Hummelbrunner Preface

contemporary
business
mathematics
with canadian
applications
A01_HUMM2312_FM.pi-001.indd 1
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S. A. Hummelbrunner
kelly halliday
K. suzanne coombs
contemporary
business
mathematics
with canadian
applications
10th
edition
Toronto
27/11/13 9:55 PM
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10 9 8 7 6 5 4 3 2 1 [CKV]
Library and Archives Canada Cataloguing in Publication
Hummelbrunner, S. A. (Siegfried August), author
Contemporary business mathematics with Canadian
applications
/ S.A. Hummelbrunner, Kelly Halliday,
K. Suzanne Coombs.Tenth edition.
Includes index.
ISBN 978-0-13-305231-2 (bound)
1. Business mathematicsTextbooks. I. Halliday, Kelly, author
II. Coombs, Suzanne, author III. Title.
HF5691.H85 2014 650.01513
C2013-904776-X
ISBN 978-0-13-305231-2
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1.2fractions
Brief Contents
Preface xi

Students Reference Guide to Rounding and Special Notations xx

Part 1 Mathematics Fundamentals and Business Applications 2
1 Review of Arithmetic 4
2 Review of Basic Algebra 38
3 Ratio, Proportion, and Percent 84
4 Linear Systems 133

Part 2 Mathematics of Business and Management 169
5 Cost-Volume-Profit Analysis and Break-Even 171
6 Trade Discounts, Cash Discounts, Markup, and Markdown 201
7 Simple Interest 246
8 Simple Interest Applications 277

Part 3 Mathematics of Finance and Investment 309
9 Compound InterestFuture Value and Present Value 312
10 Compound Interest Further Topics 363
11 Ordinary Simple Annuities 391
12 Ordinary General Annuities 432
13 Annuities Due, Deferred Annuities, and Perpetuities 463
14 Amortization of Loans, Including Residential Mortgages 517
15 Bond Valuation and Sinking Funds 569
16 Investment Decision Applications 613

Appendix I: Further Review of Basic Algebra 648
Appendix II: I nstructions and Tips for Three Preprogrammed Financia
Answers to Odd-Numbered Problems, Review Exercises,

and Self-Tests 685
Index 699
Calculator Models 668
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Contents

Preface xi

Students Reference Guide to Rounding and Special Notations xx
Part
1 Mathematics Fundamentals and Business Applications 2
1 Review of Arithmetic 4
1.1 Basics of Arithmetic 5
1.2 Fractions 6
1.3 ApplicationsAverages 12
1.4 ApplicationsPayroll 18
1.5 ApplicationsTaxes 25

Business Math New s Box 29

Review Exercise 31

Self-Test 33

Challenge Problems 34

Case Study Businesses and the Gst/Hst 34

Glossary 36
2 Review of Basic Algebra 38
2.1 Simplification of Algebraic Expressions 39
2.2 Integral Exponents 45
2.3 Fractional Exponents 52
2.4 LogarithmsBasic Aspects 56

2.5 Solving Basic Equations 63
2.6 Solving Equations Involving Algebraic Simplification 67
2.7 Solving W ord Problems 72
Review Exercise 77
Self-Test 78
Case Study Investing in a Tax-Free Savings Account 80

Summary of Formulas 81
Glossary 82
3 Ratio, Proportion, and Percent 84

3.1 Ratios 85
3.2 Proportions 90
3.3 Percent 95
3.4 The Basic Percentage Problem 99
3.5 Problems Involving Increase or Decrease 106
3.6 Problems Involving Percent 111

3.7 ApplicationsCurrency Conversions 117
3.8 ApplicationsIndex Numbers 121
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CONT E NTS
3.9
vii
ApplicationsPersonal Income Taxes 124
Review Exercise 127

Self-Test 129
Case Study The Business of Taxes 131
Glossary 132
4 Linear Systems 133

4.1 Algebraic Solution of Systems of Linear Equations in Two Variables 134
4.2 Graphing Linear Equations 139
4.3 Graphing Linear Systems of Equations in Two Unknowns 152

4.4 Problem Solving 156

Review Exercise 161

Self-Test 162
Case Study Finding the Right Combination 163
Glossary 164
Part 1 Comprehensive Case 165
Part
Mathematics of Business and Management 169
5 Cost-Volume-Profit Analysis and Break-Even 171

5.1 Cost-Volume-Profit Analysis and Break-Even Charts 172
5.2 Contribution Margin and Contribution Rate 187
5.3 Effects of Changes to Cost-Volume-Profit 191

Review Exercise 196
Self-Test 197
Case Study Segway Tours 198
Glossary 200
6 Trade Discounts, Cash Discounts, Markup, and Markdown 201
6.1 Determining Cost with Trade Discounts 203
6.2 Payment Terms and Cash Discounts 211
6.3 Markup 219
6.4 Markdown 227
6.5 Integrated Problems 232


Review Exercise 240

Self-Test 242
Case Study Focusing on Prices 243
Glossary 245
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viii
contents
7 Simple Interest 246

7.1 Finding the Amount of Simple Interest 247
7.2 Finding the Principal, Rate, or Time 251
7.3 Computing Future Value (Maturity Value) 256
7.4 Finding the Principal (Present Value) 258

7.5 Computing Equivalent Values 261

Review Exercise 273

Self-Test 274
Case Study Cost of Financing Pay Now or Pay Later 275
Glossary 276
8 Simple Interest Applications 277

8.1 Promissory Notes 278
8.2 Treasury BillsPresent Value 285
8.3 Demand Loans 287
8.4 Lines of Credit and Credit Card Loans 291
8.5 Loan Repayment Schedules 296


Review Exercise 301

Self-Test 302
Case Study Debt Consolidation 303
Glossary 305
Part
Mathematics of Finance and Investment 309
9 Compound InterestFuture Value and Present Value 312

9.1 Basic Concepts and Calculations 313
9.2 Using the Future Value Formula of a Compound Amount
FV = PV (1 + i)n 319
9.3 Present Value and Compound Discount 331
9.4 ApplicationDiscounting Negotiable Financial Instruments
at Compound Interest 336

9.5 Equivalent Values 343

Review Exercise 358

Self-Test 359
Case Study Planning Ahead 361
Glossary 362

10 Compound InterestFurther Topics 363
10.1 Finding n and Related Problems 364
10.2 Finding i and Related Problems 372
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CONT E NTS
ix
10.3 Effective and Equivalent Interest Rates 377


Review Exercise 387

Self-Test 388


Case Study Comparing Car Loans 389


Glossary 390

11 Ordinary Simple Annuities 391
11.1 Introduction to Annuities 392
11.2 Ordinary Simple AnnuityFinding Future Value FV 394
11.3 Ordinary Simple AnnuityFinding Present Value PV 404

11.4 Ordinary Simple AnnuitiesFinding the Periodic Payment Pmt 414
11.5 Finding the Term n of an Annuity 420
11.6 Finding the Periodic Rate of Interest i Using Preprogrammed Financial
Calculators 425

Review Exercise 427

Self-Test 428

Challenge Problem 428

Case Study Getting the Picture 429


Glossary 430
12 Ordinary General Annuities 432
12.1 Ordinary General AnnuitiesFinding the Future Value FV 433
12.2 Ordinary General AnnuitiesFinding the Present Value PV 441
12.3 Ordinary General AnnuitiesFinding the Periodic Payment Pmt 444
12.4 Ordinary General AnnuitiesFinding the Term n 447
12.5 Ordinary General AnnuitiesFinding the Periodic Interest Rate i 450

12.6 Constant-Growth Annuities 453

Review Exercise 458

Self-Test 459
Challenge Problem 460
Case Study Vehicle Cash-Back Incentives 460
Glossary 462

13 Annuities Due, Deferred Annuities, and Perpetuities 463
13.1 Simple Annuities Due 464
13.2 General Annuities Due 477

13.3 Ordinary Deferred Annuities 485
13.4 Deferred Annuities Due 494
13.5 Perpetuities 502

Review Exercise 510

Self-Test 512
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Contents
Case Study Planning for University 514

Glossary 516

14 Amortization of Loans, Including Residential Mortgages 517
14.1 Amortization Involving Simple Annuities 518
14.2 Amortization Involving General Annuities 538
14.3 Finding the Size of the Final Payment 544
14.4 Residential Mortgages in Canada 552


Review Exercise 564

Self-Test 566
Case Study Managing a Mortgage 567
Glossary 568

15 Bond Valuation and Sinking Funds 569
15.1 Purchase Price of Bonds 570
15.2 Purchase Price of a Bond W hen Market Rate Does not Equal Bond Rate 571

15.3 Bond Schedules 585
15.4 Finding the Yield Rate 590
15.5 Sinking Funds 593

Review Exercise 607

Self-Test 609
Case Study Raising Capital Th ough Bonds 610
Glossary 612

16 Investment Decision Applications 613
16.1 Discounted Cash Flow 614
16.2 Net Present Value 621

16.3 Rate of Return on Investment 632

Review Exercise 644

Self-Test 645


Case Study To Lease or Not to Lease? 646


Glossary 647

Further Review of Basic Algebra 652

Appendix II: Instructions and Tips for Three Preprogrammed Financial Calculator Models 672
Appendix I:
Answers to Odd-Numbered Problems, Review Exercises, and Self-Tests 685

Index 699
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Preface
Introduction
Contemporary Business Mathematics with Canadian Applications is intended for use
in introductory mathematics of finance courses in post-secondary business management, marketing, accounting, and fi ance programs. It also provides a review of basic
mathematics.
The primary objective of the text is to increase the students knowledge and skill in
the solution of practical fi ancial and operational problems encountered in operating
a business.
Organization
318
ChAPTEr 9
COMPOUND INTErESTfUTUrE vALUE AND PrESENT vALUE
Contemporary Business Mathematics with Canadian Applications is a teaching text

using problem-identifi ation and problem-solving approaches. The systematic and
sequential development of the material is illustrated by examples that show a step-bystep approach to solving the problem. The detailed solutions are presented in a visually
clear and colourful layout that allows learners to monitor their own progress in the
classroom or in independent study.
Each topic in each chapter is followed by F. Calculating the numerical value of the compounding factor (1 1 i )
practice exercises containing numerous drill
questions and application problems. At the end
of each chapter, Review Exercises, Self-Test, and a
Case Study integrate the material presented.
The fi st four chapters and Appendix I (Further
Review of Basic Algebra) are intended for students
with little or no background in algebra and provide
an opportunity to review arithmetic and algebraic
processes.
The text is based on Canadian practice, and reflects current trends using available technologyspecifi ally the availability of preprogrammed fi ancial calculators.
Students using this book should have access to calculators having a power function
and a natural logarithm function. The use of such calculators eliminates the constraints
associated with manually calculating results using formulas.
In solving problems involving multiple steps, often values are determined that will
be used in further computations. Such values should not be rounded and all available
digits should be retained in the calculator. Using the memory functions of the calculator enables the student to retain such non-rounded values.
W hen using the memory the student needs to be aware that the number of digits
retained in the registers of the calculator is greater than the number of digits displayed.
Depending on whether the memory or the displayed digits are used, slight differences
may occur.
Students are encouraged to use preprogrammed fi ancial calculators. The use of
these preprogrammed calculators facilitates the solving of most fi ancial problems and
is demonstrated extensively in Chapters 9 to 16.
(iii)
(iv)
(v)
(vi)
(vii)
SOLUTION
12% p.a. compounded quarterly for 12.5 years;

10.5% p.a. compounded monthly for 10.75 years;
8% p.a. compounded quarterly for 30 months;
9.5% p.a. compounded semi-annually for 42 months;
5.8% p.a. compounded daily for 2 years.
(1 1 i ) n
(i)
5% 5 0.05
14(1) 5 14
(1 1 0.05)14 5 1.0514
(ii)
7% 4 2 5 0.035
15(2) 5 30
(1 1 0.035)30 5 1.03530
12.5(4) 5 50
(1 1 0.03)50 5 1.0350
10.5% 4 12 5 0.00875
12
10.75(12) 5 129
(1 1 0.00875)129 5 1.00875129
(v)
8% 4 4 5 0.02
30/12(4) 5 10
(1 1 0.02)10 5 1.0210
(vi)
9.5% 4 2 5 0.0475
42/12(2) 5 7
(1 1 0.0475)7 5 1.04757
(vii)
5.8% 4 365 5 0.000159*
(iii)
12% 4 4 5 0.03
(iv)
365
(1 1 0.058/365)730 5 (1.000159*)730
2(365) 5 730
*rounded
The numerical value of the compounding factor, (1 1 i)n, can now be computed using
an electronic calculator. For calculators equipped with the exponential function feature
y x , the numerical value of the compounding factor can be computed directly.
STEP 1
Enter the numerical value of (1 1 i) in the keyboard.
STEP 2
Press the exponential function key y x
STEP 3
Enter the numerical value of n in the keyboard.
STEP 4
Press 5
STEP 5
Read the answer in the display. Continue calculating or save as needed.
The numerical values of the compounding factors in Example 9.1C are obtained as
follows:
(i)
(ii)
STEP 1
Enter
1 1 0.05
STEP 2
Press
yx
STEP 3
Enter
14
STEP 4
Press
STEP 5
read
1.979932
2.806794
(iii)
(iv)
1 1 0.07/2 1 1 0.12/4 1 1 0.105/12

yx
(v)
(vi)
(vii)
1 1 0.08/4
1 1 0.095/2
1 1 0.058/365
yx
yx
yx
10
730
1.383816
1.122986
yx
yx
30
50
129
4.383906
3.076647
1.218994
Note: Do not be concerned if your calculator shows a difference in the last decimal.
There is no error. It reflects the precision of the calculator and the number of decimal
places formatted to show on the display of the calculator.
For example, if your calculator has been set to show only two decimal places, it will
automatically round the answer to (i) above to 1.98. If you were to continue calculating
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New To This Edition

The Tenth Edition of Hummelbrunner/Halliday/Coombs, Contemporary Business
Mathematics with Canadian Applications, includes updates based on changes in current practices in Canadian fi ance and business and the needs of students and instructors using this book.

Th s edition continues to clarify the consistent approach to rounding rules. The

Students Reference Guide to Rounding and Special Notation (pages xxxxiii)
gives a clear explanation of the rounding conventions used throughout the text.
Additional Pointers and Pitfalls boxes are placed in key areas to remind students
about the rounding conventions and exceptions in practice.
The text and solutions manual have been thoroughly technically checked for accuracy and consistency with the rounding approach.
Tables, charts, and further diagrams have been added to enable the learner to visualize the problems and the solutions.
Numerous new examples and exercises have been added.
Chapter 5 has been signifi antly revised with emphasis on the relationships between
parts of CVP. Break-even charts are integrated with theory by introducing them after
explanations of revenue and cost behaviour.
Chapter 6 has been signifi antly revised with standardized formulas and wording,
illustrated by visual approaches to solving the problems.
Canadian references have been emphasized in Business Math News Boxes and website
references.
Interest rates refl ct current investment and borrowing rates.
Many examples and exercises have been updated, rewritten, and expanded. To enhance
the building-block approach, exercises are ordered to link the topics and the solved
examples. Help references have been expanded to link selected exercises to solved
examples.
Specifi ally, in Chapter 1 (Review of Arithmetic), prices, salaries, and wages have
been updated. Revised rates and calculations for GST/PST/HST have been included to
incorporate new legislation for 2012 and property tax terminology and valuations have
been updated.
In Chapter 2 (Review of Algebra), the chapter-opening vignette emphasizes why
business students need algebra, and new exercises have been added to utilize formulas
for simple and compound interest. Calculator solutions have been introduced for several examples and formulas have been simplifi d.
In Chapter 3 (Ratio, Proportion, and Percent), a consistent approach for calculating proportions has been introduced, and formulas throughout the chapter have been
updated for consistency. Drill questions have been replaced by more word problems,
and alternative solutions have been included. Currency conversion rates, prices, CPI
numbers, and personal income taxes have been updated.
In Chapter 4 (Linear Systems), the comparison/substitution method for solving
the point of intersection of two linear systems has been emphasized. A new Business
Math News Box ties more closely to the chapter-opening vignette and introduces a
manufacturing capacity example.
The order of Chapter 5 and Chapter 6 has been switched in the Tenth Edition to
improve the fl w of content from Linear Systems (Chapter 4) to Cost-Volume-Profit
Analysis and Break-Even (Chapter 5). Th s chapter has been changed signifi antly,
beginning with an updated title to refl ct break-even as an application of the profit
function, not the focus of the chapter. The opening vignette now includes an example that connects with the Business Math News Box presented later in the chapter. The
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xiii
number of formulas has been reduced, and solutions to examples use a simplifi d
approach for calculating break-even.
Chapter 6 (Trade Discounts, Cash Discounts, Markup, and Markdown) has
changed signifi antly. For consistency and clarity, terminology and explanations
have been simplifi d and formulas have been standardized. New Pointers and
Pitfalls boxes provide tools to help students rearrange formulas, determine the
number of days in a discount period, and calculate markup. A sample invoice
demonstrates payment terms and cash discounts. EOG and ROG examples that
appeared in the Eighth Edition of the text have been added back in this edition.
In Chapter 7 (Simple Interest), the chapter-opening vignette ties in with the
chapters Business Math News Box. Dates and interest rates have been updated and
new exercises have been added, with exercises referenced to examples. Additional
comments for choosing focal dates have been added, with a section included showing an example of the use of Excel functions.
In Chapter 8 (Simple Interest Applications), the use of grace periods
has been updated, with exercises omitting its use. Comments on credit ratings,
credit scores, home equity lines of credit, and new exercises using credit cards have
been added. Treasury bill interest rates have been updated to refl ct current rates.
A new Business Math News Box addresses the question, How do you learn about
money?
In Chapter 9 (Compound InterestFuture Value and Present Value), visual
explanations have been expanded. The introduction to Future Value, and explanation of the periodic rate of interest, have been simplifi d. The relationship between
n and m has been clarifi d, with a new formula added to explain the calculation of
n. The calculation of a partial year to a rounded number has been eliminated, keeping the year as a fraction. A new section showing Excels FV and PV calculations
is included, with visual examples. New figures have been added. The number of
review and self-test exercises has been reduced to eliminate duplication. Formulas
have been simplifi d with the elimination of references to S and P.
In Chapter 10 (Compound InterestFurther Topics), formula variations have
been identifi d, explained, and illustrated. A Pointers and Pitfalls box has been
added to address formula rearrangement. Several examples have been rearranged
to show the simpler examples fi st. New sections have been added to illustrate the
use of Excel functions. New exercises and new charts are included. The issue of
debt repayment is addressed in a new Business Math News Box.
In Chapter 11 (Ordinary Simple Annuities) and in Chapter 12 (Ordinary
General Annuities), new business application exercises and examples with diagrams have been included. New Pointers and Pitfalls boxes have been added to
remind students about clearing calculator inputs, using inversion techniques when
calculating, understanding the term payment, and the calculators positive/negative sign convention. The explanation regarding the purpose of method for present
value calculations has been expanded. A new Business Math News Box refers to a
popular and successful Canadian entrepreneur.
In Chapter 13 (Annuities Due, Deferred Annuities, and Perpetuities), explanations, diagrams, and calculations for annuities due are simplifi d. The order of
some examples has been changed to provide a more logical and intuitive learning
sequence. New examples with diagrams have been added, including reference to
investments in preferred shares. A new Pointers and Pitfalls box reminds the reader
how to calculate periodic interest rates on the calculator.
In Chapter 14 (Amortization of Loans, Including Residential Mortgages), a
new section with a diagram develops the skills to fi d the interest, principal, and
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xiv
p r e fa c e
balance for a period, and bridges between fi ding the payment and constructing the
amortization schedule. The introduction to residential mortgages has been updated to
refl ct current legislation on mortgage insurance. Examples and exercises have been
reordered and clarifi d to enhance building-block learning.
In Chapter 15 (Bond Valuation and Sinking Funds), explanation of basic concepts
has been expanded to answer the why? questions. The order has been changed, with a
focus on calculation of bond price under different conditions. An introductory section
has been added for concept comprehension. Calculating the purchase price of a bond
has been separated into two sections based on whether or not the market rate equals or
does not equal the bond rate. A new Business Math News Box describes and discusses
Canada Savings Bonds.
In Chapter 16 (Investment Decision Applications), explanations begin the section on Net Present Value, followed by introductory, then more advanced, applications.
Repetitive calculator instructions have been eliminated. Computing the Rate of Return
by manual methods has been condensed and new visuals have been added.
Comprehensive Case Studies

Comprehensive case studies for each part of the book have been created. The questions within each case study have been separated by chapter or group of chapters to
facilitate the use of these case studies by those institutions that include only some of the
topics in their course syllabus. W ith the questions separated and identifi d by chapter,
these institutions can use part of the case study in their courses.
Part 1 Mathematics Fundamentals and Business Applications
Til Debt Do Us Part host Gail Vaz-Oxlade has made it her mission to help couples who
are headed for disaster get out of debt. Questions for each of Chapters 14 are included.
Part 2 Mathematics of Business and Management
A sporting equipment manufacturer and retailer, SportZ Ltd., is based in Alberta.
Questions for each of Chapters 58 are included.
Part 3 Mathematics of Finance and Investment
Based in Ontario, Lux Resources Group, Inc., rents and sells construction equipment.
Questions for each of Chapters 916 are included.
In general, interest rates used refl ct the current economic climate in Canada.
Calculator tips and solutions have been updated or clarifi d. Spreadsheet instructions
and Internet website references have been updated. Pitfalls and Pointers have been
included to assist in performing tasks and interpreting word problems, and sections
have been rewritten to clarify the explanations. Many more word problems have been
added and references to solved examples have been added. Business Math News Boxes
and Case Studies have been updated. Examples involving both business and personal
situations are included. The pedagogical elements of the previous edition have been
retained. In response to requests and suggestions by users of the book, a number of
new features for this edition have been included. They are described below.
Features

Updated!
A new colourful and student-friendly design has been created for the book, making
it more accessible and less intimidating to learners at all levels.
322
CHAPTER 9
COMPOUND INTERESTFUTURE VALUE AND PRESENT VALUE
table 9.3 Financial Calculator Function Keys That Correspond to Variables Used in Compound Interest Calculations
Updated!
Any preprogrammed fi ancial calculator may be

used, but this edition includes extensive instructions for using the Texas Instruments BA II PLUS
financial calculator. Equivalent instructions
Function Key
algebraic
Symbol
Variable
The number of compounding periods
1
ti
Ba ii pluS
Sharp
El-738C
Hp
10bii1
N
1/YR
The periodic annuity payment2
PMT
PMT
PMT
PMT
The present value or principal
PV
PV
PV
PV
The future value or maturity value
FV
FV
FV
FV
The rate of interest
Notes:
I/Y
C/Y
1. The periodic rate of interest, (i ) is entered as a percent and not as a decimal equivalent (as it is when
using the algebraic method to solve compound interest problems). For example, 8% is entered as 8
not .08. With some calculators, the rate of interest is the periodic rate. In the case of the BA II
Plus, the rate of interest entered is the nominal rate per year I/Y .
2. The periodic annuity payment function key PMT is used only for annuity calculations, which are
introduced in Chapter 11.
Using the Texas Instruments BA II PlUs to solve Compound Interest Problems

Follow the steps below to compute the future value of a sum of money using the formula FV = PV(1 + i)n and a Texas Instruments BA II Plu S calculator. Compare your
result with that in Example 9.2A.
pre-calculation phase (initial Setup)
sTEP 1
The P/Y register, and behind it, the C/Y register, must be set to match the calculators
performance to the text presentation. The P/Y register is used to represent the number
of regular payments per year. If the text of the question does not discuss regular payments per year, this should be set to equal the C/Y in the calculator. The C/Y register
is used to represent the number of compounding periods per year; that is, the com-
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xv
p r e fa c e
ChapTer
The Pointers and Pitfalls boxes emphasize

good practices, highlight ways to avoid common errors, show how to use a fi ancial calculator effici tly, or give hints for tackling business
math situations to reduce math anxiety.
Upon completing this chapter, you will be able to do the following:

determine the number of conversion periods and find equated
dates.
Compute periodic and nominal rates of interest.
Compute effective and equivalent rates of interest.
Key Terms are introduced in the text in boldface

type. A Glossary at the end of each chapter lists
each term with its defin tion and a page reference
to where the term was fi st defi ed in the chapter.
Main Equations are highlighted in the chapters and repeated in a Summary of Formulas at
ali owes money on a loan and is wondering how much this loan is costing him in interest. if the debt
is paid back over a long period of time, how much interest will he have to pay? Can he reduce the
amount of interest? most Canadians hold debt and, with currently low interest rates, pay relatively
3 . 6much
p r more
o B l einterest
m S i n vwould
o lv i nhe
G have
p e r ctoe n t
low amounts of interest. if interest rates were to rise, how
pay? if he made the same payment, how much longer will it take to repay his debt? How much debt
is too much? many people reduce their debt by making earlier or extra payments. the key to manag(v)ingAfter
taking
off aofdiscount
5%, awhat
retailer
settled
invoice
byhow
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knowledge
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is owed,
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rate isan
charged,
and
long it$532.00.
takes to
How
repay
themuch
debt. was the amount of the discount?
Discount 5 5% of 560 5 0.05 3560 5 $28.
bUsiness math news bOx

national salary Comparisons
Knowing how much you are worth in the job market is critical for not being underpaid. Successful salary negotiations are accomplished by having accurate information. In todays electronic age, the Internet offers a variety of websites focusing on
05/09/13
salary information.
Th ee popular job functions along with the respective salaries are listed below
by major metropolitan location.
M10_HUMM2312_CH10.p363-390.indd 363
2:28 PM
Financial Controller
Responsible for directing an organizations accounting functions. These functions include establishing and
maintaining the organizations accounting principles, practices, and procedures. Prepares financial reports
and presents fi dings and recommendations to top management.
Human Resources Manager
Plans, directs, and coordinates the human resource management activities of an organization to maximize
the strategic use of human resources and maintain functions such as employee compensation, recruitment,
personnel policies, and regulatory compliance.
184
Marketing Manager
C H A P T E R 5 C O S T- V O L U M E - P R O F I T A N A LY S I S A N D B R E A K - E V E N
Develops and implements strategic marketing plan for an organization. Generally manages a group of
marketing professionals. Typically reports to an executive.
salary Comparison*
SP = 35
FC = 900 +vancouver
300 = 1200 (averages)
Calgary
X = 80
SOLUTIOn
job Description
Financial controller
$106 856
$113 915
Let the cost of each bouquet be VC.
human resources manager
$91 580
$93 663
marketing manager To break even,$78 946
$87 182
TR = TC
toronto
montreal
national
$111 318
$90 082
$91 664
$106 365
$95 576
$86 242
$103 834
$89 059
$86 733
* Represents salary and not necessarily total compensation.
(35 the
* high
80) range
= 1200
+found
(VCfor*each
80)job title per city from PayScale at www.payscale.com/
Source: Data represent
number
resources.aspx?nc5lp_calculator_canada01&mode5none,
2800 = 1200 + (VC *accessed
80) October 10, 2012.
(VC * 80) = 1600

VC = 1600/80
VC = 20
Therefore, to break even, they must pay no more than $20 to purchase each bouquet
of fl wers.
M03_HUMM2312_CH03.p084-132.indd 115
23/07/13 11:35 AM
POInTErS AnD PITFALLS

You can use the BREAKEVEN function of a fi ancial calculator to determine the break-even point. In
this function, FC refers to the total fi ed cost for the period, VC refers to the unit variable cost, P refers
to the unit price, PFT is the resulting profit, and Q is used to input or calculate the quantity or number
of units. For example, for Example 5.1D, press:
2nd
478
ChApteR 13
FC 5 8640.00 Enter
Brkevn
AnnuitieS Due, DeFeRReD AnnuitieS, AnD peRpetuitieS
VC 5 30.00 Enter
We start with Enter
the future value formula for an ordinary general annuity, Formula
P 5 50.00
12.2. The future value formula for a general annuity due is then adjusted to accommodate the difference in the timing of the payment.
PFT 5 0 Enter
FUTURE VALUE OF A GENERAL
FUTURE VALUE OF AN ORDINARY
=
GENERAL ANNUITY (1 + p)
CPT Q 5 432 unitsANNUITY DUE
The interest on a general annuity for one payment period is (1 1 i)c, or (1 1 p). Use
Formula
13.3A to
calculate
the future
valuethen
of acompute
general annuity
Any four of the
five variables
may
be entered.
You can
a valuedue.
for the fi h variable.
Formula 12.2
ExErCISE 5.1
exAmPLe 13.2A.A.
sOLUtiOn
M05_HUMM2312_CH05.p169-200.indd 184
392
FVg(due) = PMT c
(1 + p)n 1
d
p
Adjustment for payment at beginning of period

(1 + p)
Formula 13.3A
where p = (1 + i)c 1
MyMathLab
What
is the
accumulated
aftera break-even
five years ofanalysis
payments
of $20 000 made at the
For
each
of the
following, value
perform
showing
beginning of each year if interest is 7% compounded quarterly?
(a) an algebraic statement of
the000.00;
revenue nfunction,
PMT(i)
5 20
5 5; c 5 4; P/Y 5 1; C/Y 5 4; I/Y 5 7
(ii)
7% the cost function;
= 1.75% = 0.0175
i=
4
The equivalent annual rate of interest
p = 1.01754 1 = 1.071859 1 = 0.071859 = 7.1859%
FV(due) = 20 000.00 a
1.0718595 1
b (1.071859)
0.071859
substituting in
Formula 13.3A
= 20 000.00(5.772109)(1.071859)
= 115 442.1869(1.071859)
= $123 737.75
CHapter 11 Ordinary Sim

p l e a n n u i t i e SSolutIon
ProgrammEd
430 C H a p t e r 1 1 O r d i n a r y S i m p l e a n n u i t i e S
(BGN mode) (Set P/Y 5 1; C/Y 5 4) 7 I/Y
troductIon
SUmmArYI nOF
FOrmULAS
20 000
PMT
19/07/13 3:47 PM
0 PV
5
CPT
FV
123737.7535
AnThe
annuity
is a seriesvalue
of payments,
equal
size, made at periodic time interaccumulated
after five usually
years isof
$123
737.75.
Formula 9.1A
vals. The term annuity applies to all periodic payment plans, the most frequent of
FV = PV(1 +
i)n require annual, semi-annual, quarterly,
Finding the future
value of a payments.
compound amount
(maturityapplicavalue) when the
which
or monthly
Practical
originalin
principal,
rate ofofinterest,
the time period
known
tions of annuities are widely encountered
the fi the
ances
both and
businesses
andare
individuals. Various types of annuities are identifi d based on the term of an annuity, the
Formula 9.1C
date
conversion
In this
chapter,
will
PV = FV(1 +
i)-nof payment, and the length of the
Finding
the presentperiod.
value by means
of the
discountwe
factor
(thedeal
reciprocal of
with ordinary simple annuities, and calculate
the
future
value,
present
value,
payment
the compounding factor)
amount, number of periods, and the interest rate.
If the future value of an annuity, FVg(due), is known, you can fi d the periodic payFormula 11.1A
PMT
(1 ment
+ i)n
1 by substituting into the future value formula, Formula 13.3A.
FVn = PMT c
Finding the future value (accumulated value) of an ordinary simple annuity
d
i
(1 + p)n 1
FVg(due) = PMT c
d (1 + p)
Formula 11.1b
p
Formula 13.3A
FVn i
c
PMT = c
d
Finding the amount of the payment of an ordinary simple annuity when the
(1 + i)nwhere
1 p = (1 + i) 1
futuremade
value isatknown
An annuity is a series of equal payments,
periodic intervals. The length of time
between the successive payments is called the payment interval or payment period.
Formula 11.1C The length of time from the beginning of the fi st payment interval to the end of the
FVn last
i payment interval is called the term of an annuity. The amount of each of the reguln c a
b + 1d
PMTlar payments is called the periodic payment, or periodic rent.
n=
Finding the number of payments of an ordinary simple annuity when the
the timing of payments must be considln (1 + i)When performing annuity calculations,
future value is known
ered. Depending on the frequency and regularity of payments, different formulas will
be used in annuity calculations. When a payment is made only once, it is treated as
M13_HUMM2312_CH13.p463-516.indd 478
24/10/13
Formula 11.2A
either
present
value, PV, or the future value, FV, of a calculation. When there are a
-n
1 (1the
+ i)
PVn = PMT c series of payments,
Finding the
present
value (discounted
value)amounts
of an ordinary
simple
d
it must be determined
if the
payments
are equal
and
are annuity
i
paid at the same time within each payment interval of the term. If the payment is equal
Formula 11.2b and periodic, it is treated as the periodic payment, PMT, of an annuity calculation. The
types
PVn i of annuities are described in Section B below.
PMT = c
d
Finding the amount of the payment of an ordinary simple annuity when the
1 (1 + i)-n
present value is known
b. Finding the terms Pmt, n, and i of a general

annuity due when the Fv is known
11.1 intrOdUCtiOn tO AnnUitieS

A. basic concepts
4:39 PM
b.Formula
types
11.2C of annuities
PVn i
ln c 1 a 1. Simple
b d and general annuities
PMT
Annuities are classified by the length
ofnumber
the conversion
relative
to the
Finding the
of payments ofperiod
an ordinary
simple annuity
when the
-ln (1 + payment
i)
period (Section 9.1). With
simple
present avalue
is knownannuity, the conversion period is the same length as the payment interval. An example is when there are
monthly payments on a loan for which the interest is compounded monthly.
Since the interest compounding period
(C/Y:
compounding
per
Annuity
certain
an annuityperiods
for which
theyear)
term is fi ed
is equal to the payment period (P/Y: payment
(p. 393) periods per year), this is a simple
annuity.
Annuity due an annuity in which the periodic payAccumulated value of one
dollar
per periodannuity,
see
With
a general
the conversion
and
payment
interval
ments areperiod
made at
thethe
beginning
of each
payment
Accumulation factor
are for
notannuities
equal. An example would be ainterval
residential
mortgage for which interest is
(p. 392)
Accumulation factorcompounded
for annuities the
factor
semi-annually
but payments may be made monthly, semi-monthly,
Compounding factor for annuities see Accumulation
(1 + i)n 1
bi-weekly, or weekly. The conversion period, C/Y, does not equal the payment
factor for annuities
(p. 396)
period,
P/Y.
i
Contingent annuity an annuity in which the term
Annuity a series2.
ofOrdinary
payments,annuities
usually equal
in size, due is uncertain; that is, either the beginning date of
and annuities
made at equal periodic
time intervals
(p. 392) by the date of payment. In an ordinary annuity,
Annuities
are classified
payments are made at the end of each payment period. In an annuity due, payments are made at the beginning of each payment period. Loan payments, mortgage payments, and interest payments on bonds are all examples of ordinary
n=
gLOSSArY
M11_HUMM2312_CH11.p391-431.indd 430
M11_HUMM2312_CH11.p391-431.indd 392
115
The unknown amount of the invoice, represented by $x, is the base for the
discount.
Amount of invoice Discount = Amount paid
x 5% of x = 532
x 0.05x = 532
0.95x = 532
x = 560
sOLUtiOn
Numerous Examples with worked-out Solutions

are provided throughout the book, offering
easy-to-follow, step-by-step instructions.
Updated! Programmed solutions using the Texas
Instruments BA II PLUS calculator are offered for
most examples in Chapters 9 to 16. Since this calculator display can be pre-set, it is suggested that the
learner set the display to show six decimal places to
match the mathematical calculations in the body
of the text. Both mathematical and calculator solutions for all Exercises, Review Exercises, and SelfTests are included in the Instructors Solutions
Manual. An icon highlights information on the use
of the BA II PLUS calculator.
Interest
10 Compound
Further Topics
LearnIng ObjeCTIves
A set of Learning Objectives is listed at

the beginning of each chapter. The corresponding Learning Objectives are also indicated
for each Review Exercise, allowing students
new!
to see which aspects of the chapter they have
mastered.
Each chapter opens with a description of a
situation familiar to students to emphasize
the practical applications of the material to
follow.
A Business Math News Box is presented in
every chapter. This element consists of short
excerpts based on material appearing in newspapers, magazines, or websites, followed by a set of
questions. These boxes demonstrate how widespread business math applications are in the real
world.
363
F i n d i n g n a n d R e l at e d P R o b l e m s
10.1
are given in Appendix II for the Sharp EL-738C

and the Hewlett-Packard 10bII+ financial
calculators.
new! Each part opens with an introduction to the
upcoming chapters and a discussion of the
rounding conventions that are relevant to these
chapters.
05/09/13 3:58 PM
05/09/13 3:57 PM
27/11/13 9:56 PM
5.2
C O N T R I B U T I O N M A R g I N A N D C O N T R I B U T I O N R AT E
187
5.2 COnTrIBUTIOn MArgIn AnD COnTrIBUTIOn rATE
xvi
A. Contribution margin
p r e fa c e
As an alternative to using the break-even relationship TOTAL REVENUE 5 TOTAL

COST, we can use the concepts of contribution margin and contribution rate to determine break-even volume and sales.
For Erics birdhouse project, each additional birdhouse sold increases the revenue
by $30. However, at the same time, costs increase by the variable cost (materials and
supplies) of $10 per birdhouse. As a result, the profit increases by the difference, which
is 30 2 10 5 $20. Th s difference of $20, which is the selling price of a unit less the variable cost per unit, is the contribution margin per unit.
the ends of the chapters. Each main formula is

presented in colour and labelled numerically
(with the letter A suffi if equivalent forms of
the formula are presented later). By contrast,
equivalent formulas are presented in black and
labelled with the number of the related main
formula followed by the letter B or C.

Updated! A list of the Main Formulas can be found on the

study card bound into this text.
An Exercise set is provided at the end of each
section in every chapter. In addition, each
chapter contains a Review Exercise set and a
Self-Test. Answers to all the odd-numbered
Exercises, Review Exercises, and Self-Tests are
given at the back of the book.
Also included in this edition are references to

solved Examples from the chapter, which are
provided at the end of key exercises. Students are
directed to specific examples so they can check
their work and review fundamental problem
types.
CONTRIBUTION MARGIN
PER UNIT
or,
A set of Challenge Problems is provided in each

chapter. These problems give users the opportunity to apply the skills learned in the chapter to
questions that are pitched at a higher level than
the Exercises.
SELLING PRICE
PER UNIT
VARIABLE COST
Formula 5.2
PER UNIT
= SP VC
When the contribution margin per unit is multiplied by the number of units, the result
is the total contribution margin.
TOTAL CONTRIBUTION
MARGIN
or,
TOTAL CM
=a
SELLING PRICE
PER UNIT
VARIABLE COST
PER UNIT
= (SP VC) X
b VOLUME
Formula 5.3
Using the contribution margin format, Formula 5.1 can be rewritten as

(SP VC) X FC = PFT
Formula 5.1B
For Erics birdhouse business, if Eric sells zero units, revenue is $0 and variable cost is
$0. Total cost then equals fi ed cost, which is $400. His profit is 2$400 (a loss); that is,
his loss equals the fi ed cost.
If Eric sells one birdhouse, revenue increases by $30; total cost increases by $10 to
$410; profit 5 30 2 410 5 2$380 (a loss). The sale of one unit decreases the loss by
$20; that is, the contribution margin of $20 has absorbed $20 in fi ed cost.
e V i e w e x e R C i s e 387
If Eric sells 10 birdhouses, total revenue 5 10($30) 5 $300; Rvariable
costs 5
10($10) 5 $100 and total costs 5 400 1 100 5 $500; the loss 5 300 2 500 5 2$200.
Visit
MyMathl
ab to practice
this chapters exercises
in green as often as
you want.
The guided solutions
The
reduction inhelp
loss
is $200.
Thanysofreduction
in highlighted
loss represents
the
contribution
margin
MyMathLab
you find an answer step by step. Youll find a personalized study plan and additional interactive resources to help you
masterhas
Business
Math!
for 10 units, which
absorbed
$200 in fi ed costs.
The break-even volume is reached when the accumulated contribution margin of a
number of units covers the fi ed costs. We use(c)Formula
5.4
to
compute
the
break-even
if the effective annual rate of interest is 7.75%
revIew exercISe
and compounding is done monthly;
volume in units.
330
M05_HUMM2312_CH05.p169-200.indd 187
new! Exercises and Review Exercises that are coloured in green are also available on MyMathLab.
Students have endless opportunities to practise
many of these questions with new data and values every time they use MyMathLab.
CM PER UNIT
1. lo At what nominal rate of interest com(d) that is equivalent to 6% compounded quarterly.

pounded monthly will $400 earn $100 interest in
FIXED COST
11. lo Compute the effective annual rate of
four years? VOLUME (in units) =
Formula 5.4
BREAK@EVEN
interest
UNIT CONTRIBUTION
MARGIN
2. lo At what nominal rate of interest com(a) for 4.5% compounded monthly;
pounded quarterly will $300 earn $80 interest in
at which $2000 will grow to $3000 in seven
six years?
In Erics
case, since the fi ed cost is $400 and(b)
the
contribution margin per unit is $20,
years if compounded quarterly.
dateisat 20
which
payments
lo Find the equated
the3.break-even
volume
units.
of $500 due six months ago and $600 due today
12. lo Compute the effective annual rate of
$400
could be settled by a payment of $1300, if interinterest
= 20 units
BREAK@EVEN
VOLUME (in units)
=
est is 9% compounded
monthly.
(a) for 6% compounded
monthly;
$20
4. lo Find the equated date at which two
(b) at which $1100 will grow to $2000 in seven
To prove
that
is months
the break-even
point, multiply
the number
by the contribution
payments
of 20
$600units
due four
ago and
years if compounded
monthly.
$400 due
could bethe
settled
of
margin,
$20,today
to equal
fi by
eda payment
costs, $400.
13. lo What is the nominal annual rate of interest
$1100, if interest is 7.25% compounded semicompounded monthly that is equivalent to 8.5%
annually.
compounded quarterly?
5. lo In what period of time will money triple at
14. lo What is the nominal annual rate of interest
10% compounded semi-annually?
compounded quarterly that is equivalent to an
6. lo In how many years will money double at
effective annual rate of 5%?
C h A P T E r 9 8%Ccompounded
O M P O U N D I Nmonthly?
TErESTfUTUrE vALUE AND PrESENT vALUE
15. lo Patrick had $2000 to invest. Which of the
7. lo What nominal rate of interest comfollowing options should he choose?
pounded monthly is equivalent to an effective
(a) 4% compounded annually
19/07/13
rate of 6.2%?
STEP 2
3.75% compounded
Subtract the payment of $5000 from the(b)
accumulated
value ofsemi-annually
$11 038.12891 to obtain
8. lo What nominal rate of interest compounded
the debt balance. Now determine its accumulated
value at the
time of the second
(c) 3.5% compounded
quarterly
quarterly is equivalent to an effective rate of
payment three years later.
(d) 3.25% compounded monthly
5.99%?
3:47 PM
PV 5 11 038.12891 2 5000.00 5 6038.12891; i 5 4% 5 0.04; n 5 3(2) 5 6
2
annual rate of interest
9. lo Find the nominal
16. lo (a) How many years will it take for $7500
6
6038.12891(1.04)
6038.12891(1.265319)
FV2 5will
to accumulate5to$7640.159341
$9517.39 at 3% compounded
(a) at which $2500
grow to $4000 in5eight
semi-annually?
S T E Pyears
3 compounded
Subtractquarterly;
the payment of $6000 from the accumulated value of $7640.159341 to obtain
(b) Over what
period
time will
money triple at
(b)
at
which
money
will
double
in
five
years
if
the
Now determine its accumulated
value
twoofyears
later.
274 C h A P T E r 7 S I m
P L Edebt
I n T Ebalance.
rEST
9% compounded quarterly?
compounded semi-annually;
i 5 7.5% 5 0.075; n 5 1(2) 5 2
PV3 5 7640.159341 2 6000.00 5 1640.159341;
(c) How many years will it take for a loan of
(c) if the effective annual rate of interest is29.2%
5 1640.159341(1.155625)
5 $1895.41
FV3 5 1640.159341(1.075)
$10 000 to amount
to $13 684 at 10.5% comand compounding
is done monthly;
pounded monthly?
The final payment
six years is $1895.41.
(d) that is equivalent
to 8% after
compounded
1. Compute the amount of interest
earned
$1290
at 3.5%
p.a.two
in 173
days.
quarterly.
Mattby
had
agreed
to make
payments
17. lo
PROgRAmmED SOlUTION
a payment
of $2000 due
in p.a.?
nine months and
In howrate
many
months will $8500
grow to $8818.75
at 5%
of interest
10. lo Find the nominal2.annual
$1500
in a year.
If Matt makes a
N CPT of FV
11038.12891
STEP 1
(Set P/Y, C/Y 5 4) 10 000 PV 10 I/Y a4 payment
Result:
(a) at which $1500 will 3.grow
to interest
$1800 in
four
What
rate
is paid if the
interest
on a loan
$2500
for six
months
payment
of $1800
now,of
when
should
he make
a is
5000 monthly;
$81.25?
PV (Set P/Y, C/Y
= 6038.128906
N CPT
FV is worth 8%
S T E Pyears
2 compounded
5 2)
8 I/Y of
6 $1700
second
payment
if money
(b) at which money
double
seven years
if a maturity
compounded
quarterly?
4.
Whatin
principal
will have
value of $10
000 at 8.25% p.a. in three months?
7640.159341
Result:will
compounded quarterly;
5.
What
is
the
amount
to
which
$6000
will
grow
at
3.75%
p.a.
in
10
months?
6000 = 1640.159341 PV
STEP 3
(Set P/Y, C/Y 5 1) 7.5 I/Y 2 N CPT FV
6. What principal will earn $67.14 interest at 6.25% for 82 days?
Result: 1895.4092139
SeLF-teSt
7. What is the present value of $4400 due at 3.25% p.a. in 243 days?
8. What rate of interest is paid if the interest on a loan of $2500 is $96.06 from
November 14, 2015, to May 20, 2016?
MyMathLab
ExERCISE 9.2
M10_HUMM2312_CH10.p363-390.indd 387
9. How many days will it take for $8500 to earn $689.72 at 8.25% p.a.?
05/09/13 2:29 PM
1. What10.isWhat
the maturity
value
a five-year
deposit
of $5000
at 4,
3.5%
principal will
earnof$55.99
interestterm
at 9.75%
p.a. from
February
2015,comto
poundedJuly
semi-annually?
How much interest did the deposit earn?
6, 2015?
11.for
What
amount
to $7500 at semi-annually
3.75% p.a. in 88 days?
2. A loan
$5000
withinvested
interestwill
at accumulate
7.75% compounded
is repaid after
5 years,
months.
is the
amount
interest
paid?
12. 10
Compute
theWhat
amount
of interest
onof$835
at 7.5%
p.a. from October 8, 2015, to
3. SupposeAugust
$40004,is2016.
invested for 4 years and 8 months at 3.83% compounded annually. What
is the
compounded
amount?
13. Loan
payments
of $1725 due
today, $510 due in 75 days, and $655 due in 323 days
are to be combined into a single payment to be made 115 days from now. What
4. A debt of
$8000 is payable in 7 years and 5 months. Determine the accumulated
is that single payment if money is worth 8.5% p.a. and the focal date is 115 days
value of from
the debt
at 10.8% p.a. compounded annually.
now?
5. The Canadian
Consumer
Index
(base
14. Scheduled
paymentsPrice
of $1010
duewas
fiveapproximately
months ago and98.5
$1280
due year
today1992)
are to at
the beginning
of by
1991.
If inflation
continued
at an and
average
annualinrate
of months.
3%, what
be repaid
a payment
of $615
in four months
the balance
seven
would the
index be
at the7.75%
beginning
of the
2016?
If money
is worth
p.a. and
focal date is in seven months, what is the
amount
of the
fi al payment?
6. Peel Credit
Union
expects
an average annual growth rate of 8% for the next five
loan
of $3320
is to
be repaid
by currently
three equalamount
paymentstodue
in 92
days, 235
days,
years.15.If Athe
assets
of the
credit
union
$2.5
million,
what
will
and 326assets
days. be
Determine
the amount of the equal payments at 8.75% p.a. with a
the forecasted
in five years?
focal date of today.
7. A deposit of $2000 earns interest at 3% p.a. compounded quarterly. After twoand-a-half years, the interest rate is changed to 2.75% compounded monthly. How
much is the account worth after six years?

ChaLLenge prObLemS
8. An investment of $2500 earns interest at 4.5% p.a. compounded monthly for three
1. Nora borrows $37 500 on September 28, 2015, at 7% p.a. simple interest, to be
years. Atrepaid
that time
the interest rate is changed to 5% compounded quarterly. How
on October 31, 2016. She has the option of making payments toward the
much will
the
accumulated
value
bepays
one-and-a-half
years 17,
after
the$8250
change?
loan
before
the due date.
Nora
$6350 on February
2016,
on July 2,
2016,
andaccumulates
$7500 on October
1, 2016.
Compute
the paymentsemi-annually
required to payfrom
off
9. A debt of
$800
interest
at 10%
compounded
on the
focal date
October
2016.
Februarythe1,debt
2017,
to August
1,of2019,
and31,11%
compounded quarterly thereafter.
Determine
the accumulated
valueUnibase
of the debt
on November
2. A supplier
will give Shark
Company
a discount 1,
of2022.
2% if an invoice is
paid 60 days before its due date. Suppose Shark wants to take advantage of this
discount but needs to borrow the money. It plans to pay back the loan in 60 days.
What is the highest annual simple interest rate at which Shark Unibase can borrow the money and still save by paying the invoice 60 days before its due date?
M09_HUMM2312_CH09.p309-362.indd 330
05/09/13 12:06 PM
Sixteen Case Studies are included in the book, at the end of each chapter. They present comprehensive realistic scenarios followed by a set of questions and illustrate
some of the important types of practical applications of the chapter material. Sixteen
additional case studies can be found on MyMathLab.
new! The inside back cover features a new Quick Reference Guide for Calculator
Applications, providing students with an easy-to-reference guide of common calculator applications for the Texas Instruments BA II PLUS, the Sharp EL-738C, and the
Hewlett-Packard 10bII+.
M07_HUMM2312_CH07.p246-276.indd 274
30/08/13 10:16 AM
Technology Resources
MyMathLab
The moment you know. Educators know it. Students know it. Its that inspired moment
when something that was difficult to understand suddenly makes perfect sense. Our
MyLab products have been designed and refi ed with a single purpose in mindto
help educators create that moment of understanding with their students.
MyMathLab delivers proven results in helping individual students succeed. It provides engaging experiences that personalize, stimulate, and measure learning for each
27/11/13 9:56 PM
p r e fa c e
xvii
student. And, it comes from a trusted partner with educational expertise and an eye
on the future.
MyMathLab can be used by itself or linked to any learning management system. To
learn more about how MyMathLab combines proven learning applications with powerful assessment, visit www.mymathlab.com.
MyMathLabthe moment you know.
MyBusMathCourse Premium Online Courseware

Pearsons MyBusMathCourse is a premium online course solution that combines fullycustomizable course lessons and tutorials and the personalized homework and assessment features of MyMathLab. Designed to be used in fully online or blended learning environments, MyBusMathCourse can accommodate various term lengths and
includes an integrated eBook and comprehensive Instructor Resource Guide. Ask your
Pearson rep about how to get started. Features of MyBusMathCourse include:

A flex ble, customizable solution in which an instructor may add to, delete, and
reorganize content. Each topic-based MyBusMathCourse module is built to specific
learning outcomes, and MyBusMathCourse includes a comprehensive Instructor
Resource Guide complete with course outcomes, lesson objectives, and teaching tips.
Interactive lesson presentations with a proven learning model, robust content, and
relevant video, audio, eBook, downloadable MP3 lectures, and other rich media
assets.
Rich MyMathLab-based assessment, pre-tests, quizzes, homework, and tests.
Pearson eText
Pearson eText gives students access to the text whenever and wherever they have access
to the Internet. eText pages look exactly like the printed text, offering powerful new
functionality for students and instructors. Users can create notes, highlight text in different colours, create bookmarks, zoom, click hyperlinked words and phrases to view
defin tions, and view in single-page or two-page view. Pearson eText allows for quick
navigation to key parts of the eText using a table of contents and provides full-text
search.
CourseSmart for Instructors

CourseSmart goes beyond traditional expectationsproviding instant, online access
to the textbooks and course materials you need at a lower cost for students. And
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CourseSmart for Students

CourseSmart goes beyond traditional expectationsproviding instant, online access
to the textbooks and course materials you need at an average savings of 60%. W ith
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highlighting and note-taking, you can save time and study effici tly. See all the
benefits at www.coursesmart.com/students.
27/11/13 9:56 PM
xviii
p r e fa c e
Pearson Custom Library

For enrollments of at least 25 students, you can create your own textbook by choosing
the chapters that best suit your own course needs. To begin building your custom text,
visit www.pearsoncustomlibrary.com. You may also work with a dedicated Pearson
Custom editor to create your ideal textpublishing your own original content or mixing and matching Pearson content. Contact your local Pearson Representative to get
started.
Technology Specialists
Pearsons Technology Specialists work with faculty and campus course designers to
ensure that Pearson technology products, assessment tools, and online course materials are tailored to meet your specific needs. Th s highly qualifi d team is dedicated to
helping schools take full advantage of a wide range of educational resources, by assisting in the integration of a variety of instructional materials and media formats. Your
local Pearson Education sales representative can provide you with more details on this
service program.
Supplements
The following instructor supplements are available for downloading from a passwordprotected section of Pearson Canadas online catalogue (catalogue.pearsoned.ca).
Navigate to your books catalogue page to view a list of those supplements that are
available. See your local sales representative for details and access.

An Instructors Solutions Manual provides complete mathematical and calculator

solutions to all the Exercises, Review Exercises, Self-Tests, Business Math News Box
questions, Challenge Problems, and Case Studies in the textbook.
An Instructors Resource Manual includes Chapter Overviews, Suggested Priority
of Topics, Chapter Outlines, and centralized information on all the supplements
available with the text.
PowerPoint Lecture Slides present an outline of each chapter in the book, highlighting the major concepts taught. The presentation will include many of the figu es
and tables from the text and provides the instructor with a visually interesting summary of the entire book.
A TestGen, a special computerized version of the test bank, enables instructors to
edit existing questions, add new questions, and generate tests. The Test Generator is
organized by chapter, with level of difficulty indicated for each question.
A complete Answer Key will contain solutions for all of the exercise and self-test
questions.
Excel Templates will allow instructors to assign a selection of Exercises and Review
Exercises to be solved using Excel spreadsheets.
An Image Library will provide access to many of the figu es and tables in the textbook.
Acknowledgments
We would like to express our thanks to the many people who offered thoughtful
suggestions and recommendations for updating and improving the book. We would
particularly like to thank the following instructors for providing formal reviews for the
Tenth Edition:
Peter Au, George Brown College
Jack Brown, Georgian College
John Calder, Nova Scotia Community College
Helen Catania, Centennial College
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p r e fa c e
xix
Melanie Christian, St. Lawrence College

Hoshiar Gosal, Langara College
Terry Gray, Cambrian College
Joe Hobart, Okanagan College
Doug Johnston, Mohawk College
Chris Kellman, British Columbia Institute of Technology/Camosun College
Ferne Mac Lennan, Nova Scotia Community College
Lisa MacKay, SAIT Polytechnic
Jacob Madjitey, College of New Caledonia
Kristine Malvar-Oickle, Nova Scotia Community College
Bernie Neuhold, Kwantlen Polytechnic University
Angelina Secen, St. Clair College
Jane Specht, St. Clair College
Oded Tal, Conestoga College
Darryl B. Toews, Red River College
Kate Zhang, Humber College
Thanks to the 2012/2013 Pearson Editorial Advisory Board in Business Math, a
group of subject matter experts that help develop improved content for Pearsons print
based products and online resources:
Peter Au, George Brown College
Helen Catania, Centennial College
Melanie Christian, St. Lawrence College
Craig Cooke, Mohawk College
Kristine Malvar-Oickle, Nova Scotia Community College
Wade Neigel, Algonquin College
We would also like to thank the many people at Pearson Canada Inc. who helped
with the development and production of this book, especially to the acquisitions editor, Megan Farrell; the developmental editor, Johanna Schlaepfer; the project manager,
Jessica Hellen; the production editor, Katie Ostler; the copy editor, Bonnie Boheme; the
media content developers, Maureen de Sousa and Charlotte Morrison-Reed; and the
marketing manager, Claire Varley.
27/11/13 11:11 PM
1.2fractions
Students Reference Guide to Rounding

and Special Notations
Developed by Jean-Paul Olivier, based on the textbook authored by Kelly Halliday and
Suzanne Coombs
Universal Principle of Rounding: W hen performing a sequence of operations, never
round any interim solution until the fi al answer is achieved. Only apply rounding
principles to the fi al answer. Interim solutions should only be rounded where common practice would require rounding.
Note: Due to space limitations, the textbook only shows the fi st 6 decimals
(rounded) of any number. Starting in Chapter 11, because the calculator display may
not have suffici t space for all 6 decimals, as many decimals as possible will be shown.
However, the Universal Principle of Rounding still applies.
Part
Section 1.2
1. For repeating decimals, use the notation

# of placing a period above the repeating
sequence. E.g. 13 = 0.333333 . . . = 0.3
2. For terminating decimals, if they terminate within the fi st 6 decimal places, then
carry all the decimals in your fi al answer.
3. For non-terminating decimals, round to 6 decimals unless specifi d or logically
sound to do so otherwise. If the fi al digits would be zeros, the zeros are generally
not displayed.
4. Calculations involving money are rounded to 2 decimals as their fi al answer.
Interim solutions may be rounded to 2 decimals if the situation dictates (for
example, if you withdraw money from an account). If the calculation does not
involve cents, it is optional to display the decimals.
Section 1.4
1. Hourly rate calculations for salaried employees require that all the decimals
should be carried until the fi al answer is achieved. If the solution is to express
the hourly rate or overtime rate itself, then rounding to 2 decimals is appropriate.
2. Overtime hourly wage rate calculations should carry all decimals of the overtime
rate until the fi al answer is achieved.
Section 3.3
1. Calculations involving percentages will only involve 4 decimal positions since

there are only 6 decimals in decimal format.
Section 3.7
1. Larger sums of money usually are involved in currency exchanges. Therefore, the
two decimal rule for money is insuffici t. To produce a more accurate result,
currency exchange rates need to carry at least four decimals.
2. It needs to be recognized that not all currencies utilize the same decimals when
expressing amounts.
(a)Final currency amounts for the Canadian Dollar, U.S. Dollar, British Pound,
Euro, and Swiss Franc should be rounded to the standard two decimal places.
(b)Final currency amounts for the Japanese Yen should be rounded to the nearest integer, as there are no decimal amounts in their currency.
3. Price per litre of gasoline is generally expressed to three decimal points (129.9/L
= $1.299/L)
27/11/13 9:56 PM
xxi
s t u d e n t s r e f e r e n c e g u i d e t o r o u n d i n g a n d s p e c i a l n o tat i o n s
Section 3.8
1. As indexes are similar to percentages, an index will only have 4 decimals.

Part
Section 5.1
1. W hen calculating break-even units, remember that the solution is the minimum number of units that must be sold. As such, any decimals must be rounded
upwards to the next integer, regardless of the actual value of the decimal. For
example, 38.05 units means 39 units must be sold to at least break even.
Section 7.2D
1. t is always an integer. It is important to note in this calculation that in most

instances the interest (I) earned or charged to the account has been rounded to two
decimals. Th s will cause the calculation of t to be slightly imprecise. Therefore,
when calculating t it is possible that decimals close to an integer (such as 128.998
days or 130.012 days) may show up. These decimals should be rounded to the
nearest integer to correct for the rounded interest amount.
Part
Section 9.2D
1. In determining when it is appropriate to round, it is important to recognize that

if the money remains inside an account (deposit or loan), all of the decimals need
to carry forward into the next calculation. For example, if a bank deposit of $2000
earns 6% p.a. compounded monthly for 4 years, and then earns 7% p.a. compounded quarterly for three more years, then the money remained in the account
the whole time. W e can solve this in one step as follows:
FV = 2000.00(1.005)48 (1.0175)12 = $3129.06
Or two steps as follows:
FV = 2000.00(1.005)48 = $2540.978322
FV = 2540.978322(1.0175)12 = $3129.06
ote that the fi st step is an interim calculation, for which we must carry forward
N
all the decimals to the next step where the solution can then be rounded.
(a)If money is withdrawn/transferred from the account at any time, then only
2 decimals can be carried forward to any further steps (since a currency payout can only involve 2 decimals).
Section 9.4C
1. In promissory notes, the FV solution in the fi st step must be rounded to 2 decimals before discounting as this is the amount of the debt that will be repaid on the
maturity date.
Section 9.5B
1. W hen calculating equivalent values for more than one payment, each payment
is a separate transaction (one could make each payment separate from any other
payment) and therefore any equivalent value is rounded to two decimals before
summing multiple payments.
Section 10.1
1. W hen determining the n for non-annuity calculations (lump-sum amounts), generally the solution would not be rounded off since n can be fractional in nature
(we can get 4.5632 quarters).
(a)However, when n is discussed, the n may be simplifi d to 2 decimals so that it
is easier to communicate. For example, if n = 5.998123 years this would mean
27/11/13 9:56 PM
xxii
a term of slightly under 6 years. However, when discussed it may be spoken

simply as a term of 6.00 years. Alternatively if n = 17.559876 months this
would mean a little more than half way through the 17th month. However,
when discussed it may be spoken as a term of approximately 17.56 months.
(b)An exception to this rule is when the n gets converted into days. As interest
generally is not accrued more than daily, a fraction of a day is not possible.
The fraction shows up most likely due to rounding in the numbers being
utilized in the calculation. Since we do not know how these numbers were
rounded, it is appropriate for our purposes to round n to the nearest integer.
Section 11.5A
1. W hen determining the n for annuity calculations, remember that n represents the
number of payments. Therefore, n must be a whole number and should always
be rounded upwards. W hether a partial or full payment is made, it is still a payment. For example, if n = 21.34 payments, this would indicate 21 full payments
and a smaller last payment (which is still a payment). Therefore, 22 payments are
required.
(a)In most cases, the payment (PMT) has been rounded to two decimals. Th s
may cause insignifi ant decimals to show up in the calculations. As a result,
an exception to this rule would be when n is extremely close to a whole number. Th s would mean that no signifi ant digits show up in the fi st two decimals. For example, if n = 23.001, it can be reasonably concluded that n is 23
payments since the 0.001 is probably a result of the rounded payment.
Section 13.1E
1. W hen working with the n for an annuity due, n represents the number of payments and must be a whole number. Therefore, n will always round upward.
However, it is important to distinguish whether the question is asking about the
term of the annuity due or when the last payment of the annuity due occurs.
(a)If the term is being asked, n can be used to figu e out the timeline. For example, a yearly apartment rental agreement would have n = 12 monthly payments, thus the term ends 12 months from now.
(b)If the last payment is being asked, n - 1 can be used to figu e out the timeline.
In the same example, the last rental payment would occur at the beginning of
the 12th month. The last payment would be 12 - 1 = 11 months from now.
Section 14.1
1. The payment must be rounded to the two decimal standard for currency.
2. W hen constructing an amortization schedule, it is important to recognize that
all numbers in the schedule need to be rounded to two decimals (since it is currency). However, since the money remains in the account at all times, all decimals
are in fact being carried forward throughout. As such, calculated numbers may
sometimes be off y a penny due to the rounding of the payment or the interest.
Section 15.1
1. W hen determining the purchase price for a bond, it is important to carry all the
decimals until the calculation is complete. W hen completing the calculation by
formula, the present value of the bonds face value and interest payments along
with any accrued interest must be calculated. For simplicity reasons, the text
shows each of these values rounded to two decimals and then summed to get the
purchase price. Remember though that all decimals are being carried forward
until the fi al answer.
27/11/13 9:56 PM
xxiii
Section 15.5
1. A sinking fund schedule has the same characteristics as an amortization schedule

and may also experience a penny difference due to the rounding of the payment
or the interest.
Section 16.1
1. When making choices between various alternatives, it is suffici t to calculate

answers rounded to the nearest dollar. There are two rationales for this. First,
in most cases future cash fl ws are not entirely certain (they are estimates) and
therefore may be slightly inaccurate themselves. Second, as cents have little value,
most decisions would not be based on cents difference; rather decisions would be
based on dollars difference.
Section 16.2
1. In choosing whether to accept or reject a contract using the net present value
method, remember that future cash fl ws are estimates. Therefore, when an NPV
is calculated that is within $500 of $0, it can be said that the result does not provide a clear signal to accept or reject. Although the desired rate of return has
barely been met (or not), this may be a result of the estimated cash fl ws. In this
case, a closer examination of the estimates to determine their accuracy may be
required before any decision could be made.
Section 16.3
1. Performance indexes are generally rounded to one decimal in percentage format.

2. Th s unknown rate of return (d) is generally rounded to 2 decimals in percentage
format.
3. A rate of return is generally rounded to one decimal in percentage format.
02/12/13 8:05 PM
27/11/13 9:56 PM
To Daryl, Kirkland, and Kealeigh. Thanks Mom and Dad.

K.H.
To Bruce, my inspiration, and in memory of my dad, George A. Thompson.
K.S.C.
27/11/13 9:56 PM

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contemporary

Acquisitions Editor: Megan Farrell

Appendix I: Further Review of Basic Algebra 648

Appendix II: I nstructions and Tips for Three Preprogrammed Financia

Answers to Odd-Numbered Problems, Review Exercises,

Calculator Models 668

1 Mathematics Fundamentals and Business Applications 2

3 Ratio, Proportion, and Percent 84

ApplicationsPersonal Income Taxes 124

Review Exercise 127

4 Linear Systems 133

Review Exercise 161

Part 1 Comprehensive Case 165

Mathematics of Business and Management 169

5 Cost-Volume-Profit Analysis and Break-Even 171

Review Exercise 240

7 Simple Interest 246

Review Exercise 273

8 Simple Interest Applications 277

Review Exercise 301

Part 2 Comprehensive Case 306

Mathematics of Finance and Investment 309

9 Compound InterestFuture Value and Present Value 312

Review Exercise 358

10.3 Effective and Equivalent Interest Rates 377

Review Exercise 458

Review Exercise 510

Case Study Planning for University 514

Review Exercise 564

Review Exercise 607

Part 3 Comprehensive Case 649

Further Review of Basic Algebra 652

Answers to Odd-Numbered Problems, Review Exercises, and Self-Tests 685

COMPOUND INTErESTfUTUrE vALUE AND PrESENT vALUE

Contemporary Business Mathematics with Canadian Applications is a teaching text

12% p.a. compounded quarterly for 12.5 years;

5.8% 4 365 5 0.000159*

Enter the numerical value of (1 1 i) in the keyboard.

Press the exponential function key y x

Enter the numerical value of n in the keyboard.

Read the answer in the display. Continue calculating or save as needed.

1 1 0.07/2 1 1 0.12/4 1 1 0.105/12

New To This Edition

Th s edition continues to clarify the consistent approach to rounding rules. The

Comprehensive Case Studies

COMPOUND INTERESTFUTURE VALUE AND PRESENT VALUE

Any preprogrammed fi ancial calculator may be

The periodic annuity payment2

The present value or principal

The future value or maturity value

The rate of interest

Using the Texas Instruments BA II PlUs to solve Compound Interest Problems

The Pointers and Pitfalls boxes emphasize

Upon completing this chapter, you will be able to do the following:

Key Terms are introduced in the text in boldface

Discount 5 5% of 560 5 0.05 3560 5 $28.

bUsiness math news bOx

* Represents salary and not necessarily total compensation.

(VC * 80) = 1600

POInTErS AnD PITFALLS

AnnuitieS Due, DeFeRReD AnnuitieS, AnD peRpetuitieS

Adjustment for payment at beginning of period

CHapter 11 Ordinary Sim

(BGN mode) (Set P/Y 5 1; C/Y 5 4) 7 I/Y

Appendix II: I nstructions and Tips for Three Preprogrammed Financia

5 Cost-Volume-Profit Analysis and Break-Even 171