Applied mathematics class 12

Important basic Concepts and Formulas

Numbers Quantification and numerical application

Modulo arithmetic:

When we divide integer a by integer b (≠ 0), we have a = bq + r, where q,r ∈ I , 0≤ 𝑟 < b. Here a is dividend,
b is divisor, q is quotient and r is remainder.

Congruence modulo :

a≡ b(modn) means 1-b is divisible by n , where n > 1

Alligation or Mixture

C P of cheaper (c) C P of dearer (d)

Mean price (m)

d-m m-c
𝑦
Type II (Repeatd Dilution) “ After n number of repeated dilutions the quantity of pure liquid = x( 1- 𝑥 ) n

Boats and streams

Let speed of boat in still water be x km/h and speed of stream be y km/h, time taken by downstream be
t1 and time taken upstream be t2 , downstream speed be u and upstream speed be v

Downstream speed (u) = (x + y) km/h, Upstream speed (v) = (x - y) km/h

𝒖+𝒗 𝒖−𝒗
Speed of the boat in still water x = 𝟐
and speed of the stream y = 𝟐

When the distance covered by the boat in downstream is same as the distance covered by the boat
𝒕𝟐 𝒙+𝒚
upstream, then, 𝒕𝟏 = 𝒙 −𝒚

(𝒙+𝒚)(𝒙 −𝒚) 𝒙𝟐 −𝒚𝟐

Average speed downstream speed x upstream speed/ speed in still water = 𝒙
= 𝒙

If a boat takes t hours to row to a certain place d km apart and returns back, then distance between two
𝒕(𝒙𝟐 − 𝒚𝟐 )
places (d) =
𝟐𝒙

If a boat takes t hours more in going upstream than downstream for covering the same distance d then
 𝒕(𝒙𝟐 − 𝒚𝟐 )
distance between two places (d) = 𝟐𝒚

Numerical inequality
Relation between AM and GM between two numbers a and b
𝑎+𝑏
AM = 2
and GM = √𝑎𝑏 , AM – GM ≥ 0 or AM ≥ GM

Inequalities involving modulus are defined as: If l is any positive real number and x ∈ R, then

(i) |x| < l iff -l < x < l i.e. iff x ∈ (-l,l)

(ii) |x| ≤ l iff -l ≤ x ≤ l i.e. iff x ∈ [-l,l].

(iii) |x| >l iff either x < -l or x > l i.e. iff x = (-∞, -l) U (I,∞).

(iv) |x| > l iff either x ≤ -l or x ≥ l i.e. iff x = (-∞, -l] U [I,∞).

MATRICES
Type of matrices::

(i)Row Matrix (ii) Column matrix (iii) Null or zero matrix or void Matrix

(iv) Square Matrix (v) Diagonal matrix (vi) Scalar matrix (vii) Identity matrix

Matrix polynomial

If f(x) = 𝑥 2 - 3x + 2 is a polynimial and A is a square matrix then F(A) = 𝐴2 - 3A + 2I is a matrix polynomial

Properties of transpose

(i) (A’)’ = A (ii) (A±𝐵)’ = A’ ± B’ (iii) (kA’) = kA’ (iv) (AB)’ = B’A’ (v) (ABC)’ = C’B’A’
Symmetric and skew-symmetric matrices
(i) Symmetric matrix ; A square matrix A is called symmetric matrix if A’ = A
(ii) Skew-symmetric matrices : A square matrix A is called skew-symmetric matrix if A’ = -A
(i) Every element in the principal diagonal of a skew symmetric matrix is always zero
(ii) If A is square matrix then A + A’ is symmetric and A- A’ is skew symmetric matrix
(iii) Every matrix a can be uniquely expressed as the sum of symmetric and skew symmetric matrix
i.e. A = ½ (A + A’) + ½ (A - A’)

DETERMINANTS
To every square matrix A = [ 𝑎𝑖𝑗 ] of order n , 𝑎𝑖𝑗 𝜖 𝑅, we can associate a unique real number caller
determinant of matrix A and denoted by det A = |A|

Properties of determinants::
1. If each element in a row (or column) of a determinant is zero, then the value of determinant is
zero.
2. If each element on one side of the principal diagonal of a determinant is zero, then the value of the
determinant is the product of the diagonal elements.
3. |A|=|A’|
4. If any two rows for columns) of a determinant are interchanged, then the value of the determinant
changes by minus sign only.
5. If each element of any (row or columns) of a determinant are identical or proportional , then the
value of the determinant is zero.
6. |KA|n x n = kn |A|
7. The sum of the products of elements of any row (or column) with the cofactors of the
corresponding elements of some other row for column) is zero.
8. If A and B are square matrices of the same order, then |AB| = |A||B|.
Corollary: I𝐴𝑛 | = |𝐴|𝑛
Area of a triangle:

𝑥1 𝑦1 1
Area of a triangle with vertices ( 𝑥1 , 𝑦1 ) ( 𝑥2 , 𝑦2 ) and ( 𝑥3 , 𝑦3 ) is given by = ½ |𝑥2 𝑦2 1|
𝑥3 𝑦3 1

Area of triangle can’t be negative.

If area of triangle is 0 then given points are collinear.

Properties of adjoint :

(i) adj(AB) = (adjB) (adjA) (ii) Adj (𝐴𝑡 ) = (𝐴𝑑𝑗)𝑡 (iii) Adj(adjA) = |𝐴|𝑛−2A
(iv) |AdjA| = |𝐴|𝑛−1 , |A| ≠ 0 (v) |A adjA| = |𝐴|𝑛 (vi) A(AdjA) = |A|I = (adjA)A
Singular matrix
(i) if |A| = 0 then otherwise A is said to be non singular matrix if |A| ≠ 0
Properties of inverse of a matrix
𝑎𝑑𝑗𝐴
1. If A is a non singular matrix, then 𝐴−1 = |𝐴|
5. If A and B are two invertible matrices of the same order, then AB is also invertible and
(𝐴𝐵)−1 = 𝐵−1 𝐴−1
6. If A is an invertible matrix, then A’ is also invertible and (𝐴′ )−1 = (𝐴−1 )’
1
7. If A is an invertible matrix, then |𝐴−1 | = |𝐴|
Solution of system of linear equations using inverse of a matrix (Matrix Method)
(i) if A is non-singular i.e.|A| ≠ 0, then given system has a unique solution given by X = 𝐴−1 B and
system is called consistent.
 (ii) If A is singular i.e. |A] = 0, then we calculate (adj A)B.
case 1: If |A|= 0 and (adj A)B = O, then the system is consistent and has infinitely many solutions
Case 2: If |A|=0 and (adj A) B ≠ O, then the given system has no solution. If system of equations has no
solution then system is called inconsistent.
Cramer Rule
D₁ D₂
(1) If D ≠ 0, the system is consistent and independent, and has a unique solution given by x = 𝐷 𝑎𝑛𝑑 𝑦 = 𝐷
(2) If D = 0 and either of D₁ , D₂ is non-zero, then the system is inconsistent and it has no solution.
(3) If D = D₁ = D₂ = 0, then the system is consistent and dependent, and has infinitely many solutions.

Differentiation
Some Basic Differntiation::
𝑑 𝑑 𝑑 𝑑 1
𝑑𝑥
( 𝑥 𝑛 ) = n 𝑥 𝑛−1 𝑑𝑥
(constant) = 0 𝑑𝑥
(x) = 1 𝑑𝑥
( √𝑥 ) = 2√𝑥
𝑑 1 𝑛 𝑑 𝑑
( ) = - 𝑛+1 (𝑒 𝑥 ) = 𝑒 𝑥 (𝑎 𝑥 ) = 𝑎 𝑥 loga
𝑑𝑥 𝑥 𝑛 𝑥 𝑑𝑥 𝑑𝑥
𝑑 1 𝑑
𝑑𝑥
(logx) = 𝑥 𝑑𝑥
(𝑥 𝑥 ) = 𝑥 𝑥 (logx+1)
Rules of differentiation
𝑑
1. Addition Rule 𝑑𝑥
(( f(x) + g(x)) = f’(x) + g’(x)
𝑑
2. Subtraction Rule 𝑑𝑥(( f(x) - g(x)) = f’(x) - g’(x)
𝑑
3. Product Rule 𝑑𝑥( f(x) g(x)) = f’(x) g(x)+ f(x)g’(x)
𝑑 𝑓(𝑥) f’(x) g(x)- f(x)g’(x)
4. Quotient Rule 𝑑𝑥( 𝑔(𝑥) ) = (𝑔(𝑥))2
𝑑 𝑑 𝑑𝑡
5. Chain Rule (f(t)) = f(t) .
𝑑𝑥 𝑑𝑥 𝑑𝑥
Logarithmic Differentiation
𝑚
logb mn= logbm + logbn, Logb ( )= logbm – logbn, Logb mp = Plogbm
𝑛
loga 1 = 0. Logb b = 1 Logb bx = x

Application of Derivative
Mensuration Formulas for 2-Dimensional Figures

Shape Area Perimeter

Circle πr² 2πr

Square (side)² 4 × side

Rectangle length × breadth 2 (length + breadth)

Equilateral Triangle (√3/4) × (side)² 3 × side

 Parallelogram base × height 2(l+b)

Trapezium ½ h(sum of parallel sides) a+b+c+d

Mensuration Formulas for 3-Dimensional Figures

Shape Volume CSA/LSA TSA

Cone (1/3) π r² h πrl πr (r + l)

Cube (side)³ 4 (side)² 6 (side)²

Cuboid l×b×h 2 h (l + b) 2 (lb +bh +hl)

Cylinder π r² h 2π r h 2πrh + 2πr²

Hemisphere (2/3) π r³ 2 π r² 3 π r²

Sphere 4/3πr³ 4πr² 4πr²

Tangents and normals

Slope of the tangent = dy/dx Slope of normal = - dx/dy
If the tangent is parallel to x-axis, then dy/dx = 0
If the tangent is parallel to y-axis, then dx/dy = 0
Equations of the tangent , y- 𝑦1 = slope of tangent ( x- 𝑥1 )
Equation of the normal is (y- 𝑦1 ) = slope of normal (x- 𝑥1 ).
If two lines are parallel then 𝑚1 = 𝑚2
If two lines are perpendicular then 𝑚1 x 𝑚2 = -1
If 𝑚1 = 𝑚2 then two curves touch each other
If 𝑚1 x 𝑚2 = -1 then two curves are orthogonal.
𝑚1 −𝑚2
Angle of intersection of two curves tan𝜃 = | |
1+𝑚1 𝑚2
Increasing and Decreasing Functions

Sign of f’(x) Nature of function

F’(x) > 0 Strictly Increasing

 F’(x) ≥ 0 Increasing
.

F’(x) < 0 Strictly Decreasing

F’(x) ≤ 0 Decreasing

Second Derivative Test

Find the critical point by putting f’(x)= 0. take these points as c
Use second derivative test to find the local maxima or local minima
If f’’(c) > 0 then it has point of local minima
If f’’(c) < 0 then it has point of local maxima
If f’’(c) = 0 and f’’’(x) ≠ 0 then it has point of inflexion
C(x) = FC + VC where FC is fixed cost and VC is variable cost
AC = C/x R(x) = x.p AR = R/x = px/x = p P(x) = R(x) – C(x)
at breakeven point R(x)-C(x)=0 ie. P(x)=0.
𝑑 𝑑𝑐
Marginal Cost (MC):: MC = (C) =
𝑑𝑥 𝑑𝑥
𝑑 1
Marginal Average Cost (MAC) :: MAC = (AC) = (MC-AC)
𝑑𝑥 𝑥
𝑑 𝑑𝑅
Marginal Revenue (MR):: MR = R =
𝑑𝑥 𝑑𝑥

Integrals
𝑥 𝑛+1 1
• ∫ 𝑥 𝑛 dx = +C ∫ dx = x + C ∫ dx = log|x| + C
𝑛+1 𝑥
𝑎𝑥 1
• ∫ 𝑒 𝑥 dx = 𝑒 𝑥 + C ∫ 𝑎 𝑥 dx = 𝑙𝑜𝑔𝑎 + C ∫ dx = 2 √𝑥 + C
√𝑥
Substitution Method
𝐹(𝑎𝑥+𝑏)
• If ∫ f(x) dx = F(x) + C then ∫ f(ax+b) = 𝑎
+C
(𝑓(𝑥))𝑛+1
• ∫ (𝑓(𝑥))𝑛 f’(x) dx = 𝑛+1
+C
𝑓′(𝑥)
• ∫ 𝑓(𝑥)
dx = log|f(x)| + C
Integration By Partial Fraction
Proper rational function Partial fraction
 𝑝𝑥+𝑞 𝐴 𝐵
(𝑥−𝑎)(𝑥−𝑏)
, a≠b +
𝑥−𝑎 𝑥−𝑏

𝑝𝑥 2 +𝑞𝑥+𝑟 𝐴 𝐵 𝐶
, a≠b≠c + +
(𝑥−𝑎)(𝑥−𝑏)(𝑥−𝑐) 𝑥−𝑎 𝑥−𝑏 𝑥−𝑐

𝑝𝑥+𝑞 𝐴 𝐵
(𝑥−𝑎)2
+
𝑥−𝑎 (𝑥−𝑎)2

𝑝𝑥 2 +𝑞𝑥+𝑟 𝐴 𝐵 𝐶
, a≠b 𝑥−𝑎
+ (𝑥−𝑎)2 + 𝑥−𝑏
(𝑥−𝑎)2 (𝑥−𝑏)

𝑝𝑥 2 +𝑞𝑥+𝑟 𝐴 𝐵𝑥+𝐶
(𝑥−𝑎)(𝑥 2 +𝑏𝑥+𝑐)
, 𝑥 2 +bx+c can’t be factorised 𝑥−𝑎
+ 𝑥 2 +𝑏𝑥+𝑐

Some Special Integrals

1 1 𝑥−𝑎
• ∫ 𝑥 2 −𝑎2
dx = 2𝑎 log|𝑥+𝑎|+ C
1 1 𝑎+𝑥
• ∫ 𝑎 2 −𝑥 2
dx = 2𝑎 log|𝑎−𝑥|+ C
1
• ∫ dx = log| x + √𝑥 2 + 𝑎2 | + C
√𝑥 2 +𝑎 2

1
• ∫ dx = log| x + √𝑥 2 − 𝑎2 | + C
√𝑥 2 −𝑎 2
𝑥
• ∫ √𝑥 2 + 𝑎2 dx = 2 √𝑥 2 + 𝑎2 + ½ 𝑎2 log|x + √𝑥 2 + 𝑎2 |+C
𝑥
• ∫ √𝑥 2 − 𝑎2 dx = 2
√𝑥 2 − 𝑎2 - ½ 𝑎2 log|x + √𝑥 2 − 𝑎2 |+C

Integration by Parts

• ∫ 𝑓(𝑥)𝑔(𝑥)𝑑𝑥 = 𝑓(𝑥)∫ g(x)dx–∫ {f’(x)∫ g(x)dx}dx +C, Where f(x) is first and g(x) is second function

• ∫ (f(x)+f’(x))𝑒 𝑥 dx = f(x) 𝑒 𝑥 + C

Properties of Definite Integrals

𝑏 𝑏
1. ∫𝑎 𝑓(𝑥)𝑑𝑥 = ∫𝑎 𝑓(𝑡)𝑑𝑡

𝑏 𝑎
2. ∫𝑎 𝑓(𝑥)𝑑𝑥 = - ∫𝑏 𝑓(𝑥)𝑑𝑥

𝑏 𝑐 𝑏
3. ∫𝑎 𝑓(𝑥)𝑑𝑥 = ∫𝑎 𝑓(𝑥)𝑑𝑥 + ∫𝑐 𝑓(𝑥)𝑑𝑥

𝑏 𝑏
4. ∫𝑎 𝑓(𝑥)𝑑𝑥 = ∫𝑎 𝑓(𝑎 + 𝑏 − 𝑥)𝑑𝑥
𝑎 𝑎
5. ∫0 𝑓(𝑥)𝑑𝑥 = ∫0 𝑓(𝑎 − 𝑥)𝑑𝑥
 2𝑎 𝑎 𝑎
6. ∫0 𝑓(𝑥)𝑑𝑥 = ∫0 𝑓(𝑥)𝑑𝑥 + ∫0 𝑓(2𝑎 − 𝑥)𝑑𝑥

2𝑎 𝑎
7. ∫0 𝑓(𝑥)𝑑𝑥 = 2∫0 𝑓(𝑥)𝑑𝑥 if f(2a-x) = f(x)

2𝑎
8. ∫0 𝑓(𝑥)𝑑𝑥 = 0 if f(2a-x) = -f(x)
𝑎 𝑎
9. ∫−𝑎 𝑓(𝑥)𝑑𝑥 = 2∫0 𝑓(𝑥)𝑑𝑥 if f(-x) = f(x) or f(x) is even
𝑎
10. ∫−𝑎 𝑓(𝑥)𝑑𝑥 = 0 if f(-x) = -f(x) or f(x) is odd

Marginal Functions

𝑐(𝑥)
• C(x) = ∫ 𝑀𝐶 𝑑𝑥 + 𝐶 , AC = 𝑥

• R(x) = ∫ 𝑀𝑅 𝑑𝑥 + 𝐶 , R(x) = px

Consumer Surplus & Producer Surplus

𝑥0 𝑥0
• C. S = ∫0 𝐷(𝑥)𝑑𝑥 − Xo.Po , P. S = Xo.Po − ∫0 𝑆(𝑥)𝑑𝑥

• At Equillibrium D(x) = S(x)

Differential Equation
Equation of line : Ax + By + C = 0 or y = mx + c

Equation of Parabola : y2 = 4ax , if axis lie along x axis

x2 = 4ay , if axis lie along y axis

𝑥2 𝑦2
Equation of Ellipse : 𝑎2
+ 𝑏2
= 1 , if axis lie along x axis

𝑦2 𝑥2
+ = 1 , if axis lie along y axis
𝑎2 𝑏2

Probability
Probability distribution of a random variable :

X x1 x2 ……. xn

P(X = xi) p1 p2 ……. pn

where P(X = xi) i.e. pi lies between 0 and 1, and 𝛴pi, = 1.

Mean, variance and standard deviation of a random variable.

E(X) = 𝛴𝑝𝑖𝑥𝑖 Variance = 𝐸(𝑋 2 ) − (𝐸(𝑥))2 Standard deviation = 𝜎 = √𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒

Binomial distribution

It is represented by (q+p)n or B(n,p) and P(X=r)= 𝑛𝑐𝑟 𝑝𝑟 𝑞 𝑛−𝑟 where r = 0, 1, 2, ….. n

Mean, variance and standard deviation of binomial distribution :

mean = 𝜇= np , variance = 𝜎 2 = npq , standard deviation σ =√𝑛𝑝𝑞

POISSON DISTRIBUTION:

𝜆𝑟 −𝜆
The poisson distribution is the limiting form of Binomial distribution when no. of trials is very large𝑃(𝑟) = 𝑒
𝑟!

Mean and Variance of Poisson Distribution

𝑀𝑒𝑎𝑛 = 𝜆 , 𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒 = 𝜆 , standard deviation σ =√𝑣𝑎𝑟

Normal Distribution

It is used for Continuous random variable . It is also called Gaussian distribution. It is a bell shaped curve
symmetric about a vertical line through the mean. For Normal distribution curve Mean = median = mode
1 𝑥−𝜇 2
1
normal density function 𝑓(𝑥) = 𝑒 −2 ( 𝜎 ) , −∞<𝑥 <∞
𝜎 √2𝜋

Standard Normal Distribution

If 𝜇 = 0, 𝜎 = 1 said to have standard normal probability distribution. The random variable in case of standard
normal distribution is represented by Z.

1 −𝑧 2 𝑋−𝜇
𝑓(𝑧) = 𝑒 2 , − ∞ < 𝑧 < ∞, z=
√2𝜋 𝜎

Inferential statistics
Σ𝑥𝑖 Σ(𝑥𝑖− 𝑥̅ )2
𝑠𝑎𝑚𝑝𝑙𝑒 𝑚𝑒𝑎𝑛 𝑥̅ = , 𝑝𝑜𝑖𝑛𝑡 𝑒𝑠𝑡𝑖𝑚𝑎𝑡𝑒 𝑜𝑓 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 (𝑠) = √
𝑛 𝑛−1

𝜎
Margin of error = 𝑍𝛼⁄2 .
√𝑛

The interval estimation of population mean is given by μ=x ± margin of error

Mean of random sample drawn from any distribution with mean μ and variance σ2 will have an approximate
𝜎2 𝜎
normal distribution with a 𝑥̅ = μ and s2 = . So s =
√𝑛 √𝑛
 𝜎
Standard error of mean =
√𝑛

Hypothesis Testing

Type 1 error : H0 Reject Type 2 Error : H0 Accept

Null Hypothesis (Ho) Alternative Hypothesis (Ha)

1. There is no difference between a parameter 1. Existence of a difference between a

and a specific value or there is no difference parameter and a specific value or states that
between two parameter there is a difference between two parameter

2. Two groups studying are same. 2. Two groups studying are different.

Degree of freedom:-

For one sample test DF = n-1 , For two sample test DF = n1+n2-2
𝑥̅ −𝜇0 𝑥̅ −𝜇0
𝑡= 𝑆⁄ ,𝑡 =𝑠
⁄ 𝑛−1
√𝑛 √

𝑥̅ = 𝑠𝑎𝑚𝑝𝑙𝑒 𝑚𝑒𝑎𝑛, 𝑛 = 𝑠𝑎𝑚𝑝𝑙𝑒 𝑠𝑖𝑧𝑒 𝜇0 = ℎ𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑧𝑒𝑑 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑚𝑒𝑎𝑛

S= point estimate of Population standard deviation s = sample standard deviation

For One tailed test : rejection rule you can use |t| ≥ 𝑡𝛼

For two tailed test : rejection rule you can use |t| ≥ 𝑡𝛼⁄2

Two Sample t-test

𝐻0 : 𝜇1 = 𝜇2 (𝑡𝑤𝑜 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑚𝑒𝑎𝑛𝑠 𝑎𝑟𝑒 𝑒𝑞𝑢𝑎𝑙)

𝐻1 : 𝜇1 ≠ 𝜇2 (𝑡𝑤𝑜 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑚𝑒𝑎𝑛𝑠 𝑎𝑟𝑒 𝑛𝑜𝑡 𝑒𝑞𝑢𝑎𝑙)

(𝑥̅1 −𝑥̅2 ) (𝑥̅1 −𝑥̅ 2 ) Σ(𝑥𝑖 −𝑥̅ )2 +Σ(𝑦𝑖 −𝑦̅)2 (𝑛1 −1)𝑠12 +(𝑛2−1)𝑠22
𝑡= or 𝑡 = 1 1
𝑤ℎ𝑒𝑟𝑒 𝑠 = √ 𝑛1 +𝑛2 −2
or s = √ 𝑛1 +𝑛2 −2
2 2 𝑠√ +
√𝑆1 + 𝑆2 𝑛1 𝑛2
𝑛1 𝑛2

For One tailed test : rejection rule you can use |t| ≥ 𝑡𝛼

For two tailed test : rejection rule you can use |t| ≥ 𝑡𝛼⁄
2

time Based data

Time Series :
Components of Time Series: . trend, cyclical, seasonal and irregular

Models of time series analysis:

Additive Model : O = T+C+S+L

Multiplicative Model : O = T x C x S x L

Method of Moving Average ::

Method of Least squares ::
1. The sum of the deviations of the actual values of y and yi (estimated value of y) is zero
 (y-yi )= 0
2. The sum of squares of the deviations of the actual values of y and yi (estimated value of y)
is least   (y-yi )2 is least
For the purpose of plotting the best fitted line for trend analysis, the real values of constants ‘a’
and ‘b’ are estimated by solving the following two equations:
 Y=na+b X ------------ (ii)  XY = a  X + b  X2 --------- (iii)
2. When X = 0, the equations (ii) and (iii) reduce to:

Y = na + b (0)  a= And, XY = a (0) + b X2  b=

the trend line of best fit : yt = a+bx

Financial Mathematics
perpetuity::
𝑅
• P= When periodic payment is made at the end of each payment period.,
𝑖

𝑅
• P=R+ 𝑖
: When periodic payment is made in the beginning of each payment period.

Sinking Fund :

(1+𝑖)𝑛 −1
• A=R[ ] or A = R.𝑆𝑛̅/𝑖 If payment made at the end of each year
𝑖

(1+𝑖)𝑛 −1
• A=R[ 𝑖
] (1+i) or A = R(𝑆𝑛+1
̅̅̅̅̅̅/𝑖 -1) If payment made in the beginning of each year then

EQUATED MONTHLY INSTALLMENT (EMI)

flat rate method

𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑎𝑙 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑃+𝐼 𝑃𝑟𝑡

EMI = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠 EMI = 𝑛
, I = 100
REDUCING BALANCE METHOD

𝑃 𝑥 𝑖 𝑥(1+𝑖)𝑛 𝑃𝑥𝑖 𝑃
EMI = (1+𝑖)𝑛 −1
or EMI = 1−(1+𝑖)−𝑛 or EMI = 𝑎̅
̅ /𝑖
𝑛

Amortization Formulas

𝐸𝑀𝐼 [(1+𝑖)𝑛−𝑘+1 −1]

Principal outstanding at beginning of kth period = 𝑖(1+𝑖)𝑛−𝑘+1
or EMI. 𝑎̅̅̅̅̅̅̅̅̅̅
𝑛−𝑘+1/𝑖

𝐸𝑀𝐼 [(1+𝑖)𝑛−𝑘+1 −1]

Interest paid in kth payment = or EMI. i. 𝑎𝑛−𝑘+1
̅̅̅̅̅̅̅̅̅̅/𝑖
(1+𝑖)𝑛−𝑘+1

Principal paid in kth payment - EMI - Interest paid in kth period

Total interest paid = n x EMI-P

Return on investment

𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡/𝑙𝑜𝑠𝑠
Rate of Return = 𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑥 100

𝑟 p
re = ((1 + ) – 1) Where re is the effective interest rate
100𝑝

if interest is compounded continuously , then Effective rate of return = (er – 1)

1⁄
𝐹𝑉 𝑛
Compounded Annual Growth Rate (CAGR): CAGR = ( ) −1
𝑃𝑉

Depreciation: (i) Linear or Straight Line Method

𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑎𝑛 𝑎𝑠𝑠𝑒𝑡−𝑆𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒 𝐶−𝑆

Annual depreciation = = ,
Useful life of asset in years 𝐷

(ii) Written down value method : S = P(1-i)n