Business Statistics Assignment: Financial Mathematics
Added on -2020-06-06
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Financial Mathematics andBusiness Statistics
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1Question 1........................................................................................................................................1A) Decision analysis...............................................................................................................1B) Recommendation...............................................................................................................1Question 2........................................................................................................................................2A) Mortgage alternatives and interest rates............................................................................2B) Computation of monthly cost of available alternatives of mortgages...............................3C) Computation of remaining monthly payments for mortgage............................................3D) Recommendation on choosing desired property on financial terms.................................3Question 3........................................................................................................................................3A) Design linear programming problem................................................................................3B) Recalculation for further negotiation with wood suppliers...............................................5C) Recalculation for increasing demand through marketing campaign.................................7D) Justify and provide recommendation on the basis of production mix...............................7Question 4........................................................................................................................................8A) Advantages and disadvantages of various investment appraisal techniques.....................8B) Choosing investment project with less payback period....................................................9C) Recommendation to chose profitable project..................................................................12Question 5......................................................................................................................................12A) Provide summarised distribution of expected grades......................................................12B) Formulate confidence interval for analysing difference..................................................14C) Expectation of actual results to have similar pattern.......................................................15CONCLUSION..............................................................................................................................15REFERENCES..............................................................................................................................16
INTRODUCTIONMathematics and statistics plays crucial role in making appropriate decision so thatbusiness may be flourished in the best possible way. The present report discusses about variouscases related to business statistics and mathematics which are required so that adequate decisionmay be taken with much ease. In this report, decision analysis is carried out for expansion oforganisation in different markets which best suits to it in terms of profitability. Moreover,mortgage costs and interest payment is calculated for purchasing property. Linear programmingproblem is formulated for adopting the best production mix. Investment appraisal techniques iscarried out for selecting profitable project for investment purpose and that too having lesspayback period. Statistical data is provided to show whether there is significant differencebetween variables or not. Thus, all these statistical techniques and mathematical methods arediscussed for taking better decisions with much ease. Question 1A) Decision analysisPessimisticAverageapproachOptimisticTotal of courses of actionInternationalExpansion937.5379521906922.5DomesticExpansion1075385019506875No Change13753382.516706427.5B) RecommendationThe above calculations are provided to analyse better investment decision so that firmmay be able to expand operations in the best possible way. Dreamcatcher which is engaged inretail business in games is planning to expand its market reach in various alternative courses ofaction which best suits for achieving desired goals with much ease. In this study, there are threemarket scenarios which are required to be attain expansion of the firm. The three alternatives areInternational expansion, domestic expansion and no change. These expansion options are carried1
out by taking average of profit arrived in these markets by the business. Probabilities of variedmarket options are provided to show best of them. The profit of each of the alternative market options are provided with their respectiveprobabilities. Moreover, the approaches such as pessimistic, optimistic and average views arelisted which gives clarity about the effectiveness of each of the options in the best possible way.It can be interpreted that Dreamcatcher should invest in international market as total ofprobability of this investment is higher than other alternatives. The total probability ofinternational expansion is 6922.5 considering the views of pessimistic, optimistic and averageapproaches in the given scenario. The calculation of probability is made by taking 25 % ofseveral views of market options.On the other hand, domestic expansion is calculated by taking probability of 55 %considering views is carried out which amounts to 6875. While, other option for no change ismade having probability of 20 % amounting to 6427.5. Thus, it is clarified that Dreamcatchershould invest in international expansion of related to markets and as such, it is recommended thatadequate profits will be generated and financial strength may be enhanced in a better way. Question 2A) Mortgage alternatives and interest ratesThere are various alternatives of mortgages Kyle can easily avail from the moneyavailable with him. He can easily take low operating costs of interest so that he may chose homeswith adequate mortgage interest rates. There are alternatives of mortgage such as sellerfinancing, hard money lenders and loan taken against insurance policy. This will help him toavail adequate mortgage for making right decision and also cost-effective one for him. Variousalternatives with different interest rates are as follows-Seller financingThis is useful alternative to Kyle to avail low operating interest rates. Seller financing ismeans that seller of the property agrees to lend his home and in return buyer of the property signsa promissory note such as mortgage deed which carries obligation to repay the loan amount ininstalments. If buyer of the mortgage property defaults on repaying loan, then seller can takepossession of his property. The applicable interest rate on seller financing is 6 % on this type ofalternative available to Kyle. 2
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