Algebra Revisited – a Primer on Algebraic Manipulations

The goal in solving word problems is to isolate the variable so as to determine its value in the equation. A number of

mathematical techniques are used to manipulate the terms of the equations in order to isolate the variable, and in this

section we will review the ones commonly used in solving word problems in finance. One simple rule must be kept

in mind when using any of these techniques:

Whatever is done to one side of an equation must be done to both sides.

This rule is critical. Since we are working with equations, whatever changes are made to the terms on one side of the

equal sign must be done to the terms on the other side of the equal sign as well, or else the terms will no longer be

equal.

Next, I want to introduce a simple phrase that will aid in the prioritizing of steps in the mathematical solution of

equations. That phrase is:

Simplify, then solve.

Simplifying means exactly what it sounds like – to make things simple. Complex terms, such as fractions, and terms

in parentheses or brackets should be the first things addressed in the equation. Simplify the complex terms first, and

the remaining steps will be that much easier. Removing the fractions and the terms in parentheses or brackets makes

it easier to get at the terms with the variables. Fractions are removed by multiplying all terms in the equation by the

denominator of the fraction. Note that all terms on either side of the equation must be multiplied by the denominator

– otherwise you will change the relationship among the terms. Terms in parentheses or brackets must also be

simplified, regardless of the mathematical procedure involved, as it will make further manipulations of the equation

easier. Once the complex terms are simplified, any like terms (terms with variables or constants) need to be

combined.

Once you have simplified the fractions and terms in parentheses or brackets, you must work to isolate the term with

the variable. You do this by removing any constants in the equation. That involves subtracting positive constants, or

adding negative constants, to both sides of the equation. Once you get the term with the variable separated, you can

isolate the variable itself by removing the coefficient and thus determine the value of the variable. Removing the

coefficient involves dividing both sides of the equation by the coefficient.

1. Determine the proper equation. For the examples in this section, that will be done as per the example

given earlier in the section on turning statements into equations. In the later chapters, we will usually

need to fit the data given to some theoretical model.

2. Simplify the fractions and terms in parentheses or brackets. Fractions are simplified by multiplying all

terms in the equation by the denominator of the fraction. Terms in parentheses or brackets must be

dealt with on an individual basis, with the intention of removing the parentheses and brackets. Then

like terms, such as terms with the variable or constants, must be combined.

3. Remove any constants from the equation by subtracting positive constants from (or adding negative

constants to) both sides. This will isolate the term with the variable.

4. Divide both sides by the coefficient of the variable. This will isolate the variable and thus solve for its

value.

Let us look at some examples, broken down into the steps used to solve for the variables.

Problem #1: A number, when increased by 7 and added to itself, totals 19. What is the number?

Follow the steps given above to solve this problem.

1. As shown in the earlier section, the equation for this problem is 2x + 7 = 19.

Since there are no fractions or terms in parentheses, we can go straight into isolating the term with the

variable.

3. Remove the positive constant (7) from by subtracting 7 from both sides to isolate the term with the

variable: 2x = 12

4. Divide both sides by the coefficient of the variable (2) to isolate the variable: x = 6

If we plug the solution we found back into the formula we can check our work: 2(6) + 7 = 19. Since this fits, our

solution must be correct.

Problem #2: A number, when added to itself twice and reduced by 11, equals 10. What is the number?
 1. It was determined in the prior section that the equation for this problem is 3y – 11 = 10.

Since there are no fractions or terms in parentheses, we can go straight into isolating the term with the

variable.

3. Remove the negative constant (-11) by adding 11 to both sides to isolate the term with the variable: 3y

= 21.

4. Divide both sides by the coefficient of the variable (3) to isolate the variable: y = 7.

Once again we plug the solution back into the formula to check our work: 3(7) - 11 = 10. Since this fits, our solution

must be correct.

Problem #3: The product of a six and one more than a number is 30. What is the number?

1. It was determined in the earlier section that the equation for this problem is 6(z + 1) = 30. Since we

have a term in parentheses, we must simplify it.

2. Simplify the term in parentheses by multiplying the constant (6) by the terms in the parentheses (z +

1): 6z + 6 = 30.

3. Subtract the constant (6) from both sides to isolate the term with the variable: 6z = 24.

4. Divide both sides by the coefficient of the variable (6) to isolate the variable: z = 4.

If we plug the solution we found back into the formula we can check our work: 6(4 + 1) = 30. Since this fits, our

solution must be correct.

Problem #4: An even number less half of the next consecutive even number totals 8. What is the number?

1. It was determined earlier that the proper equation for this problem is x – [(x + 2)/2] = 8.

Since we have a term in parentheses and brackets, we must simplify it.

2. Remove the brackets by multiplying all terms by 2: 2x – (x + 2) = 16.

Remove the parentheses by applying the negative sign to all terms in them: 2x – x – 2 = 16. Combine

like terms of the variable (2x and –x): x – 2 = 16.

3. Remove the negative constant (-2) by adding 2 to each side: x = 18.

Finally, if we plug the solution back into the formula we can check our work: 18 – [(18 + 2)/2] = 8. Since this fits,

our solution must be correct.

Problem #5: Mr. Smith invested $10,000. Part of the money went into a tech stock that was expected to

pay 20% annually. The remainder he put in a mutual fund that was expected to earn 15% per year. The

expected annual income for the total $10,000 investment was $1,850. How much money did Mr. Smith

invest in each asset?

1. It was determined that the proper equation for this problem is .2x + .15(10,000 – x) = 1,850. Since we

have a term in parentheses, we must simplify it.

2. Remove the parentheses by multiplying the terms inside by .15: .2x + 1,500 - .15x = 1,850. Combine

like terms of the variable (.2x and -.15x): .05x + 1,500 = 1,850.

3. Remove the positive constant (1,500) by subtracting it from each side: .05x = 350.

4. Divide both sides by the coefficient (.05) to isolate the variable: x = 7,000.

This means that $7,000 of the $10,000 invested went into tech stocks and (10,000 – 7,000), or $3,000, went into the

mutual fund. If we plug these figures into our equation we find: .2(7,000) + .15(3,000) = 1,400 + 450 = 1,850. Since

this fits, our solution must be correct.

Notice how after solving each problem we have double-checked our work by plugging our answers back into the

formula to see if it fits. We will not be doing this in future examples, but it is a habit worth developing. As long as

there is time, the complex word problems you find in finance are worth double-checking. Don’t jeopardize your

ability to finish the exam on time, but if the time is available, use it.

Not every word problem you face will require these algebraic manipulations – sometimes the construction and

solution of the equation are straightforward. You will not see many of those problems in this text, because the focus

is on the more difficult problems, but one will occasionally arise. Other problems will require you to go through
other contortions even before you get to the algebraic manipulations. You will see quite a few of those here; they

can be particularly effective learning tools.

There is one more technique that you will need to be aware of to solve word problems in finance, and that is the

method for inverting fractions. The inverse of a fraction is referred to as the reciprocal of that fraction. You will

come across problems where you are given one fraction, but need to invert it in order to derive another fraction or

number. The way to invert a fraction is simple: divide it into 1. For example, if you have the fraction 2/3, and you

wish to invert it, you must divide it into 1:

1 ÷ 2/3 = 1/2/3 = 3/2

In essence, dividing the fraction into 1 pushes the denominator out of the bottom of the original fraction and onto the

top, thus changing it from the denominator to the numerator. This can be easily verified by converting the fraction

into a decimal and repeating the procedure:

1 ÷ 0.667 = 1.499 ≈ 3/2

Thus any time you need to invert a fraction or a decimal, just divide it into 1. If it is in fraction form, you may first

convert it into decimal form and then divide it into 1.