PAN AFRICAN UNIVERSITY

INSTITUTE FOR BASIC SCIENCES,

TECHNOLOGY AND INNOVATION

UNIVERSITY EXAMINATIONS 2019/2020

MATHEMATICS ENTRY EXAMINATION

CANDIDATES: ALL MSC AND PHD IN MATHEMATICS

DATE: APRIL 2020 TIME: OPEN BOOK

INSTRUCTIONS TO CANDIDATES:

1. Answer all questions.

2. Be neat and show all your workings

3. All questions carry equal marks

This exam paper contains 9 pages (including this cover page) and 5 questions
PAU ENTRY EXAM W1-2-60-1-6

1. (a) The PUASTI student population is declining at a rate proportional to the difference
between the population and lower limit of 5000 students.
(i) If the population has declined from 15,000 three years ago to 10,000 today find [3]
the population 6 years from now.
(ii) Suppose that the student population 6 years from now turns out to be 8000 [3]
indicating that the lower limit might be more than the original lower limit of
5,000 students. Assuming that the rate of change of students is still proportional
to the difference between the population and unknown lower limit approximate
to nearest hundred.
(b) Explain each of the following
(i) Body force. [1]
(ii) Surface force. [1]
(iii) Incompressible fluid. [1]
(iv) Uniform and non-uniform flow. [2]
(c) State the difference between the Euler’s and Navier’s Stokes equations of motion. [2]
(d) The daily cost (in thousand shs ) of producing motherboards of computers is given [4]
by C(x) = 1000 + 5x + 0.2x2 . Discuss and sketch the average and the marginal cost
function on the same pair of axis, state the minimum average cost.
(e) The number of infant deaths N (t) per 100,000 births for females in Africa t years [4]
after 2002 is as given in the data below
t 0 1 2 3 4 5 6
N (t) 80 91 100 107 112 115 116
Determine a quadratic interpolation polynomial appropriate to approximate N (t).
Using your result approximate N (2.5).
(f) The total cost C(x) (in hundreds) for producing x television sets is given in the data [4]
below
x 1 2 4 5
C(x) 6 21 135 258
Express C(x) as a polynomial in x hence use your result to approximate C(3).
(g) Find the orthogonal trajectories to the family of curves y = cxn , where n is a fixed [5]
positive integer and c an arbitrary constant.
Total for Question 1: 30

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PAU ENTRY EXAM W1-2-60-1-6

2. (a) Suppose a researcher collects x1 , . . . , xn i.i.d measurements of the background radi- [5]
ation in Kiambu. Suppose also that these observations follow a Rayleigh distribution
with parameter τ , with pdf given by

f (x) = xτ e− 2 τ x
1 2

. Find the maximum likelihood estimate for τ .

(b) Data is collected on the time between arrivals of consecutive taxis at a down town
hotel. We collect a dataset of size 45 with sample mean x̄ = 5.0 and sample standard
deviation s = 4.0.
(i) Assume the data follows a normal random variable. Find an 80% confidence in- [5]
terval for the mean µ of X and an 80% χ2 − confidence interval for the variance?
(ii) Now make no assumptions about the distribution of the data. By bootstrapping, [5]
we generate 500 values for the differences δ∗ = x̄ ∗ −x̄. The smallest and largest
150 are written in non-decreasing order below. Use this data to
find an 80 % bootstrap confidence interval for µ

(iii) We suspect that the time between taxis is modelled by an exponential distribu- [2]
tion, not a normal distribution. In this case, are the approaches in the earlier
parts justified?
(iv) When might method(ii) be preferable to method(i)? [1]

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PAU ENTRY EXAM W1-2-60-1-6

(c) Sam, Janice, and Laura each borrow shs 500,000 for five years at a nominal interest [2]
rate of 12%, compounded semi-annually. Sam has interest accumulated over the
five years and pays all the interest and principal in a lump sum at the end of five
years. Janice pays interest at the end of every six-month period as it accrues and
the principal at the end of five years. Laura repays her loan with 10 level payments
at the end of every six-month period. Calculate the total amount of interest paid on
all three loans.
(d) Eric deposits X into a savings account at time 0, which pays interest at a nominal [2]
rate of j, compounded semi-annually. Mike deposits 2X into a different savings
account at time 0, which pays simple interest at an annual rate of j. Eric and Mike
earn the same amount of interest during the last 6 months of the 8th year. Calculate
j.
(e) You are given that the nominal rate of discount per annum convertible every 2 months [3]
is 15%. Calculate the product of the equivalent nominal rate of interest per annum
convertible every four months i(3) and the force of interest δ.
(f) Let A(0, t) = b(1.1)t + ct2 . If shs 1,000 invested at time t = 0 accumulates to [3]
shs 1,700 at time t = 3. Find the accumulated value at time t = 12 of shs 1,000
invested at time t = 1.
(g) Let A(t) represent the value of a fund at time t and in represent the nth year effective [2]
rate of interest. If A(4) = 2000 and in = 0.01n, find A(8).
Total for Question 2: 30

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PAU ENTRY EXAM W1-2-60-1-6

3. (a) There are 3 arrangements of the word DAD, namely DAD, ADD and DDA. How [2]
many arrangements are there of the word PROBABILITY?
(b) A full house in poker is a hand where three cards share one rank and two cards share [3]
another rank. How many ways are there to get a full-house? What is the probability
of getting a full-house?
(c) Suppose you are taking a multiple-choice test with c choices for each question. In [3]
answering a question on this test, the probability that you know the answer is p. If
you don’t know the answer, you choose one at random. What is the probability that
you knew the answer to a question, given that you answered it correctly?
(d) Suppose that X ∼ Bin(n, 0.5). Find the probability mass function of Y = 2X. [2]
(e) Suppose that buses arrive are scheduled to arrive at a bus stop at noon but are always
X minutes late, where X is an exponential random variable with probability density
function fX (x) = λe−λx . Suppose that you arrive at the bus stop precisely at noon.
(i) Compute the probability that you have to wait for more than five minutes for the [2]
bus to arrive.
(ii) Suppose that you have already waiting for 10 minutes. Compute the probability [3]
that you have to wait an additional five minutes or more.
(f) Corrupted by their power, the judges running the popular game show Africa’s Next
Top Mathematician have been taking bribes from many of the contestants. Each
episode, a given contestant is either allowed to stay on the show or is kicked off. If
the contestant has been bribing the judges she will be allowed to stay with probability
1. If the contestant has not been bribing the judges, she will be allowed to stay with
probability 1/3. Suppose that 1/4 of the contestants have been bribing the judges.
The same contestants bribe the judges in both rounds, i.e., if a contestant bribes
them in the first round, she bribes them in the second round too (and vice versa).
(i) If you pick a random contestant who was allowed to stay during the first episode, [2]
what is the probability that she was bribing the judges?
(ii) If you pick a random contestant, what is the probability that she is allowed to [1]
stay during both of the first two episodes?
(iii) If you pick random contestant who was allowed to stay during the first episode, [2]
what is the probability that she gets kicked off during the second episode?
(g) A test is graded on the scale 0 to 1, with 0.55 needed to pass. Student scores are
modelled by the following density:


 for 0 ≤ x ≤ 1/2


4x
f (x) = 4 − 4x for 1/2 ≤ x ≤ 1



0 otherwise

(i) What is the probability that a random student passes the exam? [2]

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PAU ENTRY EXAM W1-2-60-1-6

(ii) What score is the 87.5 percentile of the distribution? [3]

(h) Suppose you read in the newspaper that 65% of men with moustaches (facial hair
above the lips) also have a beard (facial hair below the lips). To test your theory,
you somehow draw a simple random sample of 10 men having a moustache. As it
turns out, you observe that none (zero) of these 10 men also has a beard.
(i) What can you conclude about whether or not the newspaper article you read was [3]
accurate? Make sure to state your hypotheses clearly, show how you calculated
your test statistic, give the p-value (or an interval containing the p-value, if that
is the best you can do with your tables), and write a clear conclusion. You may
use a significance level of 0.05.
(ii) Explain what a Type I error would mean in the context of this problem. [1]
(iii) Explain what the power of the test means in the context of this problem. [1]
Total for Question 3: 30

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PAU ENTRY EXAM W1-2-60-1-6

4. (a) Let A denote the matrix

( √ )
− 23 − 12
A= √
1
2
− 23

Let T : R2 → R2 be the linear transformation given by T (⃗x) = A(⃗x).

(i) Describe T geometrically. [5]
(ii) Find the characteristic polynomial of A, and use it to find all eigenvalues of A [5]
or to show that none exist. Explain why your answer makes sense geometrically.
(b) Let the vector space P2 have the inner product [7]
∫ 1
⟨p, q⟩ = p(x)q(x)dx
−1

Apply the Gram-Schmidt process to transform the standard basis {1, x, x2 } for P2
into an orthogonal basis {ϕ1 (x), ϕ2 (x), ϕ3 (x)}.
∑
(c) The space lp 1 ≤ p < ∞ = {x1 , x2 , x3 , . . .} : ∞ i=1 |xi | < ∞ is a normed space
p
[7]
∑∞
with norm defined by ||x̄||lp =( i=1 |xi |p )1/p for arbitrary x̄ = (x1 , x2 , x3 , . . .) ∈ lp .
Show that lp is complete.
(d) For n ∈ N, let [6]

n, x ∈ [0, 1/n]
fn (x) =
0, x ∈
/ [0, 1/n]

Calculate
∫ ∫ ∞
lim fn (x)dx and lim fn (x)
R(−∞,∞) n→∞ n→∞ −∞

Show that Fatou’s Lemma applies but Lebesgue dominated convergence theorem
does not hold.
Total for Question 4: 30

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PAU ENTRY EXAM W1-2-60-1-6

5. (a) Describe, using a numerical example, the concept of delta hedging. [2]
(b) Describe how a straddle can be constructed and develop formulae for the upside and [2]
downside break-even points.
(c) The force of interest,δ(t), is a function of time and at any time t, measured in years,
is given by the formula:

0.06 0≤t≤5
δ(t) =
0.01(t2 − t) 5 < t

(i) Calculate the present value of a unit sum of money due at time t = 10. [4]
(ii) Calculate the effective rate of interest over the period t = 9 to t = 10. [2]
(iii) In terms of t, determine an expression for v(t), the present value of a unit sum [1]
of money due during the period 0 < t ≤ 5.
(iv) Calculate the present value of a payment stream paid continuously for the period [2]
0 < t ≤ 5, where the rate of payment, ρ(t), at time t, is e0.04t .
(d) In a particular bond market, n-year spot rates per annum can be approximated by
the function 0.08 − 0.04e−0.1n . Calculate:
(i) The price per unit nominal of a zero coupon bond with term nine years. [2]
(ii) The four-year forward rate at time 7 years. [2]
(iii) The three-year par yield. [2]
(e) Short-term, one-year annual effective interest rates are currently 8%; they are ex-
pected to be 7% in one years time, 6% in two years time and 5% in three years
time.
(i) Calculate the gross redemption yields (spot rates of interest) from 1-year, 2- [2]
year, 3-year and 4-year zero coupon bonds assuming the expectations theory
explanation of the yield curve holds.
(ii) The price of a coupon paying bond is calculated by discounting individual pay- [2]
ments from the bond at the zero-coupon bond yields in (i). Calculate the gross
redemption yield of a bond that is redeemed at par in exactly four years and pays
a coupon of 5 per annum annually in arrears.
(iii) A two-year forward contract has just been issued on a share with a price of 400p. [2]
A dividend of 4p is expected in exactly one year. Calculate the forward price
using the above spot rates of interest, assuming no arbitrage.
(f) Consider a simple AR(2) model given by

rt = 0.01 + 1.3rt−1 − 0.4rt−2 + at , Var(at ) = 2.0.

(i) Find E(rt ). [1]

(ii) Does the model imply the existence of business cycles? Why? [1]

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PAU ENTRY EXAM W1-2-60-1-6

(iii) Suppose that r100 = 1.2 and r99 = 0.5. Find the 1-step ahead prediction of [3]
r101 at the forecast origin T = 100? What is the 95% confidence interval of the
prediction.
Total for Question 5: 30

THE END

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