Chapter 4

Data Management
Learning Outcomes:

1. At the end of the chapter, the students shall be able to:

2. differentiate the methods of collecting, organizing and presenting the data.
3. compare the different summary measures
4. choose the most appropriate summary measures to be used in a given situation or
data
5. analyze and interpret data using several summary measures
6. use the methods of linear regression and correlations to predict the value of a
variable given certain conditions

Introduction

What is data management? In a broader sense, it encompasses a variety of different

techniques that facilitate and ensure data control and flow from creation to processing,
utilization and deletion. In a simpler sense, it discusses about how researchers explain and
interpret the gathered data. It discusses on basic concepts in statistics that we encounter in
our daily life. It is an aid in decision making specifically in one’s company which relies on
their consumers for its advancement

What is statistics? What is its importance in our everyday living?

Statistics is a branch of science which involves the collection, presentation, analysis

and interpretation of numerical data. It provides us procedures in collecting the data,
presenting, analysing and interpreting of gathered data that are useful to business decision-
makers (Sirug, 2015)

4.1 Preliminaries

AREAS OF STATISTICS

There are two main areas of statistics: descriptive and inferential statistics.

Descriptive statistics is the simple collecting, presenting, and analyzing of the data
and its primary purpose is only to describe the characteristics of the population/sample under
investigation.

Inferential statistics is the logical process from analyzing to generalizing or

concluding about the population under study. From the gathered data from the sample, it
arrives with a conclusion to a particular population.

TYPES OF DATA

There are two basic types of data: qualitative and quantitative data.

Quantitative Data (also termed as numerical data)- is the data that involves quantities
which came from counting measurement. Its value differs in degree.

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 Examples are height, weight, number of employees, salary, etc.

This can also be classified as either discrete or continuous. Discrete data are those
data that can be counted like number of students, number of likes and shares in FB post,
etc. While continuous data are those data that are obtained through measurement like
weight, length of your hair, thickness of your eyeglasses, etc.

Qualitative data (also termed as categorical data) is the data that involves qualities
which cannot be measured. Examples are sex, nationality, color of skin, religion, etc.

Levels of Measurement
Data can be classified according to the levels of measurement. This classification
includes nominal, ordinal, interval and ratio data.

1. Nominal level is the lowest level of data and is used purely for classification and
identification purposes only. Examples of this level are gender, house number,
home ownership, etc.

2. Ordinal level is used in ranking. It is stronger form of measurement. However, it

is also considered as the weak level because there is no meaningful numerical
statement about the differences between the ranks. Examples are honor ranks,
academic rank, level of awareness, etc.

3. Interval level – it specifies the precise difference between or among the values or
ranks.

4. Ratio level- has the same characteristics as the interval, however, the ratio level
starts from zero. In addition, it has a presence of units of measures.

4.2 Data Collection, Organization, Presentation

4.2.1 Data Collection

The following are some methods of collecting data:

1. Survey Method. The researcher asks people or the respondents questions

relative to the research topic either personally or through questionnaires sent through courier
or electronically. Interview is one technique under this method. A survey method may be
classified into two according to the coverage in terms of respondents:
a. Census – the entire population is covered
b. Sample Survey – makes use of only a segment of the population.
Considering that a relatively smaller group is covered compared with a
census, this method could be more detailed. This however is usually less
expensive. Types of data collection could be personal interview, self-
administered questionnaire or via internet.

2. Observation Method. In this method, the researcher observes the subjects

individually or group of individuals to obtain information relative to the objectives of the
investigation. It is important to note that the behavior of the subjects is recorded only during
the occurrence. This method is commonly used in the field of sociology, anthropology,
psychology, psychiatry and others.

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 3. Experimentation. This method of data collections involves the researcher’s
intervention on the conditions that may affect the outcome of the variables of interest.

4. Use of Existing Records/Sources. This method makes use of documentary

sources such as published articles, journals, unpublished materials, reports, and others.
Experts may also be considered here as sources.

Basic Sampling Method

As it has been said, in data gathering, it is usually less expensive when only a
segment of the population, or sample, is considered. Apart from economy reasons, that is,
saving money, time, and effort, gathering data from a sample is easier and at times, more
practical. The following are sampling techniques that may be used.

A. Probability Sampling - each unit in the population has a known probability of selection,
and a random number table or other randomization mechanism is used to choose the
specific units to be included in the sample
- relatively small sample can be used to make inferences about an
arbitrarily large population
1. Simple Random Sampling (SRS). This is the simplest form of probability sampling
wherein all the elements of the population have equal chances of being
selected as sample. This usually serves as the foundation of more complex
sampling design.

a. Without replacement - every possible subset of n distinct units in the population

has the same probability of being selected as sample
𝑁!
- there are (𝑁) = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅ possible samples
𝑛 𝑛! (𝑁 − 𝑛)!
- probability of selecting any individual sample S of n units is
1 𝑛! (𝑁 − 𝑛)!
𝑃(𝑆) = 𝑁 =
( ) 𝑁!
𝑛
- the probability that the 𝑖th unit appears in the sample is πi = n/N
b. With replacement - the probability of each element to be chosen as sample is 1/N
- may include duplicates from the population

2. Systematic Sampling - starting point is chosen from a list of population members

using a random number

- every kth unit thereafter, is chosen to be in the sample. If N/n is an integer, let
k = N/n; otherwise, let k be the next integer after N/n.
- consists of units that are equally spaced in the list
- may not be representative of the population

3. Stratified Random Sampling. In this sampling method, the elements are divided into
subgroups called strata. Then a random sample of units is taken from
each stratum. Elements in the same stratum often tend to be more similar
than randomly selected elements from the whole population, so
stratification often increases precision.

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 4. Cluster Sampling. Here, observation units in the population are aggregated into larger
sampling units, called clusters, and sampling is done on clusters and uses
all members of the cluster as samples.

Note:

Elements in the same stratum often tend to be more similar than randomly selected
elements from the whole population, so stratification often increases precision.

Illustration:

Suppose you want to estimate the average amount of time that professors at
CSU say they spent grading homework in a specific week.

 To take an SRS, construct a list of all professors and randomly select n of

them to be your sample. Now ask each professor in your sample how much time he
or she spent grading homework that week—you would of course have to define the
words homework and grading carefully in your questionnaire.

 In a stratified sample, you might classify faculty by college: engineering,

CAS, CBA, CHS, CoEd, CIT, and CICT. You would then take an SRS of faculty in
the engineering college, a separate SRS of faculty in CAS, and so on.

 For a cluster sample, you might randomly select 3 of the 10 academic

departments in the university and ask each faculty member in those departments how
much time he or she spent grading homework.

 A systematic sample could be chosen by selecting an integer at random

between 1 and 20; if the random integer is 16, say, then you would include professors
in positions 16, 36, 56, and so on, in the list of faculty members of the university.

B. Non-Probability Sampling - Not all units in the population has a chance of being selected
as sample

1. Convenience Sampling - Sampling done based on the convenience of the

researcher.

2. Purposive Sampling - Sampling based on expert's opinion/judgment. Usually done in

clinical and experimental research.

3. Quota Sampling - a quota or a certain number of sample is identified based on

literature

4.2.2 Organizing Data

Frequency Distribution. This organizes raw data in table form, using classes and
frequencies or counts. Each raw data value is placed into a quantitative or qualitative
category called a class. The frequency of a class is the number of data values
contained in that specific class.

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 A frequency distribution is used to:
 organize the data in a meaningful, intelligible way.
 enable the reader to determine the nature or shape of the distribution.
 facilitate computational procedures for measures of average and spread.
 enable the researcher to draw charts and graphs for the presentation of
data.
 enable the reader to make comparisons among different data sets.

Types of Frequency Distribution

1. Categorical Frequency Distributions - used for data that can be placed in specific
categories, such as nominal or ordinal level data.

Example 1:

Distribution of Blood Types

Twenty-five army inductees were given a blood test to determine their blood
type. The data set is:

A B B AB O
O O B AB B
B B O A O
A O O O AB
AB A O B A

Construct a frequency distribution for the data.

The frequency distribution corresponding to the given data is as follows.

Class Tally Frequency Percent

A llll 5 20
B llll - ll 7 28
O llll - llll 9 36
AB llll 4 16
TOTAL 25 100

2. Ungrouped Frequency Distribution - used for data whose range of values is relatively
small. The single data values are used as classes.

Example 2:

MPGs for SUVs

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 The data shown here represent the number of miles per gallon (mpg) that 30
selected four-wheel-drive sports utility vehicles obtained in city driving. Construct a
frequency distribution, and analyze the distribution.

12 17 12 14 16 18
16 18 12 16 17 15
15 16 12 15 16 16
12 14 15 12 15 15
19 13 16 18 16 14

Below is the corresponding frequency distribution.

3. Grouped Frequency Distributions - used for data that has a very large range. Data are
grouped into classes that are more than 1 unit in width.

4.2.3 Presentation of Data

Tabular Form - effective devices of presenting both qualitative and quantitative data.
- make comparisons and draw relationships between and among variables

The following are the parts of a table:

1. Table Heading - table number and title
2. Body - contains the quantitative data
3. Stubs- labels that classify values of variables
4. Box heads - captions above the columns
5. Footnote
6. source note

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Exploratory/Graphical Method - uses visual representation of data like graphs to describe
the data

1. Histograms - uses bars of various heights to represent the frequencies.

- draw and label the x and y axes. X being the class boundaries and Y, the
frequencies.
- using the frequencies as the heights, draw vertical bars for each class.

Since the class boundaries are used in the graph, the bars in a histogram are
contiguous, unlike those in a bar or column chart.

Example: Record high Temperatures for each of the 50 states.

Class Boundaries Frequency

99.5 – 104.5 2
104.5 – 109.5 8
109.5 – 114.5 18
114.5 – 119.5 13
119.5 – 124.5 7
124.5 – 129.5 1
129.5 – 134.5 1

2. Frequency Polygon - graph that displays the data by using lines that connect points
plotted for the frequencies at the midpoints of the classes. The frequencies
are represented by the heights of the points.

Class Boundaries Midpoints Frequency

99.5 – 104.5 102 2
104.5 – 109.5 107 8
109.5 – 114.5 112 18
114.5 – 119.5 117 13
119.5 – 124.5 122 7
124.5 – 129.5 127 1
129.5 – 134.5 132 1

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 To construct a frequency polygon, follow the steps below.
𝐿𝐶𝐵 + 𝑈𝐶𝐵
i. Find the midpoint of each class as ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
2
ii. Draw the x and y axes. Label the x axis with the midpoint of each class,
and then use a suitable scale on the y axis for the frequencies.
iii. Using the midpoints for the x values and the frequencies as the y values,
plot the points
iv. Connect adjacent points with line segments. Draw a line back to the x
axis at the beginning and end of the graph, at the same distance that the
previous and next midpoints would be located

The graph below shows the frequency polygon corresponding to the distribution above.

3. Cumulative Frequency Graph or Ogive - used to represents the cumulative frequencies

for the classes.
- used to visually represent how many values are below a certain upper
class boundary

i. Find the cumulative frequency for each class,

ii. Draw the x and y axes. Label the x axis with the class boundaries. Use
an appropriate scale for the y axis to represent the cumulative
frequencies.
iii. Plot the cumulative frequency at each upper class boundary. Upper
boundaries are used since the cumulative frequencies represent the
number of data values accumulated up to the upper boundary of each
class
iv. Starting with the first upper class boundary, connect adjacent points with
line segments. Then extend the graph to the first lower class boundary,
on the x axis

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 The cumulative frequency distribution of the data is as follows.

Cumulative Frequency
less than 99.5 0
less than 104.5 2
less than 109.5 10
less than 114.5 28
less than 119.5 41
less than 124.5 48
less than 129.5 49
less than 134.5 50

The ogive is given below.

4. Bar graphs - used when the data is qualitative or categorical

- vertical/horizontal bars are used to represent frequency to be able to
compare the different categories

Example:

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5. Time Series Graph - used to represent data that occur over a specific period of time

Example:

70
6. Pie Graph - show relationships of the parts to the whole by visually comparing the sizes
of the sections.
- sections/wedges are divided according to the percentage of frequencies in
each category of the distribution

ASEAN Population Distribution, 2020

1% 1% 0% 0%
3% Indonesia
Philippines
5%
8% Vietnam
Thailand
41%
10% Myanmar
Malaysia
Cambodia
15%
Laos

16% Singapore
Timor-Leste

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7. Scatter Plot - shows relationship between two variables.

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4.2 Measures of Central Tendency

The measures of central tendency are used to determine the cluster of the data about
the center. The most common measures of central tendency are the mean, median and
mode.

4.2.1 MEAN
The mean or arithmetic mean (𝒙 ̅) is the average of all the values in the data set. It
can be obtained by getting the sum of all the observations divided by the total number of
observations.

For sample mean:

𝑛

∑ 𝑋𝑖
where: 𝑋𝑖 is the individual observations
𝑋̅ = 𝑖=1
̅̅̅̅̅̅̅ 𝑛 is the total number of observations
𝑛

Example 1: Player’s Height

Find the mean height of the 12 basketball players whose heights (in cm) are
150, 160, 163, 159, 174, 178, 165, 156, 187, 176, 175, 180.
Solution: Let X be the height of the players and n for the total number of players

Using the equation for finding the mean,

150 + 160 + 163 + 159 + 174 + 178 + 165 + 156 + 187 + 176 + 175 + 180
𝑋̅ = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
12
2,023
= ̅̅̅̅̅̅̅̅ = 168.6
12

Note:
If the observations are in whole number, the final answer must be in tenth place, while
if the raw data has one decimal place, then its final answer must be in two decimal and so
on.

Example 2: Infants’ Weight

What is the mean of the set of values: 6.7, 4.6, 5.5, 3.4, 8.2, and 5.8

Solution:
6.7 + 4.6 + 5.6 + 3.4 + 8.2 + 5.9
𝑋̅ = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
6
34.4
= ̅̅̅̅̅̅ = 5.73
6

Example 3: Test Scores

Twelve students were given an arithmetic test and the times (in minutes) to
complete it were as follows:

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 10, 9, 12, 11, 8, 15, 9, 7, 8, 6, 12, 10

Calculate the average time to complete the test.

Solution:
117
𝑋̅ = ̅̅̅̅̅̅ = 9.8
12

Therefore, the average time to complete the arithmetic test is 9.8 minutes.

4.2.2 WEIGHTED MEAN

There are some cases when individual values do not have equal importance. A
weighted mean is appropriate to use. The formula in the computation of the weighted
arithmetic mean is:
n

W X i i
W1 X 1  W2 X 2  . ..  Wn X n
Xw  i 1

n
W1  W2  ...  Wn
W
i 1
i

where: Xi represents each of the item values

W represents the weight of each item value

Example 1: General Weighted Average (GWA)

Suppose Mark wants to determine his General Weighted Average of the

subjects for the last semester he was enrolled as follows:

Subjects Units Rating

A 3 2.5
B 3 2.2
C 4 1.8
D 5 1.5
E 3 2.0
F 2 1.2

Solution:

W X i i
W1 X 1  W2 X 2  . ..  Wn X n
Xw  i 1

n
W1  W2  ...  Wn
W
i 1
i

(3)(2.5) + (3)(2.2) + (4)(1.8) + (5)(1.5) + (3)(2.0) + (2)(1.2)

=
̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
3+3+4+5+3+2
7.5 + 6.6 + 7.2 + 7.5 + 6.0 + 2.4
= ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
20
37.2
= ̅̅̅̅̅̅̅ = 1.86
20

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Properties of the Mean:
1. It is unique value in a data set and always exists.
2. It is affected by the extreme and deviant values.
3. It is used only if the data are interval or ratio and when normally distributed.
4. It is the most reliable measure of central tendency.

4.2.3 MEDIAN

The median is the middlemost value in the data set. It divides the distribution into
two equal parts.

If the number of observation is even, the median is the average of the two middle
values, while if the number of observation is odd, then the median is the middlemost value
in the data set.

𝑛+1
Median (Rank Value) = ̅̅̅̅̅̅̅
2

Example 1:

Find the median height of the 12 basketball players whose heights (in cm)
were as follows:
150, 160, 163, 159, 174, 178, 165, 156, 187, 176, 175, 180.

Solution:
The first step is to arrange the data in an increasing order (from lowest to
highest).
Thus, 150, 156, 159, 160, 163, 165, 174, 175, 176, 178, 180, 187

Since the data set is an even number of observation, we will be getting the
average of the two middle values and following the formula for the median (rank
value)

Median (rank value) = 12 + 1 = 6.5

2

Since the middle value falls on the 6.5, then we are going to get its 6 th and 7th value.
Therefore,

165 + 174 339

Median (x) = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅ = ̅̅̅̅̅̅ = 169.5
2 2

Example 2:
The daily rates of a sample of 9 employees at GMS Inc. are ₱550, ₱420,
₱650, ₱500, ₱700, ₱480, ₱520, ₱860, and ₱670. Find the median rate.

Solution:
The first step is to arrange the data set in an increasing order. Thus,
₱420, ₱480, ₱500, ₱520, ₱550, ₱650, ₱670, ₱700, ₱860

Since the data set is an odd number, then the median is the middlemost value.
Therefore, the median is the 5th value which is ₱550.

Properties of the Median:

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 1. It is a positional average and it is not influenced by the position of the items.
2. Like the mean, it may also be a unique value in a data set.
3. It is associated with ordinal data.

4.2.4 MODE

The mode is the most frequent observation. It is the observation which occur most
often in the data set.

If there is only one observation having the highest frequency, then the data set is said
to be unimodal. If it has two, then it is bimodal. If it has three observations with the same
highest frequency, it is said to be trimodal. And, if there is no repetition of the individual
values in the data set, no mode exists.

Example 1:
The following are the scores of the students in Mathematics quiz. Determine
the mode of the data set.
40, 27, 20, 40, 26, 24, 25, 29, 30, 31, 27, 33, 39, 36, 22, 36, 28, 27,
27, 26, 20, 21, 30, and 19.

Solution:

The most frequent number that appears in the data set is 27. Since there is only one
observation having the highest frequency, then it is unimodal.

Example 2:
Determine the mode of the grades of 19 engineering students in Mathematics
subject as follows:
2.2, 1.7, 2.1, 2.0, 1.9, 2.3, 2.0, 2.4, 1.9, 2.1, 2.2, 2.4, 2.0, 1.9,
2.1, 2.1, 2.1, 2.0, 2.0

Solution:
Since the grade of 2.0 and 2.1 appeared the most and with the same number of times,
then they are considered as the mode. The type of mode is bimodal.

Properties of the Mode:

1. It is not affected by the extreme and deviant values.
2. It may not exist.
3. If it exists, it may not always be unique.
4. It is usually associated with nominal data.

4.3 Measures of Dispersion

The measures of dispersion or variability tell about the spread of the data or how the
individual values are dispersed from the mean. The common measures of dispersion are the
range, variance and standard deviation.

The range is the simplest and easiest to compute measure of dispersion. It is

obtained by subtracting the lowest value from the highest value in the data set.

The variance is defined as the average of the squared deviations from the mean. The
square root of this variance is known as the standard deviations. The variance for a sample
data is denoted by s2 while the population variance is σ2.

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 The formula for the sample variance is:
∑(𝑥 − 𝑥̅ )2
𝑠2 =
̅̅̅̅̅̅̅̅̅̅̅̅̅̅
𝑛−1

and for the population variance is:

∑(𝑥 − 𝑥̅ )2
𝜎2 =
̅̅̅̅̅̅̅̅̅̅̅̅̅̅
𝑁

To determine the variance of ungrouped data, let us follow the steps below:
1. Arrange the values in order (i.e. increasing or decreasing) vertically.
2. Calculate the mean of the data set.
3. Subtract the mean from the individual values. Place this on another column.
4. Add another column for the square of the difference of individual values and the
mean.
5. Get the sum of the squared deviations.
6. Divide the sum in step 5 by n-1 for a sample data and N for the population data.

Example 1:
Determine the range, variance and standard deviation of the following data on a
sample of weights of pre-school children: 25.2, 19.5, 20.4, 21.5, 18.2, 16.0, 17.8, 17.6

Solution:
a. Range = highest value – lowest value
= 25.2 – 16.0
= 9.2

b. To get the variance and standard deviation, make a table as follows:

𝑋 𝑋 − 𝑋̅ (𝑋 − 𝑋̅)2
16.0 –3 .24 10.50
17.6 –1.64 2.69
17.8 –1.44 2.07
18.2 –1.04 1.08
19.5 0.26 0.07
20.4 1.16 1.34
25.2 5.96 35.52
̅
𝑋= 19.24 (𝑋 − 𝑋̅)2 = 53.27

∑(𝑥 − 𝑥̅ )2 53.27 53.27

𝑠2 = = ̅̅̅̅̅̅̅̅̅ = ̅̅̅̅̅̅̅̅ = 8.88
̅̅̅̅̅̅̅̅̅̅̅̅̅̅
𝑛−1 7−1 6

c. Since the standard deviation is the square root of the variance, then
𝑠 = √8.88 = 2.98

This value of the standard deviations implies that the cluster of observation is in the
range of 2.98 units above and below the mean.

Example 2:
The marks of 10 students of a class is given to be 0, 4, 9, 12, 25, 2, 21, 7, 11
and 12. What is the variance of the data set?

Solution:
Step 1: Organize the marks of the students in a table.

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 Marks (x) 𝑥 − 𝑥̅ (𝑥 − 𝑥̅ )2
25 14.7 216.09
21 10.7 114.49
12 1.7 2.89
12 1.7 2.89
11 0.7 0.49
9 – 1.3 1.69
7 – 3.3 10.89
4 – 6.3 39.69
2 – 8.3 68.89
0 – 10.3 106.09
𝑥̅ = 10.3 (𝑥 − 𝑥̅ )2 = 56.4

Step 2: Substitute the values in the equation for variance.

∑(𝑥 − 𝑥̅ )2 564.1
𝑠2 = = ̅̅̅̅̅̅̅̅ = 62.67
̅̅̅̅̅̅̅̅̅̅̅̅̅̅
𝑛−1 9

Step 3: Get the square root of the variance to obtain the standard deviation.
√𝑠2 = √62.67 = 7.92

Step 4: Interpret the results.

The distribution of the marks of the students fall between ± 7.92 from the
mean. This means that the cluster of distribution is between 2.38 and 18.22.

4.4 MEASURES OF LOCATION/POSITION

The measures of location describe the data in some situations and it would be
beneficial knowing how to interpret the obtained values. Quartiles, percentiles and standard
scores are the most commonly used measures of location.

Quartiles divide the distribution into four equal parts (segments of 25% each). Three
quartiles are defined: Q1, Q2 and Q3.

Percentiles divide the distribution into 100 equal parts denoted by Pk where k is the
percentile rank. Say P50 means 50th percentile, P75 means 75th percentile and so on. P50 and
Q2 is also the same as the median of the distribution. Same with P 25 that is equal to Q1.

𝑛𝑘
𝑄𝑘 = ̅̅̅̅ , where 𝑘 = 1, 2, 3
4
𝑛𝑘
𝑃𝑘 = ̅̅̅̅̅̅ , where 𝑘 is an integer from 1 to 99
100

If the value of 𝑄𝑘 and 𝑃𝑘 is an integer, the kth percentile/quartile is the average of the
value of the obtained percentile/quartile rank and the value preceding it. If the value is not
an integer, then it must be round up.

Percentile rank refers to the percentile ranking of a certain value. This can be
obtained by following the equation below:

number of values below + 0.5

Percentile rank = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ ∙ 100%
total number of values

78
Example 1:
What is the third quartile (Q3) of the following data set?
20, 40, 50, 65, 70, 75, 80, 100

Solution:

If the data set are not arranged in chronological order, then you must arrange it either
increasing or decreasing order.

Since the given data set are already arranged, then we must compute for Q 3.
Q3 =nk/ 4 = (8)(3)/4 = 24/4 = 6

Since the value of Q3 is an integer then we must get the average of the 6 th and 7th
value in the data set.

That is, (75 + 80)/2 = 155/2 = 77.5

Therefore the 3rd quartile in the data set is 77.5

Example 2:
For the data set below, which value is in the 75th percentile?
1, 3, 3, 4, 6, 7, 7, 7, 8, 9, 9, 10, 12, 15, 16, 17

Solution:
Since we want to find the P75, and we know that there are 16 values in the data set,
then computing for P75 = nk/100 = (16)(75)/100 =1200/100 = 12

Again since the obtained value is an integer, then we must get the average of the 12 th
and 13th value in the data set. That is, P75 = (10 + 12)/2 = 22/2 = 11

Therefore, the 75th percentile is 11. This implies that 75% in the data set have values
less than 11 and only 25% have values greater than 11.

Example 3:
Find the percentile rank of the value of 6 in Example 2:

Solution:

Using the equation for the percentile rank and substituting the given information,

number of values below + 0.5

Percentile rank = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ ∙ 100%
total number of values

4 + 0.5
= ̅̅̅̅̅̅̅̅̅ ∙ 100%
16
= 28%

Therefore the percentile rank of the value 6 is 28th percentile.

79
4.5 Probabilities and the Normal Distribution

4.5.1 Standard Score

Standard score (z score) refers to the number of standard deviation of the
observation above or below the mean. If the value of the z score is negative, it means that
the observation is lower than the mean while if it is positive then it is higher than the mean
and if the value is zero this means that the value is equal to the mean. It also allows us to
calculate the probability of a score occurring within our normal distribution and enables us to
compare two scores that are from different normal distribution.

Standard score can be obtained by getting the ratio of the difference of the value and
the mean and the standard deviation. In symbols,

𝑋 − 𝑥̅
𝑍=
𝑠

where: Z = standard score

X = raw score
𝑥̅ = mean
s = standard deviation

Note: A positive (+) z-score means that the observed value is above the mean.
A negative (-) z score means that the observed value is below the mean.
A zero (0) z –score means that the observed value is equal to the mean.

Example 1:
In a given distribution, the mean is 85 and the standard deviation is 10. Find
the corresponding standard score of the ff. values:

a. 95 b. 87 c. 68 d. 55

Solution:

1. The standard score of 95 is:

95 − 85
z= = 1.0
10

Since the standard score is positive, this implies that the score of 95 is 1
standard deviation above the mean.

2. The standard score of 87 is:

87 − 85
z= = 0.2
10

This implies that the score of 87 is 0.2 standard deviations above the mean.

3. The standard score of 68 is :

68 − 85
z= = −1.7
10

Since the standard score is negative, this implies that score of 68 is 1.7
standard deviations below the mean.

80
 4. The standard score of 55 is:
55 − 85
z= = −3.0
10

This implies that the score of 55 is 3 standard deviations below the mean.

4.5.2 Normal Distribution

The graphical presentation of a normal distribution is the normal curve. A normal

curve is symmetrical, with the highest point at the center. Since it is symmetrical, the left side
of the curve is equal to the right side. The area of the normal distribution represents the
population of a particular distribution.

Two parameters are used to describe the normal curve; the mean and the standard
deviation. Negative standard deviations are located at the left side while the positive standard
deviations are on the right side of the curve.

The area of the normal distribution represents probability. Thus, the larger the area
the greater probability.

Source: Kanbanize

Example: 1.

Find the area of the following standard scores:

a. to the left of z= 1.99
b. to the right of -2.04
c. between z = 2.00 and z = 2.47
d. between z = -1.02 and z = 2.35

Solution:

Using the table of the areas under the normal curve:

a. the area of z = 1.99 is equal to 0.4767 or 47.67%, since we will find the area to
the left of 1.99 we must add the other 50% on the left side of the normal curve.
Therefore, the total area would be 97.67%.

81
 b. the area of z = 2.04 is equal to 0.4793 or 47.93%, since this area pertains to the
left of the normal curve and we are looking for the area to the right, then we must
add the other 50% of the normal curve. Therefore, the total area to the right of -
2.04 would be 97.93%.
c. the area of z = 2.00 is equal to 0.4772 or 47.72% and the area of z = 2.47 is equal
to 0.4932 or 49.32%, since we are looking for the area between these regions,
we must subtract the values. Therefore, 49.32% subtracted by 47.72% is equal
to 1.60%.
d. the area of z= 1.02 is equal to 0.3461 or 34.61% and the area of z = 2.35 is equal
to 0.4906 or 49.06%, since we are looking for the area between these regions,
and it can be noticed that the z scores comes from left and right of the curve, then
we must add the areas in order to get the total area. Therefore, 34.61% added by
49.06% is equal to 83.67%.

Applications of the Normal Curve

Several problems in different fields can be solved with the application of the normal
curve. The only requirement is that the variable be normally or approximately normally
distributed.

To solve problems by using standard normal distribution, transform the original

variable to a standard normal distribution variable using the standard score or z-score.

Example 1:
A survey found that women spend on average ₱146. 21 on beauty products
during the summer months. Assume that the standard deviation is ₱29.44 and the
variable is normally distributed. Find the percentage of women who spend less than
₱160. 00.

Solution:
Step 1: Draw the normal curve and represent the area.

160.00

𝑥̅ =146.21

Step 2: Find the z- value corresponding to ₱160.00.

₱160.00 − ₱146.21
z = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ = 0.47
₱29.44

Hence, ₱ 160.00 is 0.47 standard deviations above the mean.

82
 Step 3: Find the area, using the Table for Areas Under the Normal Curve. Look for
z = 0.47. From the table, the area of z= 0.47 is 0.1808. Since the question is to
look for the percentage of women who spend less than 160.00, so we need to
add the area below the mean which is 50%.

Therefore, 0.6808 or 68.08% of the women spend less than ₱160.00 on

beauty products during summer months.

Example 2:

To qualify for a police academy, candidates must score in the top 10% on a
general abilities test. The test has a mean of 200 and a standard deviation of 20. Find
the lowest possible score to qualify. Assume that the test scores are normally
distributed.

Solution:
Since the test scores are normally distributed, the test value x that cuts off the
upper 10% of the area under the normal distribution is desired. (refer to figure below).
The shaded region represents the students who qualify for the test.

𝑥̅ 1.28

Step 1: Subtract 0.1000 from 1.000 to get the area under the normal distribution to the left of
x: 1.000 – 0.1000 = 0.9000

Step 2: Find the z value that corresponds to an area of 0.9000. If the specific value cannot
be found, use the closest value. In this case, 0.8997. The corresponding value is 1.28.

Step 3: Substitute in the equation of the z- score.

𝑥 − 200
1.28 = ̅̅̅̅̅̅̅̅̅̅
20
(1.28)(20) = 𝑥 − 200
25.60 + 200 = 𝑥
𝑥 = 226

Therefore, a score of 226 should be used as a cut off. Anybody scoring 226 and above
qualifies.

4.6 Linear Regression and Correlation Coefficient

Correlation and Linear Regression

When conducting research studies, researchers wish to determine whether two

variables are related. If these variables are found to be related, they may then find an
equation that can be used to model the relationship. A correlation is a relationship between

83
two variables. The data can be represented by the ordered pairs (𝑥, 𝑦) where x is the
independent (or explanatory) variable, and y is the dependent (or response) variable.

4.6.1 Correlation Coefficient

The correlation coefficient is a measure of the strength and the direction of a linear
relationship between two variables. The symbol r represents the sample correlation
coefficient. The formula for 𝑟 is

𝑛 ∑ 𝑥𝑦 − ∑ 𝑥 ∑ 𝑦
𝑟 = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
√𝑛 ∑ 𝑥 2 − (∑ 𝑥)2 √𝑛 ∑ 𝑦 2 − (∑ 𝑦)2

where:
r = Pearson r correlation coefficient
n = number of observations
∑ 𝑥𝑦 = sum of the products of paired scores
∑ 𝑥 = sum of x scores
∑ 𝑦 = sum of y scores
∑ 𝑥 2 = sum of squared x scores
∑ 𝑦 2 = sum of squared y scores

A value of +1 indicates that there is a perfect positive correlation. This means that if
one variable increases, the other variable also increases. The value of -1 indicates that there
is a negative correlation. This implies that as one variable increases, the other variable
decreases. A value of 0 indicates that there is no correlation between variables. (Tolentino,
et al., 2018) The complete list of values was presented below to further interpret the value of
computed r.

0.0 - no correlation
±1.00 - perfect correlation
±0.01 − ±0.25 - very low correlation
±0.26 − ±0.50 - moderately low correlation
±0.51 − ±0.75 - high correlation
±0.76 − ±0.99 - very high correlation

Example 1: Age and Weight of Preschool Children

Determine the correlation between the age and the weight of 10 preschool children at
barangay Marilima as shown in the table below:

Age (x) Weight (y)

(in years) (in kg)
1.0 6.0
1.5 6.8
2.5 8.0
3.0 9.2
3.6 12.0
4.2 13.0
4.8 14.0
5.0 10.5
5.4 14.2
6.0 17.3

84
 Solution:

To determine the relationship between age and weight of 10 children, Pearson

product moment correlation must be used.

Step 1: To obtain the values, we may construct another table adding columns for specific
values necessary in the computation of the Pearson r.

Age (𝑥) Weight (𝑦)

𝑥𝑦 𝑥2 𝑦2
(in years) (in kg)
1.0 6.0 6.00 1.00 36.00
1.5 6.8 10.20 2.25 46.24
2.5 8.0 20.00 6.25 64.00
3.0 9.2 27.60 9.00 84.64
3.6 12.0 43.20 12.96 144.00
4.2 13.0 54.60 17.64 169.00
4.8 14.0 67.20 23.04 196.00
5.0 10.5 52.50 25.00 110.25
5.4 14.2 76.68 29.16 201.64
6.0 17.3 103.80 36.00 299.29
𝑥 = 37 𝑦 = 111 𝑥𝑦 = 461.78 𝑥 = 162.30
2 𝑦 = 1 351.06
2

Step 2: Substitute these values to the equation

𝑛 ∑ 𝑥𝑦 − ∑ 𝑥 ∑ 𝑦
𝑟 = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
√𝑛 ∑ 𝑥 2 − (∑ 𝑥)2 √𝑛 ∑ 𝑦 2 − (∑ 𝑦)2
(10)(461.78) − (37)(111)
= ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
√(10)(162.3) − 372 √10(1351.06) − 1112
4617.8 − 4107
= ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
√1623 − 1369 √13510.6 − 12321
510.8
= ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
√254 √1189.6
510.8
= ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
(15.94)(34.49)
510.8
= ̅̅̅̅̅̅̅̅̅̅
549.77
= 0.93

Step 3: Interpret the result.

The result of 0.93 indicates a positive with very high correlation between the age of
pre-school children and their weight. This implies that as age of the pre-school children
increases, their weight also increases.

Example 2:

For the following data set, find the Pearson r and the r2.

85
 x 12 2 5 9 11 10 4 1
y 10 3 7 5 9 8 6 3

Solution:

The scatterplot of the data set is presented below:

Scatterplot of Data set

12
10
8
6
4
2
0
0 2 4 6 8 10 12 14

The following steps are helpful for the computation of the correlation coefficient.

Step 1: Construct another table for the values of 𝑥𝑦, 𝑥 2 , and 𝑦 2 .

X Y XY X2 Y2
12 10 120 144 100
2 3 6 4 9
5 7 35 25 49
9 5 45 81 25
11 9 99 121 81
10 8 80 100 64
4 6 24 16 36
1 3 3 1 9
∑ 𝑥 =54 ∑ 𝑦 =51 ∑ 𝑥𝑦 =412 ∑ 𝑥 2 =492 ∑ 𝑦 2 =373

Step 2: Substitute the necessary values in the equation.

𝑛 ∑ 𝑥𝑦 − ∑ 𝑥 ∑ 𝑦
𝑟 = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
√𝑛 ∑ 𝑥 2 − (∑ 𝑥)2 √𝑛 ∑ 𝑦 2 − (∑ 𝑦)2

8 (412) − (54)(51)
= ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
√[(8)(492) − 542 ] √[(8)(373) − 512 ]

3296 − 2754
= ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
√(3936 − 2916) √2984 − 2601

542 542
= ̅̅̅̅̅̅̅̅̅̅̅̅̅ = ̅̅̅̅̅ = 0.09
√390660 625

86
Step 4. Interpret the results.
The value of r = 0.09 indicates that the variables have very low correlation between
variables. This implies that whatever the value of one variable does not affect the values of
the other variable.
Step 5. Computing for r2 where r = 0.09, r2 = 0.09 which implies that only 9% explained the
aforementioned correlation.

4.6.2 Linear Regression

Simple linear regression is a statistical method that allows us to summarize and study
relationships between continuous (quantitative) variables. One variable, denoted by x
represents the predictor variable or the independent variable. The other variable, denoted
by y represents the response or the dependent variable.

Simple linear regression is appropriate when the following conditions are satisfied.
 The dependent variable Y has a linear relationship to the independent variable X. To
check this, make sure that the XY scatterplot is linear and that the residual plot shows
a random pattern.
 For each value of X, the probability distribution of Y has the same standard deviation
σ. When this condition is satisfied, the variability of the residuals will be relatively
constant across all values of X, which is easily checked in a residual plot.
The least square regression equation can be formed from a set of sample data using
the formula:

𝑦̂ = 𝑎 + 𝑏𝑥

where 𝑦̂ is the dependent variable to be predicted

𝑥 = the independent variable
𝑎 = the y intercept
𝑏 = the slope of the line that represents the equation

The constants a, b in the regression equation are called the regression coefficients.
The values of a and b can be found using the following equations:

∑ 𝑥𝑦 − 𝑛𝑥̅ 𝑦̅
𝑎 = 𝑦̅ − 𝑏𝑥̅ and 𝑏 = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
∑ 𝑥 2 − 𝑛(∑ 𝑥)2

The regression equation can be used to predict the value of one variable when the
value of the other variable is known.

Example 1:

The values of x and their corresponding values of y are shown in the table below

X 0 1 2 3 4
Y 2 3 5 4 6

a) Find the least square regression line y = ax + b.

b) Estimate the value of y when x = 10.

87
 Solution:

Step 1: Organize the listing of the values of x and y. Include the necessary values like x2, y2,
xy and the mean of x and y.
𝑥 𝑦 𝑥𝑦 x2 y2
0 2 0 0 4
1 3 3 1 9
2 5 10 4 25
3 4 12 9 16
4 6 24 16 36
x = 10 y = 20 xy = 49 x = 30 x = 90
2 2

𝑥̅ = 2.0 𝑦̅ = 4.0

Step 2: Substitute the values in the equation.

∑ 𝑥𝑦 − 𝑛𝑥̅ 𝑦̅ 49 − 5(2.0)(4.0) 9
𝑏 = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
2 2
= ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
2
= ̅̅̅̅ = 0.9
∑ 𝑥 − 𝑛(∑ 𝑥) 30 − 5 (2) 10
𝑎 = 𝑦̅ - b𝑥̅ = 4 – (0.9)(2) = 2.2

Step 3: Formulate the regression equation.

𝑦̂ = 𝑎 + 𝑏𝑥
𝑦̂ = 2.2 + 0.9𝑥

Therefore, if the value of x = 10, the estimated value of y will be 11.2.

Example 2:
The table below shows the height, 𝑥, in inches and the pulse rate, 𝑦, per
minute, for 9 people. Find the correlation coefficient and interpret your result.

x 68 72 65 70 62 75 78 64 68

y 90 85 88 100 105 98 70 65 72

Solution:
Step 1:
Height Pulse rate
𝑥𝑦 𝑥2 𝑦2
(𝑥) (𝑦)
68 90 6120 4624 8100
72 85 6120 5184 7225
65 88 5720 4225 7744
70 100 7000 4900 10000
62 105 6510 3844 11025
75 98 7350 5625 9604
78 70 5460 6084 4900
64 65 4160 4096 4225
68 72 4896 4624 5184
∑ 𝑥 =622 𝑦 = 773 𝑥𝑦 = 53336 𝑥 = 43206
2 ∑ 𝑦 2 =68007
𝑥̅ = 69.1 𝑦̅ = 85.9

Step 2: Substitute the values in the equation.

∑ 𝑥𝑦 − 𝑛𝑥̅ 𝑦̅ 53336 − 9(69.1)(85.9) −85.21
𝑏 = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ = = ̅̅̅̅̅̅̅̅̅ = −0.37
∑ 𝑥 2 − 𝑛(∑ 𝑥)2 ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
43206 − 9(69.1)2 232.71

88
 𝑎 = 𝑦̅ − 𝑏𝑥̅ = 85.9 − (−0.37)(69.1) = 111.47

Step 3: Formulate the regression equation.

𝑦̂ = 𝑎 + 𝑏𝑥
𝑦̂ = 111.47 − 0.37𝑥

Exercise 4.1

A. Direction: Identify whether the following situations can be considered as descriptive or

inferential.
1. A store owner finds out that 80% of daily sales came from soft drinks.
2. A researcher claimed that the academic performance of students were affected by
the size of the family.
3. A school nurse reported that the nutritional status of some pupils were severely
wasted.
4. The teacher finds that the average score of the students in a 40-item test is 23.
5. The social worker studied that there is a significant effect in communication of
preschool children using electronic gadgets.

B. Direction: Classify the following data according to its types.

Quantitative/Qualitative Level of Measurement

1. Volume of rice production
(in sacks)
2. Scores in a test
3. Monetary prizes in a contest
4. Awards in pageant
5. Membership in org
6. Academic Rank
7. Monthly income
8. Civil Status
9. Religious Affiliation
10. Length of Service

Exercise 4.2

Direction: Answer the following problems.

1. Calculate the mean, median and mode of the following sets of data.
a. 14, 16, 8, 8,10, 12, 9, 12, 13, 14, 8, 9, 5, 7, 11
b. 12.5, 15.5, 10.5, 10.2, 11.15, 9.5, 8.2, 18.3, 10.5, 10.5

2. Find the General Weighted Average of a student whose grades for a 3 unit subjects
such as Math, English, Filipino, Science, and Social Studies were 2.0, 1.8, 1.4, 2.2
and 2.5, respectively.

89
 3. Heather’s test scores are 81, 93, 74 and 95. What score must she get on the fifth test
in order to get a mean of 85 on all five tests?

4. The final grade of a student in six subjects are as follows:

Subject No. of Units Final Grade

Math in the Modern World 3 2.0
Readings in Phil. History 3 1.9
Wellness and Fitness 3 1.4
Understanding the Self 3 1.5
Masining na Pagpapahayag 3 1.5
Calculus 1 4 1.8

a. Determine his weighted mean grade.

b. If the subjects are of equal number of units, what would be the average grade of the
student?

Exercise 4.3

Direction: Solve the following problems.

1. Determine the range, variance and standard deviations of the following data sets.
a. 7, 8, 4, 3, 2, 3, 6, 5 and 7
b. 3, 6, 15, 18, 24, 12, and 10
c. 2, 8, 11, 17, 12, 6 and 4

2. The result of the college entrance examination of 10 students in a certain university were
as follows:
2.5, 3.4, 5.6, 3.8, 4.2, 2.8, 3.0, 3.0, 3.4, 4.2
Compute for the variance and standard deviation.

3. The newspaper company reported that samples of their weekly sales (in hundred
thousand pesos) are: 345, 452, 254, 137, 483, 515 and 218. Calculate and interpret the
variance and standard deviations.

4. A high school teacher at a small private school assigns trigonometry practice problems
to be worked via the net. Students must use a password to access the problems and the
time of log-in and log-off are automatically recorded for the teacher. At the end of the
week, the teacher examines the amount of time each student spent working the assigned
problems. The data is provided below in minutes.

15 22 22 22
28 43 33 20
25 49 27 39
48 34 25

Find the Range, Standard Deviation, and Variance for the above data.

90
Exercise 4.4

Answer each of the following questions.

1. Which of the following data values is the 50th percentile?

{1.52, 5.36, 6.79, 5.21, 0.28, 6.36, 8.47, 5.52, 6.26, 5.97}

2. What is Q3 for the following data set?

{20, 40, 50, 65, 70, 75, 80, 100}

3. Listed are 29 ages for Academy Award-winning best actors in order from smallest to
largest:
18, 21, 22, 25, 26, 27, 29, 30, 31, 33, 36, 37, 41, 42, 47, 52,
55, 57, 58, 62, 64, 67, 69, 71, 72, 73, 74, 76, 77
a. Find the 70th percentile.
b. Find the 83rd percentile.

4. At a high school, it was found that the 30 th percentile of number of hours that students
spend studying per week is seven hours. Interpret the 30 th percentile in the context of this
situation.

5. The wheat production (in Kg) of 20 acres is given as: 1120, 1240, 1320, 1040, 1080, 1200,
1440, 1360, 1680, 1730, 1785, 1342, 1960, 1880, 1755, 1720, 1600, 1470, 1750, and
1885. Find the quartile deviation and coefficient of the quartile deviation.

Exercise 4.5

Direction: Solve the following problems:

1. The mean lifetime of a wristwatch is 25 months, with a standard deviation of 5 months.

If the distribution is normal, for how many months should a guarantee be made if the
manufacturer does not want to exchange more than 10% of the watches?
2. Scores on a standardized test are approximately normally distributed with a mean of
480 and a standard deviation of 90.
A. What is the proportion of the scores are above 700?
B. What is the percentage of scores between 420 and 520?
3. If a distribution of raw scores were plotted and then the scores are transformed to z-
scores, would the shape of the distribution change? Explain your answer.
4. The weight of chocolate bars from a particular chocolate factory has a mean of 8
ounces with standard deviation of 0.1 ounce. What is the z-score corresponding to a
weight of 8.17 ounces?
5. A group of friends compares what they received while trick or treating. They find that
the average number of pieces of candy received is 43, with standard deviation of 2.
What is the z-score corresponding to 20 pieces of candy?

91
Exercise 4.6

Direction: Solve the following problems:

1. A researcher carefully computes the correlation coefficient between two variables and
gets r = 1.23. What does this value mean?

2. Given the following data:

X Y X Y
72 45 80 36
73 38 81 29
75 41 82 34
76 35 83 38
77 31 84 26
78 40 85 32
79 25 86 28
80 32 88 27
a. Sketch a scatterplot.
b. Compute the correlation coefficient, r.
c. Compute the coefficients of the linear regression line, y = b 1x + b0.
d. What is the estimated value for X = 7?

92
 Chapter 5
The Mathematics of Finance

Learning Outcomes:

At the end of the chapter, the students shall be able to:

1. differentiate simple and compound interest
2. examine the different interest rates applied to credit cards and consumer loans,
stocks, bonds, mutual funds, and home ownership

5.1 Simple Interest

When you deposit money in a bank—for example, in a savings account—you are

permitting the bank to use your money. The bank may lend the deposited money to customers
to buy cars or make renovations on their homes. The bank pays you for the privilege of using
your money. The amount paid to you is called interest. If you are the one borrowing money
from a bank, the amount you pay for the privilege of using that money is also called interest.
The amount deposited in a bank or borrowed from a bank is called the principal. The amount
of interest paid is usually given as a percent of the principal. The percent used to determine
the amount of interest is called the interest rate. If you deposit $1000 in a savings account
paying 5% interest, $1000 is the principal and the interest rate is 5%. Interest paid on the
original principal is called simple interest. The formula used to calculate simple interest is
given below.

The simple interest formula is I = Prt,

where I is the interest, P is the principal, r is the interest rate, and t is the time period. In the
simple interest formula, the time t is expressed in the same period as the rate. For example, if
the rate is given as an annual interest rate, then the time is measured in years; if the rate is
given as a monthly interest rate, then the time must be expressed in months. Interest rates
are most commonly expressed as annual interest rates. Therefore, unless stated otherwise,
we will assume the interest rate is an annual interest rate. Interest rates are generally given
as percents. Before performing calculations involving an interest rate, write the interest rate
as a decimal.

Example 1. Calculate the simple interest earned in 1 year on a deposit of P1000 if the
interest rate is 5%.

Solution:
Use the simple interest formula. Substitute the following values into the formula:
P = 1000, r = 5%, and t = 1

I = Prt
I = 1000(0.05)(1)
I = 50

The simple interest earned is P50.

Example 2. Calculate the simple interest due on a three-month loan of P2000 if the
interest rate is 6.5%.

93
 Solution:
Use the simple interest formula. Substitute the following values into the formula:

P = 2000, r = 6.5% = 0.065. Because the interest rate is an annual rate, the
3 months 3
time must be measure in years: 𝑡 = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅ = ̅̅̅̅
12 months 12
I = Prt
I = 2000(0.065)(3/12)
I = 32.5

The simple interest due is P32.50.

Example 3. Calculate the simple interest due on a two-month loan of P500 if the
interest rate is 1.5% per month.

Solution:
Use the simple interest formula. Substitute the following values into the formula:

P = 500, r = 1.5% = 0.015. Because the interest rate is per month, the time
period of the loan is expressed as the number of months 𝑡 = 2
I = Prt
I = 500(0.015)(2)
I = 15

The simple interest due is P15.

Remember that in the simple interest formula, time t is measured in the same period
as the interest rate. Therefore, if the time period of a loan with an annual interest rate is given
in days, it is necessary to convert the time period of the loan to a fractional part of a year.
There are two methods for converting time from days to years; the exact method and the
ordinary method. Using the exact method, the number of days of the loan is divided by 365,
the number of days in a year.

number of days
Exact method: 𝑡 =
̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
365

The ordinary method is based on there being an average of 30 days in a month and
12 months in a year (30)(12) = 360. Using this method, the number of days of loan is divided
by 360.

number of days
Ordinary method: 𝑡 =
̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
360

Example 4. Calculate the simple interest due on a 45-day loan of P3500 if the interest
rate is 8% per month.

Solution:
Use the simple interest formula. Substitute the following values into the formula:
P = 3500, r = 8% = 0.08. Because the interest rate is per month, the time period
45
of the loan is expressed as the number of months 𝑡 =
360
I = Prt
I = 3500(0.08)(45/360)
I = 35

94
 The simple interest due is P35.

The simple interest formula can be used to find the interest rate on a loan when the
interest, principal, and time period of the loan are known. An example is given below.

Example 5. The simple interest charged on a six-month loan of P3000 is P150. Find
the simple interest rate.
Solution
Use the simple interest formula. Solve the equation for r.
I = Prt
150 = 3000(r)(6/12)
150 = 1500r
0.10 = r, r = 10%

The simple interest rate on the loan is 10%.

Exercise 5.1

A. In items 1 – 5, calculate the simple interest earned. Show your solution

No. Principal (P) Rate (r) Time (t) Interest(I)

1 2000 6% 1 year

2 12,000 7.8% 45 days

3 3000 9.6% 21 days

4 3500 1.8% 4 months

5 7000 7.2% 114 days

B. In items 6 – 10, solve each of the following problems

1. Calculate the simple interest earned in 1 year on a deposit of P1900 if the interest rate
is 8%.
2. Calculate the simple interest earned in 1 year on a deposit of P2300 if the interest rate
is 7%.
3. You deposit P1500 in an account earning 10.4% interest. Calculate the simple interest
earned in 6 months.
4. Calculate the simple interest due on 150-day loan of P4800 if the interest rate is 7.25%.
5. Calculate the simple interest due on a two-month loan of P800 if the interest rate is
1.5% per month.

95
5.2 Future Value and Maturity Value
When you borrow money, the total amount to be repaid to the lender is the sum of the
principal and interest. This sum is calculated using the following future value or maturity value
formula for simple interest.

The future or maturity value for simple interest is

A = P + I, where A is the amount after the interest, I, has been added to the
principal, P.
This formula can be used for loans or investments. When used for a loan, A is the total
amount to be repaid to the lender; this sum is called the maturity value of the loan.

For an investment, such a deposit in a bank savings account, A is the total amount
on deposit after the interest has been added to the principal. Tis sum is called the future value
of the investment.

Example 1. Calculate the maturity value of a simple interest, eight-month loan of

P8000 if the interest rate is 9.75%

Solution
Step 1. Find the interest. Use the simple interest formula
I = Prt
I = 8000(0.0975)(8/12)
I = 520

Step 2. Find the maturity value. Use the maturity value formula.
A=P+I
A = 8000 + 520
A = 8520
The maturity value of the loan is P8520.

Recall that the simple interest formula states that I = Prt. Hence, by substitution

A=P+I
A = P + Prt
A = P (1+rt),
where A is the future value of an investment or the maturity value of a
loan, P is the principal, r is the interest rate, and t is the time period.

We can use the formula in example 6.

A = P (1 + rt)
A = 8000 [1 + 0.0975(8/12)]
A = 8520

Example 2. Calculate the maturity value of a simple interest, three-month loan of

P3800 if the interest rate is 6%
Solution:
Find the interest. Use the simple interest formula
A = P (1 + rt) = 3800 [1 + 0.06(3/12)] = 3857
The maturity value of the loan is P3857.
Day-of-the-Year Table

96
 Day Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1 1 32 60 91 121 152 182 213 244 274 305 335
2 2 33 61 92 122 153 183 214 245 275 306 336
3 3 34 62 93 123 154 184 215 246 276 307 337
4 4 35 63 94 124 155 185 216 247 277 308 338
5 5 36 64 95 125 156 186 217 248 278 309 339
6 6 37 65 96 126 157 187 218 249 279 310 340
7 7 38 66 97 127 158 188 219 250 280 311 341
8 8 39 67 98 128 159 189 220 251 281 312 342
9 9 40 68 99 129 160 190 221 252 282 313 343
10 10 41 69 100 130 161 191 222 253 283 314 344
11 11 42 70 101 131 162 192 223 254 284 315 345
12 12 43 71 102 132 163 193 224 255 285 316 346
13 13 44 72 103 133 164 194 225 256 286 317 347
14 14 45 73 104 134 165 195 226 257 287 318 348
15 15 46 74 105 135 166 196 227 258 288 319 349
16 16 47 75 106 136 167 197 228 259 289 320 350
17 17 48 76 107 137 168 198 229 260 290 321 351
18 18 49 77 108 138 169 199 230 261 291 322 352
19 19 50 78 109 139 170 200 231 262 292 323 353
20 20 51 79 110 140 171 201 232 263 293 324 354
21 21 52 80 111 141 172 202 233 264 294 325 355
22 22 53 81 112 142 173 203 234 265 295 326 356
23 23 54 82 113 143 174 204 235 266 296 327 357
24 24 55 83 114 144 175 205 236 267 297 328 358
25 25 56 84 115 145 176 206 237 268 298 329 359
26 26 57 85 116 146 177 207 238 269 299 330 360
27 27 58 86 117 147 178 208 239 270 300 331 361
28 28 59 87 118 148 179 209 240 271 301 332 362
29 29 88 119 149 180 210 241 272 302 333 363
30 30 89 120 150 181 211 242 273 303 334 364
31 31 90 151 212 243 304 365

The day-of-the-year table can be used to determine the number of days from one date
to another date. For example, because May 15 is day 135 and August 23 is day 235, there
are 235 – 135 = 100 days from May 15 to August 23.

The table can also be used to determine the due date of a loan. For example, a 12-0-
day loan made on June 9, which is day 160, is due on day 160 – 120 = day 280, which is
October 7.

Example 3. Calculate the simple interest due on a P5000 loan made on September
20 and repaid on December 9 of the same year. The interest rate is 6%.

Solution:
September 20 is day 263. December 9 is day 343.
343 – 263 = 80. The term of the loan is 80 days. Hence,
I = Prt
I = 5000 (0.06)(80/360)
I = 66.67
The simple interest due is P66.67.

97
 Try the following:

1. Find the due date on a 180-day loan made on March 10.

2. Find the number of days from April 22 to Novemebr 8 of the same year.
3. Calculate the simple interest due on a P7500 loan made on January 30 and repaid
on July 18 of the same year. The interest rate is 6.5%. The year is not a leap year.
4. A P15,000 loan is made on August 28. The interest rate is 7%. The loan is repaid
on January 20 of the following year. Calculate the simple interest due on the loan.

Exercise 5.2

A. In items 1 – 5, use the formula A = P (1 + rt) to calculate the maturity value of the
simple interest loan.

No. Principal (P) Rate (r) Time (t) Interest(I)

1 2000 6% 1 year

2 12,000 7.8% 45 days

3 3000 9.6% 21 days

4 3500 1.8% 4 months

5 7000 7.2% 114 days

B. In items 6 – 10, solve each of the following problems.

6. Calculate the maturity vale of a simple interest, eight-month loan of P7000 if the
interest rate is 8.7%.
7. Calculate the maturity value of a simple interest, 10-month loan of P6,600 if the
interest rate is 9.75%.
8. You deposit P880 in an account paying 9.2% simple interest. Find the future vaue
of the investment after 1 year.
9. You deposit P750 in an account paying 7.3% simple interest. Find the future value
of the investment after 1 year.
10. The simple interest charged on a 6-month loan of P2700. Find the simple interest
interest rate.

98
5.3 Compound Interest
Simple interest is generally used for loans of 1 year or less. For loans of more than 1
year, the interest paid on the money borrowed is called compound interest. Compound
interest is the interest calculated not only on the original principal, but also on any interest
that has already been earned.
To illustrate compound interest, suppose you deposit P1000 in a savings account
earning 5% interest, compounded annually (once a year).

During the first year, the interest earned is calculated as follows.

I = Prt
I = 1000(0.05)(1) = 50

At the end of the first year, the total amount in the account is
A=P+I
A = 1000 + 50 = 1050

During the second year, the interest earned is calculated using the amount in the
account at the end of the first year.

I = Prt
I = 1050(0.05)(1) = 52.50

Note that the interest earned during the second year (P52.50) is greater than the
interest earned during the first year (P50). This is because the interest earned during the first
year was added to the original principal, and the interest for the second year wa calculated
using this sum. If the account earned simple interest rather than compound interest, the
interest earned each year would be the same (P50).

At the end of the second year, the total amount in the account is the sum of the amount
in the account at the end of the first year and the interest earned during the second year.
A=P+I
A = 1050 + 2.50 = 1102.50

The interest earned each year keeps increasing. This is the effect of compound
interest.
In the given example, the interest is compounded annually. However, compound
interest can be compounded semi-annually (twice a year), quarterly (four times a year),
monthly or daily. The frequency with which interest is compounded is the compounding
period.

If, in the preceding example, interest is compounded quarterly rather than annually,
3 1
then the first interest payment on the P1000 in the account occurs after 3 months (𝑡 = = ;
12 4
3 months is one quarter of a year). That interest is then added to the account, and the interest
earned for the second quarter is calculated using that sum.

End of 1st quarter: I = Prt = (1000)(0.50)(3/12) = 12.50

A = P + I = 1000 + 12.50 = 1012.50

End of 2nd quarter: I = Prt = (1012.50)(0.50)(3/12) = 12.65625

A = P + I = 1012.50 + 12.66 = 1025.16

End of 3rd quarter: I = Prt = (1025.16)(0.50)(3/12) = 12.81

99
 A = P + I = 1025.16 + 12.81 = 1037.97

End of 4th quarter: I = Prt = (1037.97)(0.50)(3/12) = 12.97

A = P + I = 1037.97 + 12.97 = 1050.94
The total amount in the account at the end of the first year is P1050.94.

Example 1. (Future Value)

You deposit P500 in an account earning 6% interest, compunded semi-

annually. How much is in the account at the ebd of 1 year?

Solution: The interest is compounded every 6 months. Calculate the amount

in the account after the first 6 months. t = 6/2

A = P(1 + rt)
A = 500[1 + 0.06(6/12)]
A = 515

Calculate the amount in the account after the second 6 months.

A = P(1 + rt)
A = 515[1 + 0.06(6/12)]
A = 530.45
The total amount in the account at the end of 1 year is P530.45

Compound Interest Formula

𝑟
𝐴𝑛 = 𝐴𝑜 (1 + )𝑛𝑠 where An = total amount (interest +principal)
𝑠
Ao = principal invested (original amount)
r = rate of annual interest
n = no. of times per year the interest is compounded
s = no. of years the principal is invested

Example 1. How much money will Mr. Agustin have at the end of 5 years if he deposits
P1000 at 9% interest compounded semi-annually?
𝑟
Solution: Using the formula, we have 𝐴𝑛 = 𝐴𝑜 (1 + )𝑛𝑠
𝑠

0.09 2(15)
𝐴𝑛 = 1000(1 + )
2

𝐴𝑛 = 𝑃1552.97

Example 2. Mang Lando invested P25,000 at an annual interest rate of 8%

compounded quarterly. Find the total amount at the end of 5 years.
𝑟
Solution: Using the formula, we have 𝐴𝑛 = 𝐴𝑜 (1 + )𝑛𝑠
𝑠

0.08 5(4)
𝐴𝑛 = 25000(1 + )
4

𝐴𝑛 = 𝑃37100

100
 Try this

Using example no. 2, how much money will Mang Lando have if interest is
compounded

a. Quarterly

b. Monthly

c. Daily

Exercise 5.3

A. In items 1 – 5, calculate the compound amount using the formula

No. Principal (P) Rate (r) mode Time (t) Amount (A)

1 1200 7% Semi-annually 12 yrs

2 3500 8% Semi-annually 14 yrs

3 1700 9% daily 5 yrs

4 9600 6% monthly 3 yrs

5 8600 11% Bi-monthly 3 yrs

B. Solve each of the following problems

1. On his 18th birthday, Merly’s parents placed P10,000 in time deposit at 10%
compounded monthly. In 10 years, how much money would be available for her
educational expenses?

2. For the college education of his son, the father of a 7-year old boy wants to put
enough money in time deposit at 14% annual interest compounded yearly. How
much must he deposit ti have P60,000 when his son reaches 18 years old?

3. A man invests P5000 at 8% annual interest compounded monthly. How many

years will it take him to earn P20,000 interest?

101
5.4 Credit Cards
When a customer uses a credit card to make a purchase, the customer is actually
receiving a loan. Therefore, there is frequently added cost to the consumer who purchases on
credit. This added cost may be in the form of an annual fee or interest charges on purchases.
A finance charge is an amount paid in excess of the cash price; it is the cost to the customer
for the use of credit.

Most credit card companies issue monthly bills. The due date on the bill is usually 1
month after the billing date (the date the bill is prepared and sent to the customer). If the bill is
paid in full by the due date, the customer pays no finance charge. If the bill is not paid in ful by
the due date, a finance charge is added to the next bill.

Suppose a credit card billing date is 10th day of each month. If a credit card purchase
is made on April 15, then May 10 is the billing date (the 10th day of the month following April).
The due date is June 10 (one month from the billing date). If the bill is paid in full before June
10, no finance charge is added. However, if the bill is not paid in full, interest charges on the
outstanding balance will start to accrue (be added) on June 10, and any purchase made after
June 10 will immediately start accruing interest.

The most common method of determining finance charges is the average daily
balance method. Interest charges are based on the credit card’s average daily balance,
which is calculated by dividing the sum of the total amounts owed each day of the month by
the number of days in the billing period.

sum of total amounts owed each day of the month

Average Daily Balance = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
number of days in the billing period

Suppose an unpaid bill for P315 had a due date of April 10. A purchase of P28 was
made on April 12, and P123 was charged on April 24. A payment of P50 was made on April
15. The next billing date is May 10. The interest on the average daily balance is 1.5% per
month. Find the finance charge on the May 10 bill.

To find the finance charge, first prepare a table showing the unpaid balance for each
purchase, the number of days the balance is owed, and the product of these numbers. A
negative sign in the Payments or Purchase column of the table indicates that a payment was
made on that date.

Payments
Balance No. of Days Until Unpaid Balance
Date or
Each Day Balance Charges Times No.of Day
Purchases
April 10-11 315 2 630
April 12-14 28 343 3 1029
April 15-23 -50 293 9 2637
April 24- May 9 123 416 16 6656
Total 10,952

The sum of the total amounts amount owed each day of the month is PhP10,952.

102
Find the average daily balance.

sum of total amounts owed each day of the month

Average Daily Balance = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
number of days in the billing period
10,952
= = 365.07
̅̅̅̅̅̅̅̅̅
30
Find the finance charge.
I = Prt = 365.07 (0.015)(1)
I = 5.48

The finance on the May 10 bill is PhP 5.48

Example 2. (Calculate interest on a Credit Card Bill)

An unpaid bill for P620 had a due date of March 10. A purchase of P214 was
made on March 15, and P67 was charged on March 30. A payment of P200 was made
on March 22. The interest on the average daily balance is 1.5% per month. Find the
finance charge on April 10 bill

Solution:

First, calculate the sum of the total amounts owed each day of the month.
Payments
Balance No. of Days Until Unpaid Balance
Date or
Each Day Balance Charges Times No.of Day
Purchases
Mar 10-14 620 5 3100
Mar 15-21 214 834 7 5838
Mar 22-29 -200 634 8 5072
Mar 30-Apr 9 67 701 11 7711
Total 21,721

The sum of the total amounts owed each day of the month is P21,721.

As to the average daily balance, by using the formula

21,721
Ave. Daily Balance = ̅̅̅̅̅̅̅̅̅̅ = 𝑃700.68
31

As to the finance charge, using the formula

I = Prt = 700.68(0.015)(1) = 10.51

The finance charge on April 10 bill is P10.51

Try this:
A bill for P1024 was due on July 1. Purchases of P315 were made on July 7,
and P410 was charged on July 22. A payment of P400 was made on July 15.
The interest on the average daily balance is 1.2% per month. Find the finance
charge on the August 1 bill.

103
Exercise 5.4

In items 1-4, calculate the finance charge for a credit card that has the given average daily
balance and interest rate.

1. Average daily balance, 118.72; monthly interest rate, 1.25%.

2. Average daily balance, 391.64; monthly interest rate, 1.75%.
3. Average daily balance, 10,154.87; monthly interest rate, 1.5%.
4. Average daily balance, 20,346.91; monthly interest rate, 1.25%.
5. Average Daily Average: A credit card amount had a P244 balance on March 5. A purchase
of P152 was made on March 28. Find the average daily balance if the billing date is April 5.
6. Average Daily Average: A credit card account has a P768 balance on April 1. A purchase
of P316 was made on April 5, and a payment of P200 was made on April 18. Find the
average daily balance if the new billing date is May 1.
7. Finance Charges: A charge account had a balance of P944 on May 5. A purchase of P255
was made on May 17, and a payment of P150 was made on May 20. The interest on the
average daily balance is 1.5% per month. Find the finance charge on the June 5 bill.
8. On August 10, a credit card account had a balance of P345. A purchase of P56 was made
on August 15, and P157 was charged on August 27. A payment of P75 was made on
August 15. The interest on the average daily balance is 1.25% per month. Find the finance
charge on September 10 bill.

5.5 Stocks, Bonds, and Mutual Funds

5.5.1 Stocks

Stocks, bonds, and mutual funds are investment vehicles, but they differ in nature.
When owners of a company want to raise money, generally to expand their business, they
may decide to sell part of the company to investors. An investor who purchases a part of the
company is said to own stock in the company. Stock is measured in shares; a share of stock
in a company is a certificate that indicates partial ownership in the company. The owners of
the certificates are called stockholders or shareholders. As owners, the stockholders share
in the profits or losses of the corporation.

A company may distribute profits to its shareholders in the form of dividends. A

dividend is usually expressed as a per-share amount—for example, P7 per share.

Example 1. (Calculate dividends paid to a stockholder)

A stock pays an annual dividend of P0.84 per share. Calculate the dividends
paid to a shareholder who has 200 shares of the company’s stock.

Solution:
(0.84 per share) x (200 shares) = P168
The shareholder receives P168 in dividends.
A dividend yield, which is used to compare companies’ dividends, is the
share amount of the dividend divided by the stock price and is expressed as a
percent. Determining a dividend yield is similar to calculating the simple interest
rate earned, the stock price as the principal, and the yield as the interest rate.

104
 Example 2. (Calculate a dividend yield)

A stock pays an annual dividend of P1.75 per share. The stock is trading at
P70. Find the dividend yield.

Solution:
I = Prt
1.75 = 70 r (1), let I = annual dividend, P = stock price
r = 0.025, the dividend yield is 2.5%

5.5.2 Bonds

When a corporation issues stock, it is selling part of the company to the stockholders.
When it issues a bond, the corporation is borrowing money from the bondholders; a
bondholder lends money to a corporation. Corporations and government agencies issue
bonds. These entities need money to operate—for example, to fund the government deficit,
repair roads, or build a new factory—so they borrow money from the public by issuing bonds.

Bonds are usually issued in units of P1000. The price paid for the bond is the face
value. The issuer promises to repay the bondholder on a particular day, called the maturity
date, at a given rate of interest, called the coupon.

Assume that a bond with a P1000 face value has a 5% coupon and a 10-year maturity
date. The bondholder collects interest payments of P50 in each of those 10 years. The
payments are calculated using the simple interest formula, as shown below.

I = Prt
I = 1000(0.05)(1)
I = 50
At the end of the 10-year period, the bondholder receives from the issuer the P1000
face value of the bond.

Example 3. (Calculate Interest payments on a Bond)

A bond with a P10,000 face value has a 3% coupon and a 5-year maturity date.
Calculate the total of the interest payments paid to the bondholder.

Solution: Use the simple interest formula to find the annual interest payments.
Substitute the following values into the formula: P = 10,000, r = 3%, and t = 1.

I = Prt = 10,000(0.03)(1) = 300

Multiply the annual interest payments by the term of the bond,

300(5) = 1500

The total of the interest payments paid to the bondholder is P1500.

5.5.3 Mutual Funds

An investment trust is a company whose assets are stocks and bonds. The purpose of
these companies is not to manufacture a product but to purchase stocks and bonds with the
hope that their value will increase. A mutual fund is an example of investment trust.

105
 When investors purchase shares in a mutual fund, they are adding their money to a
pool along with many other investors. The investments within a mutual fund are called the
funds’ portfolio. The investors in a mutual fund share the fund’s profits or losses from the
investments in the portfolio.

An advantage of owning shares of a mutual fund is that your money is managed by

full-time professionals whose job it is to research and evaluate stocks; you own stocks without
having to choose which individual stocks to buy or to decide when to sell them. Another
advantage is that by owning shares in the fund, you have purchased shares of stock in many
different companies. This diversification helps to reduce some of the risks on investing.

Because a mutual fund owns many different stocks, each share of the fund owns a
fractional interest in each of the companies. Each day, the value of a share in the fund, called
the net asset of the fund, or NAV, depends on the performance of the stocks in the fund. It is
calculated by the following formula:

Net Asset Value of a Mutual Fund

A−L
NAV = ̅̅̅̅̅̅̅̅
N

where: A is the total fund assets

L is the total fund liabilities
N is the no. of shares outstanding

Example 4. (Calculate the net asset value of, and the number of, shares purchased
in a mutual fund)

A mutual fund has P600M worth of stock, P5M worth of bonds, and P1M in
cash. The fund’s total liabilities amount to P2M. There are 25 million shares
outstanding. You invest P15,000 in this fund.

a. Calculate the NAV

b. How many shares will you purchase?

Solution:
A − L 606 million − 2 million
a. NAV = ̅̅̅̅̅̅̅̅ = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ = 24.16
N 25 million
The NAV of the fund is P24.16

15,000
b. = 620
̅̅̅̅̅̅̅̅̅̅
24.16

You will purchase 620 shares of the mutual fund.

Try these:

1. Annual Dividends. A stock pays an annual dividend of P1.02 per share. Calculate
the dividends paid to a shareholder who has 375 shares of the company’s stock
2. Annual Dividends. A stock pays an annual dividend of P0.58 per share. Calculate
the dividends paid to a shareholder who has 1500 shares of the company’s stock.
3. Dividend Yield. Find the dividend yield for a stock that pays an annual dividend of
P1.24 per share and has a current price of P49.375. Round to the nearest hundredth
of a percent.

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 4. Dividend Yield. A cooperative has declared an annual dividend of P0.50 per share.
The stock is trading at P40 per share. Find the dividend yield.

5.6 Home Ownership

Initial Expenses. When you purchase a home, you generally make a downpayment
and finance the remainder of the purchase price with a loan obtained through a bank or
savings or loan association. The amount of the downpayment can vary, but it is normally
between 10% and 30% of the selling price. The mortgage is the amount that is borrowed to
buy the real estate. The amount of the mortgage is the difference between the selling price
and the downpayment.

Mortgage = selling price – downpayment

This formula is used to find the amount of the mortgage. For example, suppose you
buy a P240,000 home with a downpayment of 25% of the purchase price.

Downpayment = 25% of 240,000 = 0.25(240,000)

= 60,000

Then find the mortgage by subtracting the downpayment from the selling price.

Mortgage = selling price – downpayment

= 240,000 – 60,000
= 180,000
The mortgage is P180,000.

The downpayment is generally the largest initial expense in purchasing a home, but
there are other epenses associated with the purchase. These payments at the closing, when
the sale of the house is finalized, and are called closing costs. The bank may charge fees
for attorneys, credit reports, loan processing, and title searches. There may also be a loan
origination fee. This fee is usually expressed in points. One point is equal to 1% of the
mortgage.

Suppose you purchase a home and obtain a loan for P180,000. The bank charges a
fee of 1.5 points. To find the charge for points, multiply the loan amount by 1.5%.

Point = 1.5% of 180,000 = 2700

Hence, the charge for points is P2700.

Example 1. (Calculate downpayment and the closing cost)

The purchase price of a home is P392,000. A downpayment of 20% is made.
The bank charges P450 in fees plus 2.5 points. Find the total of the downpayment and
the closing costs.

Solution:
Downpayment = 20% of P392,000 = 78,400
The downpayment is P78,400.

Next, find the mortgage,

Mortage = selling price – downpayment
= 392,000 – 78400

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 = 313, 600
Hence, the mortgage is P313,600.

Then, calculate the charge for points,

Points = 2.5% of 313,6000 = 7840
Hence, the charge for points is P7840.

Finally, find the sum of the downpayment and closing costs.

78,400 + 450 + 7840 = 86,690
SO, the total of the downpayment and the closing costs is P86,690.

Mortgages

When a bank agrees to provide you with a mortgage, you agree to pay off that loan in
monthly payments. If you fail to make the payments, the bank has the right to foreclose, which
means that the bank takes possession of the property and has the right to sell it. There are
many types of mortgages available to home buyers today, so the terms of mortgages differ
considerably. Some mortgages are adjustable rate mortgages (ARMs). The interest rate
charged on an ARM is adjusted periodically to more closely reflect current interest rates. The
mortgage agreement specifies exactly how often and how much the interest rate can change.

A fixed rate mortgage or conventional mortgage is one in which the interest rate
charged on the loan remains the same throughout the life of the mortgage. For a fixed rate
mortgage, the amount of the monthly payment also remains unchanged throughout the term
for the loan.

The term of a mortgage can vary. Terms of 15, 20, 25, and 30 years are most common.

The monthly payment on a mortgage is the mortgage payment. The amount of the
mortgage payment depends on the amount of the mortgage, the interest rate on the loan, and
the term of the loan. This payment is calculated by using the payment formula for an APR
loan.

The mortgage payment for a mortgage is given by

𝑖
𝑃𝑀𝑇 = 𝐴 ( )
1 − (1 + 𝑖)−𝑛

where PMT is the monthly mortgage payment, A is the amount of the

mortgage, i is the interest rate per payment period, and n is the total
number of payments.

Example 2. (Calculate mortgage payment)

Suppose Allison Trading purchase a condominium and secures a loan of
P134,000 for 30 years at an annual interest rate of 6.5%.
a. Find monthly mortgage payment
b. What is the total of the payments over the life of the loan?
c. Find the amount of interest paid on the loan over the 30 years.

Solution:
annual interest rate 0.065
a. 𝑖 = ̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ = ̅̅̅̅̅̅̅
number of payments per year 12
0.065
12
𝑃𝑀𝑇 = 134,000 (̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ ) = 846.97
0.065 −360
1 − (1 + )
12

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 b. To determine the total of the payments, multiply the number of payments (360) by
the monthly payment (846.97)

846.97(360) = 304,909.20

c. To determine the amount of interest paid, subtract the mortgage from the total of
the payments

304,909.20 – 134,000 = 170,909.20

The amount of interest paid over life of the loan is P170,909.20

Exercise 5.5

Solve each of the following problems.

1. You buy a P258,000 home with downpayment of 25%. Find the amount of the
downpayment and the mortgage amount.
2. Mr. Co purchases a home and secures a loan of P250,000. The bank charges a fee of
2.25 points. Find the charge for the points.
3. The purchase price of a home is P309,000. A downpayment of P30% is made. The
bank charges P350 fees plus 3 points. Find the total of the downpayment and the
closing costs.

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 Chapter 6
Codes

Learning Outcomes:

At the end of the chapter, the students shall be able to:

1. Define bits and binary systems;
2. Decipher binary codes;
3. Convert decimal numbers to binary and vice versa;
4. Use coding schemes to encode and decode different types of information for
identification, privacy and security purposes;
5. Exemplify honesty and integrity when using codes for security purposes.

Introduction

Language teaches people how to communicate and socialize with one another. It
enables them to comprehend all the things that occur in the environment. On the other hand,
coding operates in its own unique language. Understanding coding helps us to know how the
technology works around us and makes us much better in utilizing and interacting with it.

Computers exist in almost all of everyday functions of the society such as financing
and accounting, transportation, researches and various professions. Computers would be
useless without the utility of coding. Codes are the set of instructions that computers follow.
Computers operate based from the codes that tells it what to do.

6.1 Number Systems

A number system is a collection of distinct symbols or characters. This system is

composed of three (3) important components: digits (the distinct characters in the system),
digit positioning (the digit’s place based from the power of the base) and base (the number of
digits in the system).

Decimal Number System

The Decimal Number System is a 10 digit (deci=10) number system that that people
use in daily activities. The digits are 0, 1, 2, 3, 4, 5, 6, 7, 8 and 9. Its base is 10 and each
position is represented by the powers of 10.

4 0 6 2
103 102 101 100
thousands hundreds tens ones

110
Binary Number System

The Binary Number System, on the other hand, is a number system familiar to people
who operates computers. It is a two-digit number system represented by the numbers zero (0)
and one (1). Its base is 2 and the positions are represented by the power of 2.

1 0 0 1
23 22 21 20
eights fours twos ones

6.2 Binary Codes

Most computers and computerized devices use binary codes as a method to store, send and
receive information. UTF-8 (Unicode Transformation Format) as designed to represent
characters and symbols using an 8-bit code. A bit (short for binary digit) is the computer’s
smallest unit of data. An 8-bit code is called a byte.

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Example 1
Suppose we want to convert the word “INTEGER” in a binary code. The
process is to find the corresponding codes of the letters I, N, T, E, G, E, and R.

Solution:
I 01001001 G 01000111
N 01001110 E 01000101
T 01010100 R 01010011
E 01000101

That is, “INTEGER” is read as 01001001 01001110 01010100 01000101

01000111 01000101 01010011.

Thus, the meaning of messages written in binary codes can also be deciphered using
the UTF-8 table.

111
 Example 2
Decipher the code:

01001101 01000001 01010100 01001000 01001001 01010011

01000110 01010101 01001110

Solution:
Using the table, we have the message “M A T H I S F U N”

6.3 Conversion between Codes

In writing a number, position of the digits is represented by the powers of the base. For
instance, the decimal number “432” can also be written as “4(10 2) + 3(101) + 2(100)”. Binary
numbers, read from right to left, can also be written using the powers of 2. Numbers such as
“10001” and “10101” may be understood as either decimal or binary, so using a subscript is
important to remove the confusion. Hence, 100012 is in binary while 1000110 is in decimal.

Binary Numbers to Decimal Numbers

To convert binary numbers to decimal numbers, the face value in each position is
multiplied to its corresponding power of 2. This is expressed as:

Example 3:

Convert the following binary numbers to decimal numbers:

a. 101112 b. 11101102 c. 101011102

Solution:

a. 101112 = 1(24) + 0(23) + 1(22) + 1(21) + 1(20)

= 1(16) + 0(8) + 1(4) + 1(2) + 1(1)
= 16 + 0 + 4 + 2 + 1
= 2310

b. 11101102 = 1(26) + 1(25) + 1(24) + 0(23) + 1(22) + 1(21) + 0(20)

= 1(64) + 1(32) + 1(16) + 0(8) + 1(4) + 1(2) + 0(1)
= 64 + 32 + 16 + 0 + 4 + 2 + 0
= 11810

c. 101011102 = 1(27) + 0(26) + 1(25) + 0(24) + 1(23) + 1(22) + 1(21) + 0(20)

= 1(128) + 0(64) + 1(32) + 0(16) + 1(8) + 1(4) + 1(2) + 0(1)
= 128 + 0 + 32 + 0 + 8 + 4 + 2 + 0
= 17410

Decimal Numbers to Binary Numbers

To convert decimal numbers to binary numbers, continuous division by 2’s is used until
the quotient is zero. The resulting remainders represent the binary number. This procedure is
presented below:

112
Example 4

a. Convert the decimal 120 to binary.

Solution:
Place of
Quotient Remainder
Bits
121 60 1 1’s
60 30 0 2’s
30 15 0 4’s
15 7 1 8’s
7 3 1 16’s
3 1 1 32’s
1 0 1 64’s

Thus, 121 in binary is 1111001.

b. Convert the decimal 300 to binary.

Solution:
Place of
Quotient Remainder
Bits
300 150 0 1’s
150 75 0 2’s
75 37 1 4’s
37 18 1 8’s
18 9 0 16’s
9 4 1 32’s
4 2 0 64’s
2 1 0 128’s
1 0 1 256’s

Thus, 300 in binary is 100101100.

c. Convert the decimal 1000 to binary.

Solution:
Place of
Quotient Remainder
Bits
1000 500 0 1’s
500 250 0 2’s
250 125 0 4’s
125 62 1 8’s
62 31 0 16’s
31 15 1 32’s
15 7 1 64’s
7 3 1 128’s
3 1 1 256’s
1 0 1 512’s
Thus, 1000 in binary is 1111101000.

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 Checking may also be done to verify the result by using the process of converting
binary numbers to decimal numbers.
a. 1111001 = 1(26) + 1(25) + 1(24) + 1(23) + 0(22) + 0(21) + 1(20)
= 64 + 32 + 16 + 8 + 0 + 0 + 1
= 121

b. 100101100 = 1(28) + 0(27) + 0(26) + 1(25) + 0(24) + 1(23) + 1(22) + 0(21) + 0(20)
= 256 + 0 + 0 + 32 + 0 + 8 + 4 + 0 + 0
= 300

c. 1111101000 = 1(29) + 1(28) + 1(27) + 1(26) + 1(25) + 0(24) + 1(23) + 0(22) + 0(21) + 0(20)
= 512 + 256 + 128 + 64 + 32 + 0 + 8 + 0 + 0 + 0
= 1000

6.4 Operations on Binary Numbers

Just like in decimal numbers, arithmetic operations can also be performed on binary
numbers.

Binary Number Addition

Adding binary numbers follows the process in adding decimal numbers. However, it
should be noted that only 0 and 1 are used in the binary system. Thus, the sum of 0 and 0 is
0; the sum of 0 and 1 is 1, and the sum of 1 and 1 is 10.

Example 5

a. Find the sum of 1101 and 1010.

Solution:
1
1 1 0 1
1 0 1 0
1 0 1 1 1

Thus, the sum of 1101 and 1010 is 10111.

b. Find the sum of 100011 and 101101.

Solution:
1 1 1 1 1
1 0 0 0 1 1
1 0 1 1 0 1
1 0 1 0 0 0 0

Thus, the sum of 100011 and 101101 is 1010000.

114
 c. Find the sum of 1111011 and 1111110.

Solution:
1 1 1 1 1 1
1 1 1 1 0 1 1
1 1 1 1 1 1 0
1 1 1 1 1 0 0 1

Thus, the sum of 1111011 and 1111110 is 11111001.

To check if the result is correct, convert the addends and sum to decimal numbers.

a. 1101 = 1(23) + 1(22) + 0(21) + 1(20) = 13

1010 = 1(23) + 0(22) + 1(21) + 0(20) = 10
10111 = 1(24) + 0(23) + 1(22) + 1(21) + 1(20) = 23

b. 100011 = 1(25) + 0(24) + 0(23) + 0(22) + 1(21) + 1(20) = 35

101101 = 1(25) + 0(24) + 1(23) + 1(22) + 0(21) + 1(20) = 45
1010000= 1(26) + 0(25) + 1(24) + 0(23) + 0(22) + 0(21) + 0(20) = 80

c. 1111011 =1(26) + 1(25) + 1(24) + 1(23) + 0(22) + 1(21) + 1(20) = 123

1111110 =1(26) + 1(25) + 1(24) + 1(23) + 1(22) + 1(21) + 0(20) = 126
11111001=1(27) + 1(26) + 1(25) + 1(24) + 1(23) + 0(22) + 0(21) + 1(20) = 249

Binary Number Subtraction

To subtract binary numbers, the smaller number must be subtracted from the bigger
number. The difference between binary numbers must also be composed of binary digits 0
and 1. The difference of 1 and 1 is 0; the difference of 0 and 0 is 0; 1 subtracted by 0 is 1; and
0 subtracted by 1 is also 0 provided 1 will be borrowed from the next digit of the minuend.

Example 6
a. Subtract 10001 from 11110.

Solution:

1 1 1 (1)0 0 ←1 in the second digit is changed to 0.

1 0 0 0 1
1 1 0 1

Thus, 10001 subtracted from 11110 is 1101.

115
 b. Find the difference of 111000 and 100011.

Solution:

1 1 (1)0 (0)1 (0)1 0 ←Note that the borrowing of 1 bit does

not stop until 1 is changed to 0.
1 0 0 0 1 1
1 0 1 0 1

Thus, the difference of 111000 and 100011 is 10101.

To check, conversion of binary numbers to decimal may be done.

a. 11110 = 1(24) + 1(23) + 1(22) + 1(21) + 0(20) = 30
10111 = 1(24) + 0(23) + 0(22) + 0(21) + 1(20) = 17
1101 = 1(23) + 1(22) + 0(21) + 1(20) = 13

b. 111000 = 1(25) + 1(24) + 1(23) + 0(22) + 0(21) + 0(20) = 56

100011 = 1(25) + 0(24) + 0(23) + 0(22) + 1(21) + 1(20) = 35
10101 = 1(24) + 0(23) + 1(22) + 0(21) + 1(20) = 21

Binary Number Multiplication

Multiplying binary numbers is similar to multiplying decimal numbers. The product of 0

and 0 is zero; the product of 0 and 1 is 0; and the product of 1 and 1 is 1.

Example 7
a. Find the product of 1101 and 1011.

Solution:
1 1 0 1
1 0 1 1
1 1 1
1 1 0 1
1 1 0 1
0 0 0 0
1 1 0 1
1 0 0 0 1 1 1 1

Thus, the product of 1101 and 1011 is 10001111.

116
 b. Multiply 11011 by 10101.

1 1 0 1 1
1 0 1 0 1
1 1 1 1 1
1 1 0 1 1
0 0 0 0 0
1 1 0 1 1
0 0 0 0 0
1 1 0 1 1
1 0 0 0 1 1 0 1 1 1

Thus, 11011 multiplied by 10101 is 1000110111.

Convert the binary numbers to decimal to verify the result.

a. 1101 = 1(23) + 1(22) + 0(21) + 1(20) = 13

1011 = 1(23) + 0(22) + 1(21) + 1(20) = 11
10001111 = 1(27) + 0(26) + 0(25) + 0(24) + 1(23) + 1(22) + 1(21) + 1(20) = 143

b. 11011 = 1(24) + 1(23) + 0(22) + 1(21) + 1(20) = 27

10101 = 1(24) + 0(23) + 1(22) + 0(21) + 1(20) = 21
1000110111 = 1(29) + 0(28) + 0(27) + 0(26) + 1(25) + 1(24) + 0(23) + 1(22) + 1(21) + 1(20) =
512+32+16+4+1 = 567

Binary Number Division

In dividing binary numbers, the bit length must always be observed. Furthermore, skill
in adding, subtracting and multiplying binary numbers is essential in this operation.

Example 8
a. Divide 10010 by 11.

Solution:
1 1 0
1 1 1 0 0 1 0
1 1
1 1
1 1
0
0
0

117
 Division of binary numbers follows the same process in decimal division. It starts by
dividing the leftmost digit of the dividend to the divisor.

The leftmost digit is 1 but 11 does not divide 1, the same with 10. Therefore, 100 is
used to divided resulting to a quotient of 1.

1 is then multiplied to 11 and subtracted to 100, resulting to a difference of 1. Then,

bring down 1 and divide again to 11, resulting to a quotient of 1.

1 is then again multiplied to 11 and subtracted to 11, resulting to a difference of 0.

Then, bring down 0 and be divided to 11, resulting to a quotient of 0.

To check:
10010 = 1(24) + 0(23) + 0(22) + 1(21) + 0(20) = 18
11 = 1(20) + 1(20) = 3
110 1(22) + 1(21) + 0(20) = 6

b. Divide 111000010 by 110.

1 0 0 1 0 1 1
1 1 0 1 1 1 0 0 0 0 1 0
1 1 0
1 0 0 0
1 1 0
1 0 0 1
1 1 0
1 1 0
1 1 0
0

6.5 Errors

Error is a condition when the output information does not match with the input
information. It usually happens during transmission of information through digital signal. During
transmission, digital signals suffer from noise that can introduce errors in the binary bits
travelling from one system to other. That means 0 bit may change to 1 or a 1 bit may change
to 0.

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118
Types of Errors

Bit error occurs when a bit 1 is changed to 0 or a bit 0 is changed to 1.

a. Single Bit Error

Single bit error happens when a bit is differed from the input information to the
output information. It rarely happens in the serial communication system because
noise usually changes more than a bit. It occurs in parallel communication system
wherein the noise will scatter around the lines of the system.

0 1 0 0 1 1

0 1 0 1 1 1

b. Multiple Bit Error

Multiple bit error occurs when two or more bits are changed from the input
information to the output information. It shoud be noted that the position of bit errors
may not be consecutive. This type of error is common in both serial and parallel
communication systems. Change in multiple bits also leads to some degree in
detecting and correcting the errors.

0 1 0 0 1 1

0 1 1 0 0 1

c. Burst Error
Burst error happens when two or more bits are changed in the data
transmission and the error burst is calculated from the first bit change to the last bit
change. It usually occurs in serial communication system wherein the noise may
disturb the sequencing or the positioning of multiple bits. This type of error is
difficult to solve and requires multiple and complex error detecting and correcting
codes.

0 1 0 1 0 1
Burst Error

0 1 1 1 0 0

6.6 Error Detection and Error Correction

Error detection is a process used to verify the correctness of information from the input
data to the output data. This is done by adding redundant bit to the input data then checking
of possible errors in the output data. These redundant bits are used as error detecting codes
to predict an error in the transmission of data.

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Types of Error Detecting Codes

1. Simple Parity Check

In error detection and correction, additional bits are added to the data during
transmission. These additional bits are called parity bits and the data bit forms a code word.
The process is by using an 8-bit code where the most significant bit (MSB) is the parity bit
while the remaining bits are message or data bits. The parity of the 8-bit code can be even
parity or odd parity.

a. Even Parity – Even parity happens when the number of 1’s in a given code is
even.
Example: 10110001, 11100111, 11111111
b. Odd Parity – Odd parity happens when the number of 1’s in a given code is odd.
Example: 10000000, 10001001, 11101111

The parity bit can be either 0 or 1 depending on the required parity. For an even parity,
0 or 1 is used if the entire code has even number of 1’s. For an odd parity, 0 or 1 is used if the
entire code has an odd number of 1’s.

2. Two-Dimensional Parity Check

Parity bits are computed for each row, and for all columns. Then, each computed
parity bit along with the data are transmitted. The output data is then checked using the parity
bits computed.

3. Checksum
Each bit of data in a code are separated into sections. This process uses 1’s
aggregate to get the sum of the sections. The sum is aggregated to get the checksum. The
checksum section is then transmitted together with the data sections. The output data is then
checked using 1’s aggregate to get the sum. The result must be zero to determine the data is
correct.

4. Cyclic Redundancy Check (CRC)

Unlike checksum that uses addition, Cyclic Redundancy Check uses binary division.
Another predetermined binary number adds cyclic redundancy check bits to the data so that
the new data becomes divisible. If same binary number divides the output data, the data is
correct. On the other hand, a result with a remainder is rejected.

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6.7 Hamming Codes

A set of error-correcting code called Hamming code, developed by R. W. Hamming of

Bell Labs, is used to detect and correct errors in a bit that may happen when digital information
is transmitted or moved.

Like the previous error-detecting codes, Hamming code utilizes the concept of parity
bits, which are additional bits attached to digital data in the process of transmission from input
to output. Furthermore, multiple parity bits are used not just to detect bit errors but also locate
its position in the given code.

Redundant Bits
Extra binary bits, called redundant bits, are generated and attached to the data to make
sure that no bit were lost in the transmission process. The following formula is used to
determine the number of redundant bits:

𝟐𝒓 ≥ 𝒅 + 𝒓 + 𝟏

where r represents the number of redundant bits and d represents the data bit.

The number of redundant bits is done using trial and error method. Thus, the use of
smaller numbers is advised. For instance, the data bit is 5, the number of redundant bits can
be calculated using the formula above. Try 3 for instance.

𝟐𝟑 ≥ 𝟓 + 𝟑 + 𝟏
𝟖≥𝟗

It violates the rule in the formula. Try 4 instead.

𝟐𝟒 ≥ 𝟓 + 𝟒 + 𝟏
𝟏𝟔 ≥ 𝟏𝟎

The result satisfies the formula. Therefore, 4 redundant bits are needed in a data bit of 5.

Calculating the Hamming Code

The key in using Hamming code is the use of extra parity bits to identify a single error.
1. All bit positions that are powers of 2 are marked as parity bits (1, 2, 4, 8, … ). Use
the binary form to represent each power (1, 10, 11, 001, … ).
2. All remaining positions are marked as data bits.
3. Each data bit is uniquely used as set of parity bits using its binary form.
a. Parity bit 1 includes all bit positions whose binary form includes 1 in the least
significant position.
b. Parity bit 2 includes all bit positions whose binary form includes 1 in the second
position from the least significant bit.
c. Parity bit 3 includes all bit positions whose binary form includes 1 in the third
position from the least significant bit.
d. Parity bit 4 includes all bit positions whose binary form includes 1 in the fourth
position from the least significant bit.
e. In general, each parity bit covers all bits where the bitwise and of the parity
position and the bit position is non-zero.
4. Even parity is used in determining the value of parity bits. Use a parity bit of 1 if the
total number of 1’s in the positions checked is odd. Otherwise, use a parity bit of 0.

121
Positioning the Redundant Bits

Using the procedure above, if the data bit is 5, then the number of redundancy bits is
4. Thus, the total number of bits is 9.

9 8 7 6 5 4 3 2 1
1001 1000 111 110 101 100 11 10 1
d9 d8 d7 d6 d5 d4 d3 d2 d1

Redundant Bits
Thus, the new bit representation is:
9 8 7 6 5 4 3 2 1
1001 1000 111 110 101 100 11 10 1
d9 r4 d7 d6 d5 r3 d3 r2 r1

Redundant Bits

Suppose the input data is 11001. The position of the redundancy bits are as follows:
9 8 7 6 5 4 3 2 1
1001 1000 111 110 101 100 11 10 1
1 r4 1 0 0 r3 1 r2 r1

To determine the parity bits:

1. To find r1, check the bit positions of with 1 in the least significant position. Then check
for even parity.

9 8 7 6 5 4 3 2 1
1001 1000 111 110 101 100 11 10 1
1 1 0 0 1 r1
The highlighted bits are bit positions included in parity bit 1. Since the total number of
1’s is odd, then it has a parity bit of 1. Therefore, r1 is 1.

2. To find r2, check the bit positions with 1 in the second position from the least significant
bit. Then check for even parity.
9 8 7 6 5 4 3 2 1
1001 1000 111 110 101 100 11 10 1
1 1 0 0 1 r2
The highlighted bits belongs to parity bit 2. Since the total number of 1’s is even, then
it has a parity bit of 0. Therefore, r2 is 0.

3. To find r3, check the bit positions with 1 in the third position from the least significant
bit. Then check for even parity.
9 8 7 6 5 4 3 2 1
1001 1000 111 110 101 100 11 10 1
1 1 0 0 r3 1
Since the total number of 1’s is odd, then it has a parity bit of 1. Therefore, r3 is 1.

4. To find r4, check the bit positions with 1 in the fourth position from the least significant
bit. Then check for even parity.
9 8 7 6 5 4 3 2 1
1001 1000 111 110 101 100 11 10 1
1 r4 1 0 0 1

122
 Since the total number of 1’s is odd, then it has a parity bit of 1. Therefore, r4 is 1.

Thus, the data transmitted is:

9 8 7 6 5 4 3 2 1
1 1 1 0 0 1 1 0 1

123
Exercise 6.1

A. Convert the following:

a. Binary to Decimal
1. 10110 6. 10001111
2. 11011 7. 110011001
3. 101110 8. 1010101010
4. 1011101 9. 1111111111
5. 1110000 10. 10000000001

b. Decimal to Binary
1. 25 6. 555
2. 49 7. 843
3. 101 8. 1000
4. 220 9. 1555
5. 300 10. 7777

B. Perform the indicated operation on binary numbers.

a. Addition
1. 110011 + 101100
2. 1101111 + 1010101
3. 10111000 + 11110010
4. 111100111 + 110101010
5. 1010101010 + 1101100111

b. Subtraction
1. 11001 – 10101
2. 111001 – 110111
3. 1100001 – 1010101
4. 1100111 – 1010001
5. 10101011 - 10011100

c. Multiplication
1. (1011)(101)
2. (1100)(110)
3. (1010)(111)
4. (1111)(1101)
5. (10101)(10111)

d. Division
1. 110011 ÷ 11
2. 1000000 ÷ 100
3. 1111101 ÷ 101
4. 11110000 ÷ 110
5. 1010111100 ÷ 111

124
C. Determine the parities of the following codes.

Code Bit of Odd Parity Bit of Even Parity

1. 1011011
2. 1110001
3. 10110110
4. 101100000
5. 1100110011
6. 10110011101
7. 111101001011
8. 1101110011100
9. 10111111001111
10. 101000111110000

D. Encode the following data in even parity using Hamming code.

1. 1011
2. 1110
3. 10101
4. 11001
5. 101101
6. 1011111
7. 10010111
8. 111100111
9. 101100010
10. 1100110010

1
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