Lecture notes on Mathematics for business

VU TUAN ANH, MSA, CMA

I NTERNATIONAL UNIVERSITY, VNU-HCMC, VIETNAM
SEMESTER 1 2021-2022

9/19/2021 INTERNATIONAL UNIVERSITY, VNU-HCMC, VIETNAM Prepared by Vu Tuan Anh

Geometric series (một cấp số nhân)
At the end of this section you should be able to:
❑Recognise a geometric progression.
❑Evaluate a geometric series.
❑Calculate the total investment obtained from a
regular savings plan.
❑Calculate the instalments needed to repay a
loan.

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Geometric series (một cấp số nhân)
A Geometric progression is Any sequence in which terms are calculated by
multiplying their predecessor by a fixed number
Examples: 1000, -100, 10, -1,…..;
2, 4, 6, 8,……..
a, ar, , ar^2, ar^3,…..
A Geometric ratio (Công bội) is the ratio between two numbers in a geometric
sequence. >>> r = an+1/an
Examples: 1000, -100, 10, -1,…..→ Ratio: -1/10
2, 4, 6, 8,…….. →
a, ar, , ar^2, ar^3,….. → Ratio: r
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Geometric series (một cấp số nhân)
Examples:

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Geometric series (một cấp số nhân) -

➢A geometric series is the sum of the terms in a geometric sequence

➢2 + 6 + 18 + 54 + 162 + 486 = 728
➢It can be shown that the sum of the first n terms of a geometric progression in
which the first term is a, and the geometric ratio is r, is equal to

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Geometric series (một cấp số nhân) -

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Geometric series (một cấp số nhân) -
Application

➢Savings: Imagine simply one decides to invest regularly an equal amount of

money into a bank account in order to meet some future financial commitment.
This is sometimes referred to as a sinking fund!
➢ Loans: one needs an amount of money right now and decides to borrow it
from a bank. The loan is promised to pay back by a series of repayments (or, also
called, an annuity) made at equal time intervals. Such an annuity can be thought
of as the opposite of a sinking fund!

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Geometric series (một cấp số nhân) –
Savings Formula
Savings:

(1 + i )
n
−1
Vn = A (1 + i ) + A (1 + i ) + ... + A (1 + i ) = A (1 + i )
2 n

(1 + i)
n
−1
Vn = A (1 + i ) + A (1 + i ) + ... + A (1 + i )
2 n
=A
i

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 Geometric series (một cấp số nhân) –
Loan Formula
Loans:
1 − (1 + i )
−n

V0 = A (1 + i ) + A (1 + i ) + ... + A (1 + i )
−1 −2 −n
=A
i

1 − (1 + i )
−n

V0 = A + A (1 + i ) + A (1 + i ) + ... + A (1 + i ) = A (1 + i )
−1 −2 − ( n −1)

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Geometric series (một cấp số nhân) –
Application – Savings DO IT !!
Savings Examples:

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Geometric series (một cấp số nhân) –
Application – Loan
Loans Examples:

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Geometric series (một cấp số nhân) –
Application
Further Examples:

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Geometric series (một cấp số nhân) –
Application – DO IT !
Suppose an employee of a company is retiring and has the choice of
two benefit options under the company pension plan. Option A
consists of a guaranteed payment of $2100 at the end of each month
for 20 years. Alternatively, under option B, the employee receives a
lump-sum payment equal to the present value of the payments
described under option A.
(a) Find the sum of the payments under option A.
(b) Find the lump-sum payment under option B if it is determined
by using an interest rate of 6% compounded monthly. Round the
answer to the nearest dollar.

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Geometric series (một cấp số nhân) –
Application – DO IT !
A $245,000 mortgage for 25 years for a new home
is obtained at the rate of 9.2% compounded
monthly. Find
(a) the monthly payment, (b) the interest in the
first payment,
(c) the principal repaid in the first payment, and (d)
the finance charge.

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Geometric series (một cấp số nhân) –
Application – Key terms

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Investment appraisal
At the end of this section you should be able to:
❑ Calculate present values under discrete and continuous compounding.
❑ Use net present values to appraise investment projects.
❑ Calculate the internal rate of return.
❑ Calculate the present value of an annuity.
❑ Use discounting to compare investment projects.
❑ Calculate the present value of government securities.

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Investment appraisal

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Investment appraisal
Examples:

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Investment appraisal - Techniques
Present values are a useful way of appraising investment projects.
Net Present Values (NPV) is the difference the present value of the revenue and the present
value of the costs.
Internal rate of return (IRR) is the annual rate which, when applied to the initial outlay, yields the
same return as the project after the same number of years.
Rule for appraising investment projects:
➢A project is considered acceptable when NPV is positive (NPV > 0). (if 2 projects, pick project
with higher NPV)
➢A project is considered acceptable provided the IRR exceeds the market rate. In practice, other
factors such as risk need to be considered before a decision is made.

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Investment appraisal

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Investment appraisal

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Investment appraisal

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Investment appraisal

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Investment appraisal

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Investment appraisal

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Investment appraisal – DO IT !!!

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Homework
Please check on blackboard for suggested exercises !

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