Preparatory Quantitative Methods

Tushar Tanwar
Sequence
 Mathematics deals with patterns - visual patterns or numerical
patterns
 Sequences and Series deal with numerical patterns.
 A sequence is an ordered list of numbers following some
pattern.
 Example: 1,4,7,10,13,16,19,….
 Each number in the sequence is called Term

 A generic sequence {an}: a1, a2, a3,... an(nth term)….

 Example: an=1+(n-1)*3 , n=1,2,3….
 Question: Are sequences sets? Why or why not?
 A sequence of real numbers is just a function
 f : {1, 2, 3, . . .} → R
 Example: u(n)=1/n , n=1,2,3,…
 Defining a sequence using recursive definition.
 Example: Fibonacci sequence 1, 1, 2, 3, 5, 8……

a1 = 1, a2 = 1, a3 = 2, … an+1 =an+ an-1

Special Sequences
 Arithmetic Sequences
 difference between successive terms is constant
 {a, a + d, a + 2d, .., a =a+(n-1)d...} a- first term, d- difference
n
 Example: (a) 1,4,7,11,…. , (b) 10,8,6,4,…
 Write the nth term of the sequence -2,4,10,16,…. And use this it to
find the 15th term of the sequence
 Geometric Sequences
 ratio between successive terms is constant
 {a, ar , ar2, ar3,.., a =a rn-1,...} a- first term, r- ratio
n
 Example : (a) 3,6,12,24,…. , (b) 3,-1,1/3,-1/9,…
 Find the 8th term of 3,-1,1/3,-1/9,…
Series

 A
  infinite series S is the sum of the terms of an infinite sequence
 1,4,7,11,…. Is a sequence, but
 1+4+7+11+… Is a series.

 Sn : partial sum of a series is Sum of the first n terms

 Sum to n terms of an A.P. a+(a+(n-1)d)}

 Sum to n terms of a G.P.

 Example: A company is offering a job with a salary of $30,000 for the first
year and a 5% raise each year after that. If that 5% raise continues every
year, find the amount of money you would earn in a 40-year career.
Lets Prove
 Sum of first n natural numbers
  𝑛 (𝑛+1)
𝑆 𝑛=
2

 Sum of squares of first n natural numbers   𝑛 (𝑛+1)(2 𝑛+1)

𝑆 𝑛=
6

 Sum of the cubes of first n natural numbers 2

𝑆 𝑛 =𝑛 ¿¿
 

 Find
 12-22+32-42…..to 2n terms
 1.32+2.42+3.52… to n term
 13 +33+53……to n terms
Convergence and Divergence

 Converging
  Sequence
  A number  is the limit of the sequence if the numbers in the sequence
become closer and closer to  it and not to any other number.
 A sequence S = {a } is said to converge to a limit L if all of its terms lie
n
as close to L, past a certain index .
 If   we say that the sequence is convergent. 

 The harmonic sequence H = {1/n} converges to 0

 If terms of H have to lie closer than 0.0001 from 0, then
consider those terms past the 10,000th
Examples
 Prove
  that =3/2
 Examine the difference of the n-th term with the claimed
limit, i.e. |(3n + 1)/(2n + 5) - 3/2|
• Simplifying, we get
|(6n + 2 - 6n -15)/(2n + 5)| = 13/(2n + 5)
• The expression on the RHS tends to zero

Convergent sequence
 Sequence
  are functions
 Plot/ graph the sequence (n, an) , n=1,2,3…
 an=, points are (1,2), (2,), (3,)…
 As n increases , terms get closer to 0.
 We say 0 is the limit of this sequence
 Discuss the convergence of an =

 Online Graph plotter : http://www.wolframalpha.com/examples

/PlottingAndGraphics.html

 {a
  n=} Does this sequence converge?
 a1= 2, a2=2.25,…………a100=2.704, …. ,a1000= 2.716 converging to e=2.718
 Also, we know , =e (A famous result)

Example: (a) 1, 1/2 , 1/3 , 1/4 , 1/5 ,... Converges to zero,

 Not all sequences converge sequence diverges.
 (b) Terms run off to ±, 2 4 8 16… diverges. doesn’t exist.
 (c) Terms do not tend to one number -1,1,-1,1…. diverges. doesn’t exist.
Limit laws of sequence
 Sequences can be manipulated term-wise
 If X = {1/n}, Y = {n/(n + 1)}, then X+Y is a sequence whose general
term is xn + yn, which is 1/n + n/(n + 1) = (n2 + n + 1)/[n(n + 1)]
 XY is the sequence {1/n.n/(n + 1) = 1/(n + 1)}
Convergent Series
 Lets
   define partial sums of the series {an}
 S1=a1, S2=a1+a2,…. Sn=a1+a2+…+an
 These form a new sequence {sn}
 So the infinite series is limit of the partial sums.
 A series converges if this limit exists.
 Equivalently, A series is convergent if sequence of partial sums
converges.
 Example:
 Consider the series 0.9 + 0.09 + 0.009 + 0.0009 + …
 the sequence of partial sums is 0.9, 0.99, 0.999,
0.9999, .... converges to 1.(series converges)
 Divergent series: Series that do not converge.
 Find
 
 Let an= . Find
 Let an= log( ) . Find
 Find: Sum to ∞ terms of a G.P. ; |r|<1
 For the series 2+++, find the sum of the first 4 terms. (b) If it
converges, find S.
 A
   sequence {an} is called non-decreasing if a1 ≤ a2 ≤ a3 ≤ ··· ≤ an ≤..
 A sequence {an} is called non-increasing if a1 ≥ a2 ≥ a3 ≥ ··· ≥ an ≥..
 A sequence that is either non-increasing or non-decreasing is said to
be monotonic.
 A sequence {an} is bounded if there is a number M such that |an| <
M , for every n .
 Theorem: Every bounded, monotonic sequence converges. That is
exists.
An Application in Finance
 What to do with money today?
 Q: A financial analyst is thinking about recommending that a company invest in a
piece of land that costs Rs 85,000. She is certain that next year the land will be
worth Rs 91,000, a sure Rs 6,000 gain. Given that the guaranteed interest rate in
the bank is 10%, should the company undertake the investment in land?
 Future value: The value of a sum after investing over one or more periods
 If money is invested in the bank FV=?
 FV=c0(1+r)
 Present value: the amount of money that should be put in the alternative
investment (bank) in order to obtain the expected amount next year.
 PV=c1/(1+r)
 Net present value: the present value of future cash flow minus the present value of
the cost of the investment.
 NPV = P V- Cost
 NPV<0 = Bad investment

 Future
  value at time period T, FV=c0(1+r)T
 Example: $1.10 of dividend, expected to grow at a 40% per year over the
next 2 years, then in 2 years the dividend will be ?
 Discounting: the process of calculating the present value of a future cash
flow. It is the opposite of compounding. PV=cT/(1+r)T
 Example: How much would an investor have to set aside today in order to
have Rs 20,000 ,5 years from now if the current rate is 15%?
 NPV of a T period project can be written as
 NPV=PV-cost=++…+-C0

 Perpetuity:
  a constant stream of cash flows that lasts forever.
 PV=+++….=?
 Annuity: a stream of constant cash flows that lasts for a fixed number of
periods.
 PV=+++….+ =?
Thank You