UNIT-V

Introduction to Financial Mathematics:

Progressions (or Sequences and Series) are numbers arranged in a particular order such that they
form a predictable order. By predictable order, we mean that given some numbers, we can find next
numbers in the series.
Arithmetic Progression (AP)

A sequence of numbers is called an arithmetic progression if the difference between any two
consecutive terms is always same. In simple terms, it means that next number in the series is
calculated by adding or subtracting a fixed number to the previous number in the series. This

fixed number is called the common difference.

For example, 2,4,6,8,10 is an AP because difference between any two consecutive terms in the series
(common difference) is same (4 – 2 = 6 – 4 = 8 – 6 = 10 – 8 = 2).

If ‘a’ is the first term and ‘d’ is the common difference,

• nth term of an AP is Tn= a + (n-1) d

• Arithmetic Mean = Sum of all terms in the AP / Number of terms in the AP
n n
• Sum of ‘n’ terms of an AP is Sn = (first term + last term) = [ 2a + (n-1) d ]
2 2
• When three quantities are in AP, the middle one is called as the arithmetic mean of the other two.
a+c
If a, b and c are three terms in AP then b = .
2

Example1 : Given that 3,7 and 11 are the first three terms in an arithmetic progression, what is d?

Solution: 7 − 3 = 11 − 7 = 4 Then d = 4.
That is, the common difference between the terms is 4.

If we know the first term in an arithmetic progression , and the difference between terms, then we
can work out the nth term.

Example2: If the first 3 terms in an arithmetic progression are 3,7,11 then what is the 10th term?

Solution: The first term is a = 3, and the common difference is d = 4.

Tn = a + (n − 1)d
T10 = 3 + (10 − 1)4 = 3 + 9 × 4 = 39

Example3: If the first 3 terms in an arithmetic progression are 8,5,2 then what is the 16th term?

Solution: In this progression a = 8 and d = −3.

Tn = a + (n − 1)d
T16 = 8 + (10 − 1) × (−3) = −37
Example4 : Given that 2x, 5 and 6 − x are the first three terms in an arithmetic progression , what is
d?
Solution: 5 − 2x = (6 − x) – 5
x=4
Since x = 4, the terms are 8, 5, 2 and the difference is −3.
The next term in the arithmetic progression will be −1.

Example5 : If the first 3 terms in an arithmetic progression are 3,7,11 then what is the sum of the
first 10 terms?
Solution: Note that a = 3, d = 4 and n = 10.
n
Sn = ( 2a + (n − 1)d )
2
S10= 5(6 + 36) = 210

Example 6: If the first 3 terms in an arithmetic progression are 8,5,2 then what is the sum of the first
16 terms?
n
Solution: Sn = ( 2a + (n − 1)d )
2
16
S16 = ( 2(8) + (16 − 1)(−3) )
2
= 8(16 − 45) = −232 2

Exercises: 1. For each of the following arithmetic progressions, find the values of a, d, and the Tn
indicated.
(a) 1, 4, 7, . . ., (T10) (b) −8, −6, −4, . . ., (T12) (c) 8, 4, 0, . . ., (T20)
(d) −20, −15, −10, . . ., (T6) (e) 40, 30, 20, . . ., (T18) (f) −6, −8, −10, . . ., (u12) (g) 0,
−5, −10, . . ., (T15)

2. For each of the following arithmetic progressions, find the values of a, d, and the Sn indicated.

(a) 1, 3, 5, . . ., (S8) (b) 2, 5, 8, . . ., (S10) (c) 10, 7, 4, . . ., (S20)

(d) −8, −7, −6, . . ., (S14) (f) −2, 0, 2, . . ., (S5) (g) −20, −16, −12, . . ., (S4)
(h) 40, 35, 30, . . ., (S11) (i) −8, −5, −2, . . ., (S20)

Geometric Progression (GP)

A sequence of numbers is called a geometric progression if the ratio of any two consecutive terms is
always same. In simple terms, it means that next number in the series is calculated by multiplying a
fixed number to the previous number in the series. This fixed number is called the common ratio.
For example, 2,4,8,16 is a GP because ratio of any two consecutive terms in the series is same

4 8 16
= = =2
2 4 8 .

If ‘a’ is the first term and ‘r’ is the common ratio,

• nth term of GP is Tn= a rn-1

• Geometric Mean = nth root of product of n terms in the GP
a (1 − r n )
• Sum of ‘n’ terms of a GP is S n = , if r<1
1− r
a ( r n − 1)
• Sum of ‘n’ terms of a GP is S n = , if r>1
r −1
a
• Sum of infinite terms of a GP is S  =
1− r
Example 7: Find r for the geometric progression whose first three terms are 2, 4, 8.
4 8
Solution: = = 2 then r = 2.
2 4
If we know the first term in a geometric progression and the ratio between successive terms, then we
can work out the value of any term in the geometric progression .

Example 8: Given the first two terms in a geometric progression as 2 and 4, what is the 10th term?
4
Solution: a = 2, r = = 2
2
Then Tn = ar n −1
T10 = 2(2)10 −1 =1024.

1
Example 9: Given the first two terms in a geometric progression as 5 and , what is the 7th term?
2
1
1
Solution: a = 5, r = 2 = .
5 10
7 −1
 1 5
Then T7 = 5   = = 0.000005
 10  100000
Example 10: Given the first two terms of a geometric progression as 2 and 4, what is the sum of the
first 10 terms?
Solution: We know that a = 2 and r = 2.
a ( r n − 1)
Sn =
r −1
2 ( 210 − 1)
S10 = = 2046
2 −1

1
Example 11: Given the first two terms of a geometric progression as 5 and , what is the sum of
2
the first 7 terms?
1
Solution: We know that a = 5 and r = .
10
  1 7 
5 1 −   
  10  
Then S7 =   = 5.555555
1
1−
10
Example 12: The geometric progression whose first two terms are 2 and 4 find S .
Solution: This series does not have a S because r = 2 < 1.
1
Example 13: For the geometric progression whose first two terms are 5 and , find S .
2
1
Solution: Note that r = so |r| < 1, so that S exists.
10
a 5 50
Now S = = =
1− r 1− 1 9
10
Example 14: Consider a geometric progression whose first three terms are 12, −6 and 3. Find both
S8 and S .
1
Solution: Notice that r = − .
2
  1 8 
12 1 −  −  
  2 
S8 =   = 7.967
 1
1−  − 
 2
a 12
S = = =8
1− r  1
1−  − 
 2
Exercises: 1. Find the term indicated for each of the geometric progressions.
(a) 1, 3, 9, . . ., (T9) (b) 4, −8, 16, . . ., (T10) (c) 18, −6, 2, . . ., (T12)
(d) 1000, 100, 10, . . ., (T7) (e) 32, −8, 2, . . ., (T14) (f) −6, −12, −24, . . ., (T6)

2. Find the sum indicated for each of the following geometric series
(a) 6 + 9 + 13.5 + · · · (S10) (b) 18 − 9 + 4.5 - · · · (S12) (c) 6 + 3 + 1.5 + · · · (S10)
(d) 6000 + 600 + 60 + · · · (S20) (e) 80 − 20 + 5 - · · · (S9)

3. For each of the following progressions, determine whether it is arithmetic, geometric, or neither:
(a) 5, 9, 13, 17, . . . (b) 1, −2, 4, −8, . . . (c) 1, 1, 2, 3, 5, 8, 13, 21, . . . (d) 81, −9, 3, 1 3 , . . .
(e) 512, 474, 436, 398, . . .

4. The third and eighth terms of an AP are 470 and 380 respectively. Find the first term and the
common difference. (Answer a = 506, d = −18)

5. Find the sum to 5 terms of the geometric progression whose first term is 54 and fourth term is 2.
9 −16
6. Find the second term of a geometric progression whose third term is and sixth term is .
4 8
7. Find the sum to n terms of an arithmetic progression whose fourth and fifth terms are 13 and 15.
(Answer n 2 + 6n 4)

8. A university lecturer has an annual salary of $40,000. If this increases by 2% each year, how
much will she have grossed in total after 10 years? (Answer $437,988.84)
When three quantities are in GP, the middle one is called as the geometric mean of the other two. If
a, b and c are three quantities in GP and b is the geometric mean of a and c i.e. b = ac .
Example 15: Find the nth term for the AP : 11, 17, 23, 29, …

Solution : Here, a = 11, d = 17 – 11 = 23 – 17 = 29 – 23 = 6

We know that nth term of an AP is a + (n – 1) d
=> nth term for the given AP = 11 + (n – 1) 6
=> nth term for the given AP = 5 + 6 n
We can verify the answer by putting values of ‘n’.
=> n = 1 -> First term = 5 + 6 = 11
=> n = 2 -> Second term = 5 + 12 = 17
=> n = 3 -> Third term = 5 + 18 = 23 and so on …

Example 16: Find the sum of the AP in the above question till first 10 terms.
Solution : From the above question,
=> nth term for the given AP = 5 + 6 n
=> First term = 5 + 6 = 11
=> Tenth term = 5 + 60 = 65
=> Sum of 10 terms of the AP = 0.5 n (first term + last term) = 0.5 x 10 (11 + 65)
=> Sum of 10 terms of the AP = 5 x 76 = 380

Example 17: For the elements 4 and 6, verify that A ≥ G .

Solution : A = Arithmetic Mean = (4 + 6) / 2 = 5
G = Geometric Mean = 4.8989
Therefore, A ≥ G .

Example 18: Find the sum of the series 32, 16, 8, 4, … upto infinity.
Solution : First term, a = 32
Common ratio, r = 16 / 32 = 8 / 16 = 4 / 8 = 1 / 2 = 0.5
We know that for an infinite GP, Sum of terms = a / (1 – r)
=> Sum of terms of the GP = 32 / (1 – 0.5) = 32 / 0.5 = 64

Example 19: The sum of three numbers in a GP is 26 and their product is 216. find the numbers.
Solution : Let the numbers be a/r, a, ar.
=> (a / r) + a + a r = 26
=> a (1 + r + r2) / r = 26
Also, it is given that product = 216
=> (a / r) x (a) x (a r) = 216
=> a3 = 216
=> a = 6
=> 6 (1 + r + r2) / r = 26
=> (1 + r + r2) / r = 26 / 6 = 13 / 3
=> 3 + 3 r + 3 r2 = 13 r
=> 3 r2 – 10 r + 3 = 0
=> (r – 3) (r – (1 / 3) ) = 0
=> r = 3 or r = 1 / 3
Thus, the required numbers are 2, 6 and 18.

Example 20: What is the sum of the first 100 positive integers?

Solution: Let us assume that the sum of the first 100 positive integers is SS, then
 S=1+2+3+ …. +98+99+100.
Now writing this expression in reverse order gives

S=100+99+98+ ….. +3+2+1.

On adding the above two values, we get

2S=(1+100)+(2+99)+(3+98)+…….. +(98+3)+(99+2)+(100+1)
=(101)+(101)+(101)+ …… + (101)+(101)+(101) =101×100
S =101×50 =5050.

Example 21: What is the sum of the first 50 odd positive integers?
Solution: We recognize that this is an arithmetic sequence with common difference 2 and initial
term 1.
We can then use the formula to obtain
50
S50 =  2(1) + ( 50 − 1) 2  = 2500.
2 
Example 22: A person begins a saving scheme and these he does in an AP. He finds out that after
making 20 savings he had Rs.1050000 in his account an after 40 savings he had accumulated
Rs.4.100.000.
i) Calculate his initial saving
ii) Calculate his incremental saving
iii) Calculate what will be in his account after his 100 savings.
Solution
S20 = 1050000 S40 = 4100000
n
S 20 =  2a + ( n − 1) d 
2
20a+190d=1050000 ……………………………………(1)
40
S40 =  2a + ( 40 − 1) d 
2 
40a+780d=4100000 ……………………………………..(2)
Solving (1) and (2), we get
D=5000
b) Sub d into equation (1)
20a + 190(5000) = 1050000
20a = 1050000 – 950000
20a = 100000
a= 5000
100
C) S100 =  2(5000) + (100 − 1) 5000 
2 
=25250000

Example23: A manufacturing company began production in year 2001. That year it produced
100000units. Its goal was to increase production by 25,000units each subsequent year. Determine the
production.
a) In 2004 and 2009
b) In all up to 2009, given this goal was meet
 Solution a = 100000units d = 25000units
Tn = a + (n-1) d
a) i) T4 = 100000+[(4-1) 25000]
=100000 + 75000 = 175,000units
ii) T9 = 100000 + [(9-1) 25000]
=100000 + 200000 = 300,000 units

9
b) S9 =  2(100000) + ( 9 − 1) 25000 
2
=1800000 units

Example 24: A sales agent of a company remitted eight sums of money by electronic cheques to the
sales manager at the head office. These sums were in arithmetic progression with the first being
Rs.40,000. Determine the common difference and the eight sums paid if the last was Rs.53000.

Solution a = 40000 d=?

T8 = 530000
Tn = a + (n – 1) d
T8 = 40000 + (8 – 1)d = 530000
40000 + 7d = 530000
7d = 530000 – 40000
d= 70000

Example 25: A tea Estate began production last year, it produced 8000 cartons of tea, it is projected
that production will increase by 50 cartons each year.
a) Determine the production in the 5th and 9th year.
b) Find also its total production from start to when it has just increased production by 30% over the
initial figure.

Solution
a) a = 8000cartons, d=50cartons
T5 =a + (n-1) d = 8000+4(50) =8200cartons
T9 =a + (n-1) d = 8000+(9-1)(50) =8400cartons
b) Increase production by 30%
30
 8000 = 2400
100
Total production is 8000+2400=10400
10400 = 8000 + (n-1) 50
10400 = 8000 + 50n – 50
2450 = 50n,
n=49 (this is the period in which the production will be 10400cartons)
Therefore, we have to look for the sum of the production from year 1 up to 49 years
49
S49 =  2(8000) + ( 49 − 1) 50
2 
=450800 cartons.
Example 26 : A person saves money in a weekly thrifting scheme and this she does in Arithmetic
Progression. The first savings is Rs.500 and the incremental saving is Rs.200. How much is her
account worth two weeks to the end of 2 years.?
Solution
a= 500, d=200
1 year=52weeks, 2 years = 52x2= 104weeks
n= 2 weeks to the end of year 2 i.e. = 104-2=102weeks
102
S102 =  2(500) + (102 − 1) 200 
2 
=1081200.

Example 27: A person wants to ride a Jet plane which is worth 2.3 million rupees. He embarks on a
saving scheme in an AP in which he first save Rs.150,000 and increased his subsequent saving by
Rs.2,000 each.
Determine how much he will need to borrow in order to achieve his dream by the time he has saved
8 times on a monthly basis.
Solution Total cost = Rs.23,00,000
First saving (a) = 150,000
Incremental saving (d) = 2,000
n = 8 times
8
S8 =  2(150000) + ( 8 − 1) 2000 
2
=1256000.
Amount borrowed= 2300000-1256000=1044000.

Example 28: A person saved Rs.4,000 at the first week and Rs.4,200 next week. Given that the
savings are in an AP.
a) Determine the saving made in the 12th week and the 16th week.
b) Determine the total savings by the 18th week.
c) The ratio of the total saving in the 11th week and the 15th week.

Solution First saving (a) = 4,000

Second saving = 4,200
Common difference (d) = 4200 – 4000 , d = 200
a) The nth saving is Tn = a + (n-1)d
Where n = 12, T12 = 4000 + (12 – 1) 200 = 6,200
n = 16, T16 = 4000 + (16-1)2OO = 7,000
b) When n = 18,
18
Total saving is S18 =  2(4000) + (18 − 1) 200
2
= 9 [8000 + 3400]
= 9 (11400) =102,600
11
C) S11 =  2(4000) + (11 − 1) 200 
2
5.5 (8000 + 2000) = 55,000
15
S15 =  2(4000) + (15 − 1) 200
2
7.5 (8000 + 2800 = 81,000.
Example 29: A clock strikes once when its hour hand is at 1, twice when it is at 2 and so on. How
many times does the clock strike in six hours?

Solution:

Since the clock strikes once when its hour hand is at 1, twice when it is at 2 and so on, so the
sequence of strikes from 1 hour to 6 hours is 1,2,3,4,5,6.

Here a=1,d=1, n=6 so

6
S6 =  2(1) + ( 6 − 1)1 =21
2
This shows that the clock strikes 21 times in 6 hours.

Example 30: A factory owner repays his loan of $2088000 by $20000 in the first monthly
installment and then increases the payment by $1000 in every installment. How many installments
will it take for him to clear his loan?

Solution: By the given conditions, we have

a=20000, d=1000, Sn=2088000
n
Sn =  2(a) + ( n − 1) d 
2

n
2088000 =  2(20000) + ( n − 1) (1000) 
⇒ 2

n
2088 =  40 + n − 1
⇒ 2

n 2 + 39n − 4176 = 0
−39  392 − 4(1)(−4176)
n=
2(1)
−39 + 135 −39 − 135
n= ,
2 2
n = 48, −87

Now n, being the number of installments, cannot be negative, so n=48. This shows that the factory
owner will clear his loan in 48 monthly installments.

Example 31: Given that 16,8,4 are the first three terms of a geometric sequence, find the fifth term
of the sequence.

8 1
Solution: Here a=16, r = =
16 2
 By using the formula, an = ar n −1
5 −1 4
1 1
∴The fifth term, a5 = 16   = 16   = 1
2 2

Example 32: What is the first term of a six-term geometric sequence in which the ratio is 3 and the
sixth term is 27?

Solution: Here an=27, r= 3 , n=6

To find a by the formula an=arn-1

( 3)
6 −1
a6 = a1

27 = a ( 3 )  a =
5
3

Example 33: Using G.P., find the sum of 1,2,4,8,16,32,64,128

Solution: We have a=1, r=2 and n=8

Substituting these values in the given formula, we get

Sn =
(
a r n −1 ) (as r>1)
r −1

S8 =
(
1 28 − 1 ) = 225
2 −1

665
Example 34: Given r=23, n=6, S n = , find a.
144

Sn =
(
a 1− rn )
Solution: Since, 1− r

  2 n 
a 1 −   
665  3 
=    a = 27
144 2 16
1−
3
 4 8 16
Example 35: Find the sum of the infinite geometric sequence 2, , , ,.....
3 9 27
2
Solution: We have a=2, r =  1, , then
3
a 2
S = = =6
1− r 1− 2
3 .

Example 36: The value of an automobile depreciates at the rate of 15% per year. What will the
value of an automobile be after three years if it is purchased for 4500 dollars?

Solution: Let a=4500 = purchased value of the automobile.

The value of automobile at the end of the first year

 15 
=a−a   =a(1−0.05)=a(0.85)
 100 

The value of the automobile at the end of the second year

 15   15 
=a(0.85)−a(0.85)   =a(0.85)[1−  ]
 100   100 

=a(0.85)(1−0.85)=a(0.85)(0.85)=a(0.85)2

Similarly, the value at the end of the third year

=a(0.85)3

Hence, the value of the automobile at the end of 3 years after being purchased for 4500
=4500(0.85)3=4500(0.6141)=2763.45.

Example 37: The company produces and installs solar panels on residential buildings.
First year, the company produces and installs solar panels on the total area of 100000 square feet.
Next year, the company covered the area 20% more than in the first year.
Third year, the company covered the area 20% more than in the second year, and so on.
Working in this way, the company increased the covered area in 20% each year during 10 years.
Find the total area covered by the company during 10 years.

Solution: The area covered by the company in each of 10 years is the geometric progression with
the first term 100000 ft2 and the common ratio 1.2.

The total area covered by the company during 10 years is the sum of the first 10 terms of this
progression.

According to the formula of sum of a geometric progression, it is equal to

100000 (1.210 − 1)
S10 = = 2595868 ft 2
1.2 − 1
Example 38: The company produces hybrid cars. First year, the company produces 80000 hybrid
cars. Gradually, the yearly production increased by same rate. Fifth year, the company produced two
times more hybrid cars than in first year. How many hybrid cars did the company totally produce
during 8 years?
Soltion: The number of hybrid cars produced by the company in each year is the geometric
progression with the first term a=80000 and the unknown common ratio. To find the common ratio r
use the condition that the number of cars produced in the fifth year is twice the number in the first
year. This gives 2a = ar 4  r 4 = 2

 r = 4 2 = 1.18921

Now the number of hybrid cars the company produced during 8 years in all is equal to the sum of the

first 8 terms of this geometric progression, which is S8 =

( ) = 80000 ( ( r )
80000 r 8 − 1
4
2
)
−1
r −1 r −1

=
(
80000 22 − 1 ) = 1268432
1.18921 − 1