Mathematics for Public Policy

Fall 2020
Problem Set #2

Question 1
Find the sum of the first n terms of the followings.
1 1 1
(1) 1, 4, 7, · · · (2) 12 , 32 , 52 , · · · (3); 1 + , 2 + , 3 + , · · ·
2 4 8
Question 2
Find the following series.
n
X n
X n
X n
X
(1) (3k − 4) (2) (6k 2 − 4k + 2) (3) 2k (4); 3k−1
k=1 k=1 k=1 k=1
n ∞ n n k
!
X X X X X
(5) 21−k (6)∗ 21−k (7) k(n − k + 1) (8) i
k=1 k=1 k=1 k=1 i=1

Question 3
Find ak for all k = 1, 2, · · · for the following series:
n
X
Sn = ak = 3n2 − 6n + 1.
k=1

Question 4
Consider the continuously compounded interest rate with annual interest rate r ∈ (0, 1). Suppose
that P0 is invested in year 0. You want to get P1 in some future year.
(1) How long do you have to wait until you can get P1 ?
(2) Suppose that annual interest rate doubles. How long do you have to wait until you can get P1 ?

Question 5
Consider the situation where you have an opportunity to invest into a project in current period
t = 1. If you invest, you pay the initial cost of c > 0 in period t = 1 with no cost in the future
periods, and you obtain the constant payoff π > 0 in every period. Let δ ∈ (0, 1) denote the
discount factor. Then, the present value of your payoffs from the project is given by:
∞
X
π + δπ + δ 2 π + δ 3 π + · · · = π δ t−1 .
t=1

(1) Find the critical payoff π ∗ such that the project should be implemented if π > π ∗ and the
project should not implemented if π < π ∗ . The critical payoff π ∗ can be represented as a function
of c and δ.
(2) Suppose that your discount factor δ declines, i.e., you suddenly become more myopic. What
happens on the critical payoff π ∗ ?
(3) Suppose that the initial cost c rises. What happens on the critical payoff π ∗ ?