Hi,
I was going through the topic of geometric progression
related to compound interest problems yesterday with my
students and I saw yet another type of generalisation, which
may be helpful for students to learn about. We shall discuss three
cases.
Case 1 (one deposit): Suppose we deposit
$10 on the first day of the month and the bank pays compound
interest of 2% per month on the last day of each month. What is the
amount at the end of n months?
It is always helpful to tabulate with "Month", "Start" and "End"
columns to aid in arriving at a general formula. For the
convenience of typing, I will use a linear representation
instead.
Month: 1
Start: 10
End: 1.02(10)
Month: 2
Start: 1.02(10)
End: (1.02^2)(10)
Month: 3
Start: (1.02^2)(10)
End: (1.02^3)(10)
:
Month: n
End: (1.02^n)(10) <-- our desired answer!
Case 2 (multiple deposits): Suppose we deposit
$10 on the first day of the month and the bank pays compound
interest of 2% per month on the last day of each month. We put a
further $10 into the account on the first day of each subsequent
month. What is the amount at the end of n months?
Month: 1
Start: 10
End: 1.02(10)
Month: 2
Start: 1.02(10) + 10 <-- do not simplify
End: (1.02^2)(10) + 1.02(10)
Month: 3
Start: (1.02^2)(10) + 1.02(10) + 10
End: (1.02^3)(10) + (1.02^2)(10) + 1.02(10)
:
Month: n
End: (1.02^n)(10) + {1.02^(n - 1)}(10) + ...
+ 1.02(10) <-- our required answer, which is a GP sum.
Case 3 (multiple withdrawals): Suppose we
deposit $100,000 at the beginning of the year and the
bank pays compound interest of 10% per annum at
the end of each year. After the interest is credited,
we withdraw $12,000 immediately. We repeat the same
action of withdrawal for subsequent years. What is the
amount at the end of n withdrawals?
The column headings are "Year", "Start" and "End".
Year: 1
Start: 100,000
End: 1.1(100,000) - 12,000
Year: 2
Start: 1.1(100,000) - 12,000
End: (1.1^2)(100,000) - 1.1(12,000) - 12,000
Year: 3
Start: (1.1^2)(100,000) - 1.1(12,000) - 12,000
End: (1.1^3)(100,000) - (1.1^2)(12,000) - 1.1(12,000) - 12,000
:
Year: n
End: (1.1^n)(100,000) - {(1.1^(n -
1)}(12,000) - {1.1^(n - 2)}(12,000) - ... - 12,000, our
required amount. Notice that
- {(1.1^(n - 1)}(12,000) - {1.1^(n - 2)}(12,000) - ...
- 12,000 is a GP sum if we see it as
-12,000 {1.1^(n - 1) + 1.1^(n - 2) + ... +
1}.
Thank you.
Cheers,
Wen Shih