the possibility of event B from happening
d. Events A and B happen at the same time .

50. Which of the following formulae represent the general rule of multiplication?
a. P(A and B) = P(A) x P(B|A)
b. P(A and B) = P(A) x P(B)
c. P(A or B) = P(A) + P(B) – P(A and B)
d. P(A or B) = P(A) + P(B)

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51. A normal distribution has a mean of 75 and a variance of 25. The upper quartile of this distribution is therefore
_________.

52. A normal distribution has a mean of 150 & a standard deviation of 20. 80% of the distribution is below _____

53. A normal distribution has a mean of 55 and a variance of 14.44. The probability of a score of 59 or more is
approximately ____________.

54. A project may result in profits of $20,000 or $12,000 or in a loss of %5,000, with probabilities 0.3, 0.5 and 0.2
respectively. What is the expected profit?

55. Associate each of the following rules of probability with one of the qualifying statements :

(A) P(not A) = 1 – P(A)

(B) P(A or B) = P(A) + P(B)
(C) P(A and B) = P(A) . P(B)
(D) P(A + B+ C) = 1

Qualifying statements
(P) Provided that the events are mutually exclusive
(Q) For all such events
(R) Provided that the events covers all possible outcomes
(S) Provided that the events are independent.