MATH 101 ASSIGNMENT 4

1. In the last assignment you reflected on how to approach a difficult problem. Another key component of
problem solving is to reflect on your solution after you have solved the problem and check if your answer
makes sense. Looking back on the previous three assignments, identify a specific problem in which you
could have checked that your answer made sense based on the other information in the assignment, your
answers to other questions in the assignment, or with any other tools at your disposal (Desmos, etc.). In
one or two paragraphs, describe some of the ways in which you could have checked (or did check) your
answer for this specific problem, as well as some of the ways that you check your answers to problems
in general.

The mortgage calculation we did in class can also be found as exercise 3.9.18 in Optimal, Integral, Likely.
2. In class, when we computed a mortgage, we set P (n) to be the amount owed on the loan after n months,
and approximated the nth payment to principal as −P ′ (n). At that point in the course, we didn’t have
the tools to compute geometric sums. Now that we do, we can re-investigate our mortgage model.
Let $P be the initial loan, and let r be the monthly interest rate. Suppose you pay off your loan over
the course of N months.
(a) Interpret the system of equations below in terms of the model.

rP + k1
= r(P − k1 ) + k2
= r(P − k1 − k2 ) + k3
= ···
= r(P − k1 − k2 − · · · − kn−1 ) + kn
= r(P − k1 − k2 − · · · − kn−1 − kn ) + kn+1
= ···

Your answer should include the interpretation of the two terms added in each line, and an expla-
nation of why the lines are all equal.
(b) Find kn+1 in terms of kn and r, using the system of equations in (a). (Assume 1 ≤ n + 1 ≤ N .)
(c) Find kn in terms of r and k1 , using your answer from (b). (Assume n ≤ N .)
N
X
(d) Interpret ki in terms of the model.
i=1
(e) Find the total monthly payment amount (interest plus principal) in terms of P , N , and r.
N
X 1 − rN +1
Hint: in small class 7, you saw a formula for geometric sums: rn = .
n=0
1−r
1/4
(f) In class, we set r = , P = 750, 000, and N = 300.
100
i. With these values of r, P , and N , what is the estimated monthly payment?
Use a calculator to evaluate your final answer, rounding to the nearest cent.
 ii. In class, we approximated the estimated monthly payment to be $3553.60. Using a mortgage
calculator online, determine which seems to fit actual practice better: $3553.60, or the value
from (f).
1
(Your calculator may ask for the yearly interest rate, which would be · 12 = 3 percent.)
4
3. Once again, suppose you take out a loan of P dollars, with monthly interest rate r.
Suppose also that your bank gives you the option to choose what you pay to principal each month.
You expect that your income will increase at a monthly rate of s, from a combination of cost-of-living
adjustments and seniority pay. You want to pay off your bank loan by making monthly payments
(interest plus principal) that increase in line with your overall income. That is, if you pay $M in interest
and principal one month, the next month you’ll pay $M (1 + s) in principal and interest.
(a) Set up a differential equation for P (n), the amount you owe n months after your loan is taken out.
Your equation should include M , s, r, P , P ′ , and n.

The differential equation in (a) is not separable, so we haven’t given you a way to solve it from scratch. (If
you continue learning about differential equations, you’ll probably learn how. Alternately, if you get used to
computer algebra systems, solving the DE is the part you can leave to a computer – coming up with the DE
in the first place is where a human is most needed.)
Using sums is pretty tricky here, so both methods we’ve talked about so far (differential equations and
geometric sums) come up short. So, as a third option for understanding this loan, let’s use a spreadsheet to
investigate one particular case.
1/4 1/3
Suppose P = 750, 000, r = , and s = . You want to pay off your loan in 300 months.
100 100
(b) First we’ll want to find M , the total payment to the bank in the first month. We’ll set up a
spreadsheet to keep track of things. A template is below. An arrow indicates that the contents of
a cell have been copy-pasted down the row.
A1-D1 are descriptions of the contents of their columns. You’ll be guessing different values of M ,
and storing them in cell E2. You’ll want to know how much debt is left after 300 months, so to
save on scrolling, P(300) is displayed in cell F2.
A B C D E F
1 n Total monthly payment Payment to principal P(n) M P(300)
2 0 n/a n/a 750 000
3 1
4 2 ↓ ↓ ↓
5 3 ↓ ↓ ↓
i. What should you write in cells B3, C3, and D3?
For this part, you do not have to justify your answer.
ii. You want column D to compute up to P (300). If you copy-paste row 3 down columns B, C,
and D, what cell will P (300) be computed in?
(To save on scrolling, write “=X” into cell F2, where X is the cell where P (300) is computed.)
For this part, you do not have to justify your answer.
iii. Play around with different values of M to make P (300) as close as possible to 0. To within one
cent, what is the best value of M ?
For this part, you do not have to justify your answer.
iv. Explain why M < 3556.58 makes intuitive sense.
(c) Use the spreadsheet to compute the amount of interest you pay this way.
(d) Do you pay more or less interest this way than with the type of mortgage in Question 2?