Sigma Notation and Intro to Compounding Interest

Fall 2023, Week 1

MAT133
University of Toronto Mississauga

1/17
Question

How did you find the pre-class guided reading?

A. Straightforward.
B. Mostly good, but I need to fill in some gaps.
C. I understood some things, but not much.
D. I was completely lost.

2/17
Question
19
X
How many terms does the sum xk have?
k=5
A. 13
B. 14
C. 15
D. 16
E. 19

3/17
Question
7
X
Which of the below expressions is equal to 3j ?
j=3
7
X
A. 3j+3
j=0
5
X
B. 3j+3
j=1
4
X
C. 3j+3
j=0
8
1X j
D. 3
3
j=4

4/17
Question
10
X
Evaluate the sum (1 + r )k .
k=2
1 − (1 + r )8
 
A. (1 + r )2
−r
1 − (1 + r )9
 
B. (1 + r ) 2
−r
1 − (1 + r )10
 
C. (1 + r ) 2
−r
1 − (1 + r )11
 
D. (1 + r ) 2
−r

5/17
Question
∞ ∞
X 1 X
We know that if |r | < 1 then rk = . In this case, what is rk?
1−r
k=0 k=1
1
A.
1+r
r2
B.
1+r
1
C.
1 − r2
r
D.
1−r

6/17
Question
∞ ∞
X r X
If we know that rk = when |r | < 1, then what is r 2k+3 ?
1−r
k=1 k=1

r r3
A. D.
1 − r2 1 − r2
r5 r
B. E.
1 − r2 1 − r4
r3
C.
1−r

7/17
Recap: Sigma Notation and Geometric Series

▶ Geometric series are sums where there is a common ratio between successive
terms.
n
X 1 − r n+1
▶ Basic formula for finite geometric series: rk = ,
1−r
k=0
n n)
X r (1 − r
rk =
1−r
k=1
∞
X 1
▶ Basic formula for infinite geometric series: rk = if |r | < 1
1−r
k=0
▶ Note: Make sure your series matches the required form when applying the
formulas above.

8/17
Practice
20
X
7j + 2 · 6j−2


▶ Evaluate the sum
j=12
∞ 
X 
▶ Does the sum 23k · 3−2k converge? If yes, find its sum.
k=3

9/17
Question

Suppose that an investment with simple interest doubles every time period. What is its
interest rate?
A. r = 1
B. r = 2
C. r = 100
D. r = 200

10/17
Question

Paula deposits N dollars into an account earning interest at a rate r compounded

monthly, while on the same day Srishti deposits 2N dollars into another account
earning interest under the same terms. After two years they each withdraw the
balance. Which of the following statements are true?
A. Srishti has exactly twice the amount that Paula has.
B. Srishti has more than twice the amount that Paula has.
C. Srishti has less than twice the amount that Paula has.
D. The answer depends on N or r .

11/17
Question

Suppose that you invest $1000 in an account A that compounds 1% monthly for six
months, and then 3% monthly for six months, and $1000 in an account B that
compounds 2% for twelve months. Which account has more money at the end of the
year?
A. A > B.
B. B > A.
C. A = B.
D. There’s no way to tell.

12/17
Question

Suppose that your account has $8, and then a week later $12, and two weeks later
$18. At what rate is the interest rate r of your account?
A. r = 0.5
B. r = 1.5
2
C. r = 3
D. There is not enough information to determine r .

13/17
Question

Suppose an investment pays out at a rate r at the end of the first week, and a rate 2r
at the end of the second week. Thereafter, the interest repeats this cycle, paying out r
and 2r in the following weeks. If a principal P is invested on the first day of the week,
what is the value of the account after five weeks?
A. P(1 + r )5
B. P(1 + r )5 (1 + 2r )5
C. P(1 + r )3 (1 + 2r )2
D. P(1 + r )(1 + 2r )(1 + 3r )(1 + 4r )(1 + 5r )

14/17
Question

Consider a principal P invested in the following two Schemes:

I. Compounding at a rate 2% at the end of each week for 3 weeks, then
compounding at a rate 10% at the end of each week for 3 weeks.
II. Compounding at a rate 2% at the end of the week, then compounding at a rate
10% at the end of the week. The cycle then resets, and continues for a total of 6
weeks.
Which statement is true?
A. Scheme I returns more money.
B. Scheme II returns more money.
C. Both schemes return the same amount of money.
D. We need to know what P is to answer the question.

15/17
Recap: Compound Interest

▶ The basic compound interest formula is S = P(1 + r ), where P is the initial

investment (principal), r is the interest rate, and S is the amount the principal
grows to after one period.
▶ For multiple compounding periods, the corresponding multiplier is (1 + r )N where
N is the number of compounding periods: S = P(1 + r )N .
▶ You should be able to understand how the formula works, and possibly solve for
another unknown quantity in the equation. (For example, solving for the value of
P that will give a particular amount S given a rate r .)
▶ Pay close attention to the different interest rates and/or terms given in a problem!

Note: You will not be allowed to use calculators during term tests and the final exam.
Instead, you will be expected to leave your answer in calculator-ready form.

16/17
Practice

The local bank is currently offering a new investment product, where deposits earn
interest according to the following scheme:
▶ An interest rate of r is applied on the 15th day of each month.
▶ A bonus interest rate of t is applied on the 30th day of every odd month. (Jan,
Mar, May, July, Sept, Nov)
Suppose that you deposit an amount of P dollars into the account twice: on January 1
and August 1 in 2023. If you want the value of your investment to be S by April 30,
2024, express P in terms of S, r , and t.

17/17