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Quiz 02 C

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7 views

Quiz 02 C

Uploaded by

makolwasinazoh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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UNIVERSITY OF THE W I T W AT E R S R A N D, J O H A N N E S B U R G

School of Computer Science and Applied Mathematics

PHYS1034
Applied Physics: Mathematical Modeling

Quiz-2-C

n
Date: 2022-10-06 Student Number:

Question 1

io (10 Points)
A few years ago a couple purchased an office space by financing RA for n years, paying periodic
installment of Rp with an interest of r % compounded bimonthly (every 2 months). They have
made t payments and wish to know how much they owe on the mortgage at the end of t payments,
ut
which they are considering paying off with an inheritance they received.

1. Construct a mathematical model to illustrate the value owed on the loan after t payments.

2. Give an explicit formula for computing the current balance on the loan account after n
periods.

3. If the couple signed the contract by financing R80000 for 10 years, paying periodic
l
installments of R1880 with an interest of 18% compounded binmonthly. What is the
current value on the mortgage after 6 months?
So

Solution 1 (10 Points)


We construct a discrete economic model using first order difference equation (recurrence relation)
since the interest and payments are made in discrete time steps.

1. Let a n be a sequence that represents the amount owed on the loan after n periods. The
value, A, of the loan financed for the office space will be the initial condition, so,

a 0 = A. Ø
The interest is compounded bimonthly, so for each period, the new interest is r6 % of the
previous period account balance (value).
r
new interest = an Ø
600
The change in the amount owed each period increases by the amount of interest and
decreases by the amount of the payment. Hence, the mathematical model for the amount
owed on the loan at the end of each period is
r
a n+1 − a n = − p Ø
| {z } 600 |{z}
change in periodic balance periodic installments
|{z}
amount accumulated from interest

More simply,
r
a n+1 = a n +
an − p , where a 0 = A,
600
or, even simpler yet (after a little algebra)
 r 
a n+1 = 1 + a n − p , where a 0 = A. Ø
600

2. To give the formula, we start at a 0 and iterate the sequence to a n .

a0 = A
 r 
a1 = 1 + a0 − p
 600r 
= A 1+ −p Ø
600
 r 
a2 = 1 + a1 − p
600
 r 2  r 
= A 1+ − 1+ p −p Ø
600 600
 r 
a3 = 1 + a2 − p
600
 r 3  r 2  r 
= A 1+ −p 1+ −p 1+ −p Ø
600 600 600
..
.
 r n  r n−1  r 
an = A 1 + −p 1+ − ... − p 1 + −p
600 600 600
r n r n−1 r 
    ‹
= A 1+ − p 1+ + ... + p 1 + +p
600 600 600
n−1
 r n X  r k
= A 1+ − p 1+ Ø
600 k =0
600

3. Substituting the values A = 80000, r = 18 and p = 1880 into the formula obtained in
point 2 above and using the fact that the interest is compounded bimonthly, we have that
n = 12
6
× 6 = 3, hence
2
18 3 X 18 k
 ‹  ‹
a 3 = 80000 1 + − 1880 1 + Ø
600 k =0
600
3 3
 ‹  
= 80000 1 + − 1880 1 + (1.03) + (1.03)2
100
= 87418.16 − (1880 + 1936.4 + 1994.49)
= 81607.27 Ø

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