Lecture1 2

MATH 1003 Calculus and Linear Algebra (Lecture 1)
Weizhong Zhang
HKUST Mathematics Department
Weizhong Zhang (HKUST) MATH 1003 1 / 18

Outline
1 About MATH 1003
2 Mathematics of Finance
3 Simple Interest

Outline
1 About MATH 1003
3 Simple Interest

Outline
1 About MATH 1003
3 Simple Interest

About MATH 1003
About MATH 1003
Lecturer:
Weizhong Zhang (Office: Rm 3450. E-mail: weizhong@ust.hk)
Teaching assistants:
Ziyuan Yu and Xiaocong Xu
Textbook:
College Mathematics for Business, Economics, Life Sciences, and
Social Sciences (14th Edition), by Raymond A. Barnett, Michael R.
Ziegler and Karl E. Byleen
Acknowledgement:
Many thanks to Prof. Albert Ku for sharing me the materials of
this course.

About MATH 1003
About MATH 1003
Lecturer:
Textbook:
Acknowledgement:
this course.

About MATH 1003
About MATH 1003
Lecturer:
Textbook:
Acknowledgement:
this course.

About MATH 1003
About MATH 1003
Lecturer:
Textbook:
Acknowledgement:
this course.

About MATH 1003
Tentative Syllabus
Chapter 2. Mathematics of Finance (2.1-2.4)

Chapter 3. Systems of Linear Equations; Matrices (3.1-3.7)
Chapter 8. Limits and the Derivative (8.1, 8.2, 8.4-8.5)
Chapter 9. Additional Derivative Topics (9.1-9.6)
Chapter 10. Graphing and Optimization (10.1-10.2, 12.4-12.6)
Chapter 11. Integration (11.1-11.2, 11.4-11.6)
Chapter 12. Additional Integration Topics (12.1)

About MATH 1003
Tentative Syllabus


About MATH 1003
Tentative Syllabus


About MATH 1003
Tentative Syllabus


About MATH 1003
Tentative Syllabus


About MATH 1003
Tentative Syllabus


About MATH 1003
Tentative Syllabus


About MATH 1003
Grading Policy
Online homework (WeBWork) (10%)

Midterm Exam (30%) - Date: TBA
Final Exam (60%) - Date: TBA

About MATH 1003
Grading Policy


About MATH 1003
Grading Policy


About MATH 1003
Tutorials
Teaching assistant will mainly go over examples and problems during

tutorial sessions.
The first tutorial session will begin on the second week

About MATH 1003
Tutorials
Teaching assistant will mainly go over examples and problems during

tutorial sessions.
The first tutorial session will begin on the second week

Mathematics of Finance
In this course, we plan to cover the following:

Simple Interest


Simple Interest
Compound Interest


Simple Interest
Compound Interest
Future Value of an Annuity


Simple Interest
Compound Interest
Present Value of an Annuity


Simple Interest
Compound Interest


Simple Interest
Compound Interest

Simple Interest
Simple Interest
Definition
Let r be the (annual) interest rate. Suppose we invest/borrow a sum of
money P through a certain financial instrument, then after t years, the
amount you will receive/pay, A, is given by

Simple Interest
Simple Interest
Definition
A = P + I = P + Prt = P(1 + rt)

Simple Interest
Simple Interest
Definition
A = P + I = P + Prt = P(1 + rt)
where I is the amount of interest received/owed.

Simple Interest
Remark
In other words, interest rate is the percentage gain/loss of money
over a year (t = 1) due to a financial instrument:

Simple Interest
Remark
over a year (t = 1) due to a financial instrument:

Simple Interest
Remark
I
over a year (t = 1) due to a financial instrument: r = ⇥ 100%
P

Simple Interest
Remark
I
P
The principal, P, is often referred to as the present value and A as
the future value.

Simple Interest
Remark
I
P
the future value.
Future value is the future worth of a present sum of money given a
specified rate of return (interest rate). For example, if the annual
interest rate is 5%, the future value of $100 given to you now is worth

Simple Interest
Remark
I
P
the future value.

Simple Interest
Remark
I
P
the future value.
100(1 + 0.05) = $105 after one year.

Simple Interest
Remark
I
P
the future value.
100(1 + 0.05) = $105 after one year.
Present value is the present worth of a future sum of money given a
interest rate is 5%, the present value of $100 given to you after one
year is worth

Simple Interest
Remark
I
P
the future value.
100(1 + 0.05) = $105 after one year.
year is worth

Simple Interest
Remark
I
P
the future value.
100(1 + 0.05) = $105 after one year.
year is worth 100 ÷ (1 + 0.05) = $95.24 now.

Simple Interest
A Simple Example
Example
Find the total amount due on a loan of $1000 at 6% simple interest rate
at the end of

Simple Interest
A Simple Example
Example
at the end of
2 years;

Simple Interest
A Simple Example
Example
at the end of
2 years;
4 months.

Simple Interest
A Simple Example
Example
at the end of
2 years;
4 months.

Simple Interest
A Simple Example
Example
at the end of
2 years;
4 months.
Solution
6
A = P(1 + rt) = 1000(1 + ⇥ 2) = $1120
100

Simple Interest
A Simple Example
Example
at the end of
2 years;
4 months.
Solution
6
A = P(1 + rt) = 1000(1 + ⇥ 2) = $1120
100
6 4
A = P(1 + rt) = 1000(1 + ⇥ ) = $1020
100 12

Simple Interest
More Examples
Example
If you want to earn an annual rate of 20% on your investments, how much
should you pay for a note that will be worth $5000 in 9 months?

Simple Interest
More Examples
Example
Solution
20 9
5000 = P(1 + ⇥ )
100 12

Simple Interest
More Examples
Example
Solution
20 9
5000 = P(1 + ⇥ )
100 12
) P = $4347.8

Simple Interest
T-Bills
Example
T-bills (Treasury bill) are one of the instruments the U.S. Treasury
Department uses to finance the public debt. If you buy a 180-day T-bill
with a maturity value of $10000 for $9800, what annual simple interest
rate you will earn?

Simple Interest
T-Bills
Example
T-bills (Treasury bill) are one of the instruments the U.S. Treasury
Department uses to finance the public debt. If you buy a 180-day T-bill
with a maturity value of $10000 for $9800, what annual simple interest
rate you will earn?
Remark
For the conveninence of calculation, here one year is “defined” to be 360
days.

Simple Interest
Solution
We first have
A = P(1 + rt)

Simple Interest
Solution
We first have
A = P(1 + rt)
We notice that
180
A = 10000, P = 9800 and t =
360

Simple Interest
Solution
We first have
A = P(1 + rt)
We notice that
180
A = 10000, P = 9800 and t =
360
By substituting them into the equation above, we have
✓ ◆
180
10000 = 9800 1 + r ·
360

Simple Interest
Solution
We first have
A = P(1 + rt)
We notice that
180
A = 10000, P = 9800 and t =
360
By substituting them into the equation above, we have
✓ ◆
180
10000 = 9800 1 + r ·
360
) r = 0.0408 = 4.08%

Simple Interest
Interest Rate Earned on an Investment
Example
You sell an old car to our friend and accept a 270-day note for $3500 at
10% simple interest rate as payment. (Both principal and interest will be
paid at the end of 270 days.) Sixty days later you find that you need the
money and sell the note to a third party for $3550. What annual interest
rate will the third party receive for the investment?

Simple Interest
Solution
Analysis: For the third party, we have A = P(1 + rt) and we know
P = 3550. Therefore, we need to calculate the future value A and t first.

Simple Interest
Solution
The future value of the 270-day note

Simple Interest
Solution
✓ ◆
270
A = 3500 1 + 0.1 ⇥ = $3762.5
360

Simple Interest
Solution
✓ ◆
270
A = 3500 1 + 0.1 ⇥ = $3762.5
360
The third party bought the note from you for $3550 and then after
270 60 = 210 days, he/she will obtain $3762.5.

Simple Interest
Solution
✓ ◆
270
A = 3500 1 + 0.1 ⇥ = $3762.5
360
Let r be the annual interest rate for this investment. Then we have

Simple Interest
Solution
✓ ◆
270
A = 3500 1 + 0.1 ⇥ = $3762.5
360
✓ ◆
210
3762.5 = 3550 1 + r ·
360

Simple Interest
Solution
✓ ◆
270
A = 3500 1 + 0.1 ⇥ = $3762.5
360
✓ ◆
210
3762.5 = 3550 1 + r ·
360
) r = 0.1026 = 10.26%
Simple Interest
Stock Investments
Example
The brokerage firm charge commissions based on the amount of the trade.
The following table shows the commission schedule for one of these firms.

Simple Interest
Stock Investments
Example
Transaction Size Commission

$0-$2499 $29+1.6% of principal
$2500-$9999 $49+0.8% of principal
$10000+ $99+0.3% of principal

Simple Interest
Stock Investments
Example
Transaction Size Commission

$0-$2499 $29+1.6% of principal
$2500-$9999 $49+0.8% of principal
$10000+ $99+0.3% of principal
An investor purchases 50 shares of a stock at $47.52 per share. After 200

days, the investor sells the stock for $52.19 per share. Using the above
commission schedule, find the annual rate of interest earned by this
investment.

Simple Interest
Solution
Analyse: The principal P = values of stocks + commission.

Simple Interest
Solution

The values of 50 shares of stocks: 50 ⇥ 47.52 = $2376

Simple Interest
Solution

The commission for buying those 50 shares of stocks:
29 + 1.6% ⇥ 2376 = $67.02

Simple Interest
Solution

29 + 1.6% ⇥ 2376 = $67.02
Therefore, the total amount of investment is

P = 2376 + 67.02 = $2443.02.

Simple Interest
Solution

29 + 1.6% ⇥ 2376 = $67.02

P = 2376 + 67.02 = $2443.02.
Analyse: A = future value of the stocks - commission.

Simple Interest
Solution

29 + 1.6% ⇥ 2376 = $67.02

P = 2376 + 67.02 = $2443.02.

The values of 50 shares of stocks after 200 days: 50 ⇥ 52.19 = $2609.5

Simple Interest
Solution

29 + 1.6% ⇥ 2376 = $67.02

P = 2376 + 67.02 = $2443.02.

The commission for selling those 50 shares of stocks:
49 + 0.8% ⇥ 2609.5 = $69.88

Simple Interest
Solution

29 + 1.6% ⇥ 2376 = $67.02

P = 2376 + 67.02 = $2443.02.

The commission for selling those 50 shares of stocks:
49 + 0.8% ⇥ 2609.5 = $69.88
Therefore, the total amount of money obtained by selling stocks is

A= 2609.5 69.88 = $2539.62 MATH 1003
Weizhong Zhang (HKUST) 17 / 18
Simple Interest
Let r be the annual interest rate earned by this investment. Then we have

Simple Interest
✓ ◆
200
2539.62 = 2443.02 1 + r ·
360

Simple Interest
✓ ◆
200
2539.62 = 2443.02 1 + r ·
360
Solving, we get r = 0.0712 = 7.12%.

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MATH 1003 Calculus and Linear Algebra (Lecture 1)

HKUST Mathematics Department

Weizhong Zhang (HKUST) MATH 1003 1 / 18

1 About MATH 1003

Weizhong Zhang (HKUST) MATH 1003 2 / 18

1 About MATH 1003

Weizhong Zhang (HKUST) MATH 1003 2 / 18

1 About MATH 1003

Weizhong Zhang (HKUST) MATH 1003 2 / 18

About MATH 1003

Weizhong Zhang (HKUST) MATH 1003 3 / 18

About MATH 1003

Weizhong Zhang (HKUST) MATH 1003 3 / 18

About MATH 1003

Weizhong Zhang (HKUST) MATH 1003 3 / 18

About MATH 1003

Weizhong Zhang (HKUST) MATH 1003 3 / 18

Chapter 2. Mathematics of Finance (2.1-2.4)

Weizhong Zhang (HKUST) MATH 1003 4 / 18

Chapter 2. Mathematics of Finance (2.1-2.4)

Weizhong Zhang (HKUST) MATH 1003 4 / 18

Chapter 2. Mathematics of Finance (2.1-2.4)

Weizhong Zhang (HKUST) MATH 1003 4 / 18

Chapter 2. Mathematics of Finance (2.1-2.4)

Weizhong Zhang (HKUST) MATH 1003 4 / 18

Chapter 2. Mathematics of Finance (2.1-2.4)

Weizhong Zhang (HKUST) MATH 1003 4 / 18

Chapter 2. Mathematics of Finance (2.1-2.4)

Weizhong Zhang (HKUST) MATH 1003 4 / 18

Chapter 2. Mathematics of Finance (2.1-2.4)

Weizhong Zhang (HKUST) MATH 1003 4 / 18

Online homework (WeBWork) (10%)

Weizhong Zhang (HKUST) MATH 1003 5 / 18

Online homework (WeBWork) (10%)

Weizhong Zhang (HKUST) MATH 1003 5 / 18

Online homework (WeBWork) (10%)

Weizhong Zhang (HKUST) MATH 1003 5 / 18

Teaching assistant will mainly go over examples and problems during

Weizhong Zhang (HKUST) MATH 1003 6 / 18

Teaching assistant will mainly go over examples and problems during

Weizhong Zhang (HKUST) MATH 1003 6 / 18

In this course, we plan to cover the following:

Weizhong Zhang (HKUST) MATH 1003 7 / 18

In this course, we plan to cover the following:

Weizhong Zhang (HKUST) MATH 1003 7 / 18

In this course, we plan to cover the following:

Weizhong Zhang (HKUST) MATH 1003 7 / 18

In this course, we plan to cover the following:

Weizhong Zhang (HKUST) MATH 1003 7 / 18

In this course, we plan to cover the following:

Weizhong Zhang (HKUST) MATH 1003 7 / 18

In this course, we plan to cover the following:

Weizhong Zhang (HKUST) MATH 1003 7 / 18

Weizhong Zhang (HKUST) MATH 1003 8 / 18

A = P + I = P + Prt = P(1 + rt)

Weizhong Zhang (HKUST) MATH 1003 8 / 18

A = P + I = P + Prt = P(1 + rt)

where I is the amount of interest received/owed.

Weizhong Zhang (HKUST) MATH 1003 8 / 18

Weizhong Zhang (HKUST) MATH 1003 9 / 18

Weizhong Zhang (HKUST) MATH 1003 9 / 18

Weizhong Zhang (HKUST) MATH 1003 9 / 18

Weizhong Zhang (HKUST) MATH 1003 9 / 18