B2 FORMULA SHEET MIDTERM @RSHEETSESCP B2 FORMULA SHEET MIDTERM @RSHEETSESCP

1. ∑ 450
m=3 (8m − 4)
4. Evaluate the given sum Partial sum Sk of S is : IMPLICIT DIFFERENTIATION - Differentiation
n n (n + 1)(2n + 1)
SEQUENCES AND SUMMATION NOTATION

The bounds of the summation are 3

n2 = k (k − 1) y2 + y = l n x
and 450, the index of the summation is ∑ 6 Sk = k ⋅ b + a Differentiate :
n=1 2 1
m
→ 2y y′ + y′ = (Differentiate both sides and collect all y’ on one f (x) = k u f′(x) = k u′
100 3k 2 − 200k 3 100 2 200 100 Geometric series : x
2. Express the given sums in ∞
∑ 101 ∑ 101 ∑
= k − k
101 c with cn = a ⋅ r n−1 side)
∑ n
S =
summation notation
5
k =1 k =1 k =1
n=1 1 f (x) = u + v f′(x) = u′ + v′
1+8+27+64+125 ➢ ∑ n 3=225 3 (100)(101)(201) 200 100 ⋅ 101 S is convergent if -1 < r < 1(or |r| → y′(2y + 1) = (Factorise by y’)
1
= ⋅ − ⋅ x
101 6 101 2 <1) 1 1 1 1
n(n + 1) 2 f (x) = u × v f′(x) = u′v + u v′ product
( )
Formula : ∑nn=1 n 3 = The partial sum Sk for geometric → y′( )= ⋅ → y′ = (Resolve)
2 = 10050 − 10000 = 50 2y + 1 x 2y + 1 x (2y + 1)
series: rule
a (1 − r k )
3. Evaluate the given sum 5. Evaluate the given sum Sk = , If S is convergent Find the slope of the curve at the point (0,2)
n
n (n + 1) l l 1−r
a Equation : (x 2 + y 2 )2 = 4y 2 1 u′
Formula used : ∑ n = ∑
C ⋅ an = C ⋅
∑ n
a then S = f (x) = f′(x) = −
n=1
2
n=k n=k
1−r
- If the exponent of the first term 2(x 2 + y 2 )(2x + 2y y′) = 8y y′ → we divide everything by 2 u u2
200 200 200
a r (1 − r k ) (x 2 + y 2 )(x + y y′) = 4y y′ → u
∑
k − 100 =
∑
k − 100
∑
1 100
∑(
2
k )2
1 100
( 100 )) 50 ∑
2 2
k )2 ) is diff from 0 → Sk =
x 3 + x 2 y y′ + y 2 x + y 2 y y′ − 4y y′ = 0 f (x) = u′v − v′u
f′(x) =
4−( = (4 − (
n=1 n=1 n=1 100 100 1−r
=
200(201)
− 100 ⋅ 200 = 100
k =1 100
1 100
1 1
k =1
2 1 100(101)(201) 13233
−x 3 − y 2 x v v2
→ y′(x 2 y + y 2 y − 4y) = − x 3 − y 2 x → y′ =
k2 =
∑ ∑
= ⋅4 1− ( ) 100 − ⋅ =
2 50 k=1
50 2500 k=1 25 125000 6 2500

x 2 y + y 2 y − 4y
−x (x 2 + y 2 ) y = (ln x) 1
8. A trust fund is being set up by a single
→ y′ y′ = f or x > 0
1. Find the compound amount (a) and must be deposited now so that the
payment so that at the end of 20 years
there will be 25 000$ in the fund. If
Find the present value of an annuity of
100$ per month for 3.5 years at an y (x 2 + y 2 − 4) x
the compound interest (b) account contains exactly 12000€ at the interest compounded continuously at an interest rate of 6% compounded monthly.
750€ for 12 months at an effective rate
of 7%
end of the year ?
P = S (1 + r )−n
annual rate of 7%, how much money
should be paid into the fund initially? 1 − (1 + r )−n
Find the rate of change of q with respect to P y = (a × f ) y′ = a × f′
a) 750(1.07)12 = 802.5 We want the present value of 25 000$ due A =R P = 400 − q
b) 802.5 − 750 = 52.5 0.071 −2 in 20 years. r
1 1 1 y = loga(x) 1
P = 12000(1 + ) = 11191.31 y′ =
PV UNDER CONTINOUS

2 0.06 P′ = 0 − q′ → 1 = − q′ → q′ =
P = S e −r t rperiodic = = 0.005 and 2 q 2 q −
1 ln(a) × x′

PRESENT VALUE (A or P) OF AN ANNUITY

2 . F i n d t h e e ff e c t i v e r a t e t h a t 6. A debt of $7000 due in five years is
INTEREST

correspond to the given nominal rate. to be repaid by a payment of $3000 P = 25000𝑒−(0.07)(20) ≈ 6165 $ 12 2 q
r n now and a second payment at the end n = 3.5 ⋅ 12 = 42
re = (1 +
n
) −1 of five years. How much should the 9. If $100 is invested at an annual rate of −2 q y = ( f (g)) y′ = ( f (g))′ × (g)′
second payment be if the interest rate 5% compounded continuously, find the 1 − (1.005)−42 = 1( ) → q′ = − 2 q
MATHEMATICS FOR FINANCE

For 5% compounded quarterly

0.05 4
is 8% compounded monthlv? compound amount at the end of 4 years. Therefore A = 100 ⋅ = 1 c
(
re = 1 +
4 )
− 1 ≈ 0.05095 ≈ 5.095 %
37798.83
0.005
y = ln(a ) y′ = c × ln(a)
S = P er t Find the Marginal Propensity to consume :
u
y′ = e u ⋅ u′
CONTINUOUSLY

y =e
COMPOUNDED

Note : A nominal rate compounded A = 3779.83$ A country's savings S is defined implicitly in terms of its national
yearly is the same as the effective 100e (0.05)(4) ≈ 122.14 1
rate ! income I by the equation : S 2 + I 2 = S I + I
10. Note : Effective rate with annual rate r
compounded continuously is :
A 4 y = bu y′ = b u(ln b)′
2. Find how many years it would take Payment R = Find the Marginal Propensity to consume when I = 16 and S = 12
to double a principal at the given re = e r − 1 1 − (1 + r)−n
effective rate of 5% r S′ = 2SS′ + 0.5I = S′I + S + 1
2P = P (1.05) n → n =
ln2 11. Find S consisting of payments of 70$ Because we derive (S I) using : U′V + U V′, going back to our equat°
AMORTIZAT° OF
≈ 14 years at the end of every 3 months for 3 years at A loan is an Annuity, the payment R is
l n (1.05) constant 2SS′ − S′ I = − 0.5I + S + 1
LOAANS
6% compounded quarterly. Also, find the HIGHER ORDER DERIVATIVES
3. Find how many years it would take
7. Year 1 : 10000, Year 2 : 13000, Year
compound interest. S′(2S − I ) = − 0.5I + S + 1
for money to triple at principal at the
3 : 25000. (1 + r ) n − 1 −0.5I + S + 1
given effective rate of r
You can invest $50 000 in a business S =R ≡ R ⋅ s (n , r ) A perpetuity is an infinite sequence of S′ = and by replacing I and S by 16 and 12 it gives
ln3 2S − I
FUTURE VALUE (S) OF AN ANNUITY

that guarantees you cash flows at the r payments made at fixed periods of time.
n = S 3
l n (1 + r ) end of years 2, 3, and 5 as indicated in R =
R = 0.375
the table. (1 + r) n − 1
4. Find the nominal rate of Interest Assume an interest rate of 6% r A=
r
8
compounded quarterly for P= 700 and compounded annually and find the net
PERPETUITIES

S = 801.06 present value of the cash flows. Is the We have R = 70 An amount of 2 500€ will be given to a
investment interesting? n = 4 ⋅ 3 = 12, policyholder every year for the rest of his
LOGARITHMIC DIFFERENTIATION
S = P (1 + r ) n NPV = rperiodic =
0.06
= 0.015
life. Assuming a constant annual interest
r r 4 rate equal 2%, what is the corresponding
801.06 = 700(1 + )8 → 1 + = 8 801.06700
∑
P v a l u e s − Initial Investment
r 801.06
4 4
801.06
S = 50 ⋅ s (12; 0.015) present value?
Find y’ by using log. Diff : y = (3x + 4)(8x − 1)2 (3x 2 + 1)4
4
=8
700
− 1 → r = 48
700
− 1 → r ≈ 6.8 % 10000(1.06)−2 + 13000(1.06)−3 + 25000(1.06)−5 − 50000 = − 11503.53
(1 + 0.015)12 − 1 10000
= 70 ⋅ = 912.88 r = 0.02 so A = = 125000€
5. A bank account pays 7.1%
If = NPV > 0, then the investment is 0.015
Compound interest = 0.02 l n y = l n (3x + 4) + 2l n (8x − 1) + 4l n (3x 2 + 1)
profitable; if NPV < 0, the investment is y′ 3⋅1 2⋅8 4 ⋅ 6x
compound semi-annually. How much 912.88 − 12 ⋅ 70 = 72.88
not profitable as it is the case here. It is the present value of the perpetuity = + + →
y 3x + 4 8x − 1 3x 2 + 1

( 3x + 4 3x 2 + 1 )
3 16 24x
y′ = y + +
8x − 1
ELASTICITY OF DEMAND Don’t forget to remplace y by the full expression !

When | 𝜂 | > 1, demand is elastic

When | 𝜂 | = 1, demand has unit-elasticity
Find an equation of the tangent line to the graph (at the point where

When | 𝜂 | < 1, demand is inelastic

x = 1)
y = xx
y′ 1
Find the point elasticity of the demand equations lny = xln x → = x ⋅ + ln x = 1 + ln x →
for the indicated values of q or p and determine if
demand is elastic, inelastic or has unit elasticity
y x
FOR THE FOLLOWING WE NEED THE SECOND DERIVATIVE
For what value (or values) of q do the following demand y′ = y ⋅ (1 + l n x) Find how fast is marginal revenue changing : (when q = 4)
p = 10 − 0.04q ; q = 100 equations have unit elasticity? x 1
y′ = x (1 + l n x) → 1 (1 + l n (1)) = 1 And an equation of the P = 400 − 40q − q 2
tangent line is y=x
p′ = − 0.04 → Revenue = P ⋅ Q → q (400 − 40q − q 2 ) = 400q − 40q − q 3
p (100) = 10 − 0.04 ⋅ 100 = 10 − 4 = 6 And then we derivate twice :
p 6 R′ = − 400 − 80q − 3q 2 → R′′ = − 80 − 6q
𝜂 = 100 = − 1.5 → | 𝜂 | > 1,
q Find the corresponding percentage change in revenue for a
= specific increase or decrease of the price : (for an increase in price So when q= 4 → −80 − 6 ⋅ 4 = − 104 rate of change is -104
p′ −0.04 of 0.5% having an initial price of 15 )
demand is elastic
Find how fast is marginal cost changing (when q = 97.357):
q = 500 − 40p + p 2 → q′ = − 40 + 2p C = 0.2q 2 + 2q + 500 → C′′ = 0.4q + 2 → C′′ = 0.4
𝜂= ⋅ q′ → 𝜂 =
p p
⋅ (−40 + 2p) = − 1.2 Here we do not even need to plug q to find the rate of change ! It’s
q 500 − 40p + p 2 0.4
Change in Rev. : (1-𝜂)0.5% → (1-1.2)0.5 = −0.1→ A 0.1 decrease in
Rev.
FUNDAMENTALS OF MATHEMATICS II -
FORMULA SHEET
Sequences and series Series & sums
Series Partial sum
Properties of summation notation Specific summations

Arithmetic series Geometric series

Series Series

Partial sum Partial sum

*an arithmetic sequence is

always convergent
Mathematics of finance Equation of value
Balances the accumulated and present values of the payments
Compound interest made at different time points. Total amount to be paid on one
Future value side, and series of payments on the other. ESCP Europe Business School - MA22: Fundamental of mathematics 2 ESCP Europe Business School - MA22: Fundamental of mathematics 2

Ex:
START OF EXAMINATION PAPER Question 3 (4 marks):
The demand function of a product is:
t: number of years S: future value
n: interest periods per year P; principal Remarkable and special series Question 1 (4 marks): 𝑝=
1
𝑞 2 +3
(defined for q ∈ [0, ∞)).
N=n*t r: periodic rate = (nominal rate/ Find the value of the following sums (whenever they are finite): Determine the point elasticity for p=0.25 and classify the elasticity of demand as elastic,
number of interest periods per year) ∞ 20 ∞ inelastic or unit elasticity at this level of price.
4𝑛+1 3 + 2𝑙
Present value Effective rate ∑
5𝑛
∑ (2𝑘 − 3) ∑(
𝑙
) 1
𝑛=0 𝑘=10 𝑙=10 𝑞 3 + 3𝑞 𝑞2 + 3
𝜂= =−
∞ ∞ −2𝑞 2𝑞 2
4𝑛+1 4𝑛 1
∑ 𝑛 = 4∑ 𝑛 = 4 = 20 (𝑞 2 + 3)2

Differentiation
If compounded monthly (12 times per year) with a 5 5 4
𝑛=0 𝑛=0 1−
5 1
nominal rate of 2.5%, r. =0.025/12= 0.00208 20 11 11 𝑝 = 0.25 ⟹ = 0.25 ⟹ 𝑞 = 1 ⟹ 𝜂 = −2 ⟹ |𝜂| = 2: 𝑒𝑙𝑎𝑠𝑡𝑖𝑐
11 ∙ 12 𝑞2 + 3
Net present value ∑ (2𝑘 − 3) = ∑[2(𝑘 + 9) − 3] = ∑[2𝑘 + 15] = 2 + 11 ∙ 15 = 297

Interest compounded continuously

2
(NPV)=Sum of present values of future revenues Exponents - key properties 𝑘=10
∞

∑(
3 + 2𝑙 1
)= 3∑ + ∑2 =∞
𝑘=1
∞ ∞
𝑘=1

Question 4 (4 marks):
Continuously Effective rate Present value under – Initial investment
𝑙=10
𝑙
⏟𝑙=10
𝑙
⏟
𝑙=10 Find the slope of the curve 𝑦 − √𝑦𝑥 2 − 𝑥 3 = 3 (eq1) at the point (1;5)
compounding interest continuous interest Ex: 𝑑𝑖𝑣𝑒𝑟𝑔𝑒𝑛𝑡 𝑑𝑖𝑣𝑒𝑟𝑔𝑒𝑛𝑡
𝑑 𝑑
Find the range of p such that the following sum is convergent:
(𝑦 − √𝑦𝑥 2 − 𝑥 3 ) = 3=0
𝑑𝑥 𝑑𝑥
𝑑𝑦 1 1 𝑑
∞
𝑝+2 𝑘 − (𝑦𝑥 2 − 𝑥 3 ) = 0
Perpetuities ∑(
𝑘=0
3𝑝 − 2
)
𝑑𝑦 1 1 𝑑𝑦
𝑑𝑥 2 √𝑦𝑥 2 − 𝑥 3 𝑑𝑥

An infinite sequence of payments made at fixed − ( 𝑥 2 + 2𝑦𝑥 − 3𝑥 2 ) = 0 (𝑠𝑖𝑛𝑐𝑒 (𝑒𝑞1) 𝑔𝑖𝑣𝑒𝑠 √𝑦𝑥 2 − 𝑥 3 = 𝑦 − 3)
𝑑𝑥 2 (𝑦 − 3) 𝑑𝑥
periods of time. Convergent when
𝑝+2 𝑝+2 𝑑𝑦 1 𝑥2 1 2𝑦𝑥 − 3𝑥 2
| | < 1 ⇔ −1 < <1 (1 − )− =0
3𝑝 − 2 3𝑝 − 2 𝑑𝑥 2 (𝑦 − 3) 2 (𝑦 − 3)
𝑝+2 4𝑝 2 𝑑𝑦 2(𝑦 − 3)−𝑥 2 1 2𝑦𝑥 − 3𝑥 2
−1 < ⇔ > 0 ⟹ 𝑝 ∈ (−∞, 0) ∪ ( , ∞) ( )=
Annuities
3𝑝 − 2 3𝑝 − 2 3 𝑑𝑥 2(𝑦 − 3) 2 (𝑦 − 3)
𝑝+2 −2𝑝 + 4 2

A finite sequence of payments made at fixed periods of time (payment periods) over a given interval (term of the annuity). Logarithms - key properties 3𝑝 − 2
<1⇔
3𝑝 − 2
⟹ 𝑝 ∈ (−∞, 0) ∪ (2, ∞)
> 0 ⟹ 𝑝 ∈ (−∞, ) ∪ (2, ∞)
3
𝑑𝑦
=
2𝑦𝑥 − 3𝑥 2
=
2𝑦𝑥 − 3𝑥 2
𝑑𝑥 2(𝑦 − 3)−𝑥 2 2𝑦 − 6−𝑥 2
Ordinary annuity: paid at end of period (i.e. mortgages); annuity due: paid at start of period (i.e. rent). 𝑑𝑦 7
| =
𝑑𝑥 𝑥=1 3
Question 2 (4 marks):
Present value Future value 𝑑𝑦 Question 5 (4 marks):
Find by logarithmic differentiation if:
𝑑𝑥
𝑑2 𝑦
Find y’’ (that is, ) for:
(2𝑥 − 3)(𝑥 + 5)3 𝑑𝑥 2
𝑦= 5 𝑦 = (𝑥 + 1) ∙ 𝑒 (𝑥 +1)
2
√2𝑥 5 + 1
Amortisation of loans 1 𝑦 ′ = 𝑒 (𝑥
2 +1) 2
+ 2𝑥 ∙ (𝑥 + 1) ∙ 𝑒 (𝑥 +1)
A loan is an annuity, with a constant payment R. ln 𝑦 = ln(2𝑥 − 3) + 3 ln(𝑥 + 5) − ln(2𝑥 5 + 1) 2 +1) 2 +1) 2 +1) ′
5 𝑦 ′′ = 2𝑥 ∙ 𝑒 (𝑥 + 2(𝑥 + 1) ∙ 𝑒 (𝑥 + 2𝑥[(𝑥 + 1) ∙ 𝑒 (𝑥 ]
Payment R = interest on the outstanding loan + repayment of part of the loan. 2 +1) 2 +1)
𝑦′ 2 3 1 10𝑥 4 = 2𝑥 ∙ 𝑒 (𝑥 + 2(𝑥 + 1) ∙ 𝑒 (𝑥
A complete analysis of each payment is given in an amortization schedule. = + − (𝑥 2 +1) (𝑥 2 +1)
𝑦 2𝑥 − 3 𝑥 + 5 5 2𝑥 5 + 1 + 2𝑥[𝑒 + 2𝑥(𝑥 + 1) ∙ 𝑒 ]
Amount of loan = annuity A 2 +1)
(2𝑥 − 3)(𝑥 + 5)3 2 3 2𝑥 4 = [2𝑥 + 2(𝑥 + 1) + 4𝑥 2 (𝑥 + 1)]𝑒 (𝑥
𝑦′ = [ + − ] 2
5
√2𝑥 5 + 1 2𝑥 − 3 𝑥 + 5 2𝑥 5 + 1 = (4𝑥 3 + 4𝑥 2 + 4𝑥 + 2)𝑒 (𝑥 +1)

END OF EXAMINATION PAPER

Differentiation rules Elasticity of demand Logarithmic differentiation

Consumer response to price change Simplifies differentiation when products, quotients or powers are involved
PED = (% change in price /
% change in quantity demanded)
When |PED|>1: demand is elastic
When |PED|=1: demand has unit elasticity
When |PED|<1: demand is inelastic

Implicit differentiation
A technique for differentiating functions when they are not in explicit form
(e.g., when y as function of x is expressed as an equation with x and y)

Derivatives of exponential functions

Derivatives of logarithmic functions