Sequences - Series

CONTENT

1. Sequences
• Infinite Sequences 2. Series
• Limit of Sequence • Infinite series
• Arithmetic series
• Geometric series

3. Applications in Economics
• Simple Interest
• Compound Interest
• Present Value (PV)
• Net present value (NPV)
 Sequences - Series
Geologists predict earthquakes and volcano
eruptions to find patterns in historical data of from
seismographs, of the atmosphere or even animal
behaviour

Bankers predict the value of a stock will go up or

down can be extremely lucrative and estimate
how financial markets might change in the future
to look at historical data of stock prices, interest
rates and currency exchange rates .

Professional mathematicians use highly complex algorithms to find and analyze all
these patterns, but for now, let’s start with something much simpler.
 Sequences

1. What is sequence?
+2 +2 +2 +2 +2 +2
2 , 4 , 6 , 8 , 10
? , 12
? , 14
? ,...

+6 +6 +6 +6 +6 +6
5 11 17 23 ?
29 ?
35 41?
, , , , , , ,...
+1 +3 +1 +3 +1 +3
3 4 7 8 11 12
? 15?
, , , , , , ,...
×2 ×2 ×2 ×2 ×2 ×2
1 2 4 8 16 32 64
?

, , , , , , ,...
The dots (…) at the end simply mean that the sequence can go on forever.
 Sequences

In mathematics, a sequence is a chain of numbers (or other objects) that

usually follow a particular pattern. The individual elements in a sequence are
called terms.

x1 , x2 , x3 , x4 , x5 , x6 , x7 ,..., xn

Example:
• 4, 5, 9, 14, 23, 37, 60 Subscript - indicates the
• 1, 3, 4, 7, 11, 18, 29, … position of the term in the
Sequences can be both finite and infinite. sequence.
• Sequences in maths don’t always have to be numbers

A sequence that consists of geometric

shapes – triangles of increasing size

A sequence is an ordered list of numbers (or other elements like geometric objects),
that often follow a specific pattern or function.
 Sequences

28 36
Can you
see the
pattern?
We can also describe this pattern using a special formular: Xn = xn-1 + n

Example: x5 = x4 + 5; x8 = x7 + 8;

A formula that expresses xn as a function of previous terms in the sequence

is called a recursive formula. As long as you know the first term in the
sequence, you can calculate all the following ones.
 Sequences

We can also describe this pattern using a special formular: Xn = n2

Example: x6 = 62 ; x8 = 82;

A formula that tells you the nth term directly, without first having to
calculate all the previous ones, is called an explicit formula
 Sequences

In 1682, Edmond Halley observed an unusual

phenomenon which was a comet.

Other astronomers had observed similar comets

much earlier: one in 1530 and another in 1606.

Halley concluded that all three observations

were in fact of the same comet – which is now
called Halley’s comet.
Halley also predicted when the comet would be
visible next
This is an
arithmetic
sequence
Actually, the time interval is not always exactly 76 years: it can vary by one
or two years, as the comet’s orbit is interrupted by other planets.
 Sequences

The maximum height of

every bounce is 80% of
the previous one

This is an geometric sequence

 Sequences

• The sequence of Halley’s comet has the same difference (d = 76) between
consecutive terms,
• The sequence of tennis ball bounces has the same ratio (q = 0.8) between
consecutive terms

An arithmetic sequence has a constant difference d between consecutive terms.

The same number is added or subtracted to every term, to produce the next one
Example:
2, 4, 6, 8, 10, 12, 14, … (d = 2)
15, 13, 11, 9, 7, 5, 3, 1, …(d = -2)
An geometic sequence has a constant ratio q between consecutive terms.
Every term is multiplied or divided by the same number, to produce the next
Example:
2, 4, 8, 16, 32, 64, … (q = 2)
20, 10, 5, , , , … (q = 1/2)
 Sequences

For arithmetic sequences, we have to For geometric sequences, we have to

add d at every step multiply q at every step:
x1 = a x1 = a
x2 = x1 + d = a + d x2 = x1 × q = a × q
x3 = x2 + d= a + d + d x3 = x2 × q = a × q × q
x4 = x3 + d= a + 3d x4 = x3 × q = a × q3
… …
x7 = x6 + d= a + 6d x7 = x6 × q = a × q6

An arithmetic sequence has first term a A geometric sequence has first term a &
& common difference d between common ratio q between consecutive
consecutive terms. terms.

Recursive formula: xn = xn−1 + d Recursive formula: xn= xn−1× q

Explicit formula: xn= a + (n−1) × d Explicit formula: xn= a × qn−1
 Sequences

Can you determine which ones are arithmetic, geometric or neither, and what the
values of d and q are?
• 2, 5, 8, 11, 14, 17, . . .
• 40, 20, 10, 5, 2.5, 1.25, . . .
• 2, 4, 7, 11, 16, 22, . . .
• 17, 13, 9, 5, 1, -3, . . .

To define an arithmetic or
geometric sequence, we have to
know not just the common
difference or ratio, but also the
initial value (called a). By changing
the values of a, d and q.
Can you find any patterns?
 Sequences

All arithmetic sequences look very similar:

• If the difference is positive, they steadily increase
• If the difference is negative, they steadily decrease.
 Sequences

Geometric sequences, on the other hand, can behave completely differently

based on the values of a and q:
q > 1: the terms will quickly get bigger, up to infinity the sequence diverges
- 1 < q < 1: the terms will always get closer to 0 the sequence converges
q < - 1: the terms will alternate between positive and negative, while
their absolute value gets bigger
 Sequences

1. How many terms are there in the arithmetic sequence 14, 18, 22, …, 162?

Solution
This is an arithmetic sequence with first term a= 14, last term xn = 162 and
common difference d= 4. Using the result xn = a + (n – 1)d gives
162 = 14 + 4(n – 1)
148 = 4(n – 1)
37 = n – 1
n = 38
These are 38 terms
2. Find the 25th team in the arithmetic sequence 7, 4, 1, …?
Solution
In this case a= 7 and d= - 3 (negative since the terms are decreasing)
Using the result = a + (k – 1)d gives = 7 + (25 – 1) = - 65
The 25th term is -65
 Sequences

1. How many terms are there in the Geometric sequence 0.2, 1, 5, 25, …,
390625?

Solution

This last (nth) term of a geometric sequence is given by =a

In this case, a= 0.2 and q= 5, so
0.2
= = 1953125
.
log = log 1953125
(n – 1) = =9
n= 10

There are 10 terms

 Series

When the terms of a sequence are added together like 1 + 3 + 5 + 7 +…

The resulting sum is called a series.
A sequence may have an finite number of terms, in which case it is called an
finite sequence
A sequence may have an infinite number of terms, in which case it is called an
infinite sequence
The process of adding the terms together is call summation. The sum may be
written as 𝒏𝒌 𝟏 𝒌

For example This series has a finite number of

1+ 5 + 10 + 10 +5 + = (1 terms (6)

Both of these series have an

4(1 - + - + …)= infinite number of terms

- + - …= sin x x is measured in radians

! !
 Series

When the terms of an arithmetic sequence are added together, the result is called
an arithmetic series
For example
S = 1 + 2 + 3 + … + 98 + 99 + 100. Find S?

Solution
The numbers 1, 2, 3,…, 100 form an arithmetic sequence with common difference 1
S = 1 + 2 + 3 + … + 98 + 99 + 100
S = 100 + 99 + 98 + … + 3 + 2 + 1

2S = 101 + 101 +…+ 101 + 101 + 101

Since there are 100 terms, so
2S = 100
S = 505
 Series

Find the sum of the arithmetic series 10 + 7 + 3 + … + (- 20).

Solution
This arithmetic series has a first term of 10 and a common difference of -3.
Using the formula: xn = a + (n – 1)d
– 20 = 10 + (n – 1) (– 3)
– 30 = (n – 1) (– 3)
10 = n – 1
So there are 11 terms.
Writing down the series both forwards and backwards gives
S= 10 + 7 + … +(-17)+(- 20)
S=(-20)+ (-17)+ … + 7 + 10
2S = (-10) + (-10)+…+ (-10) + (-10)
Since there are 11 terms this gives
2S = (-10) 11
S = -55
 Sequences - Series

This method is generalized to give a formula for the sum of n terms of the
arithmetic sequence that has a first term a and a common difference d
S= a + [a + d]+ …+ [a + (n – 2)d] + [a + (n – 1)d]
S= [a + (n – 1)d]+ [a + (n – 2)d] + … + [a + d]+ a
S = n[2a+ (n – 1)d] or S= n(a + xn)

Exercise

The arithmetic sequence 2, , , , 1, … has 60 terms. Find the sum of the sequence.

a=2; d= ; S= -470
 Sequences - Series

When the terms of a geometric sequence are added together, the result is
called a geometric series
For example
S = 2 + 6 + 18 + 54 + … + 1062882. Find S?

Solution
The numbers 2, 6, 18, 54,…, 1062882 form a geometric sequence with first
term 2 and common ratio of 3
Let S = 2 + 6 + 18 + 54 + … + 1062882 (1)
Multiplying by the common ratio 3 gives
3S = 6 + 18 + 54 + … + 1062882 + 3188646 (2)
Subtracting (1) from (2): 2S = - 2 + 0 + 0 + 0 + … + 3188646
2S = 3188644
S = 1594322
 3. Sequences - Series

𝒏 𝒏
S= =

A geometric sequence has terms 4, 8, 16, …,1024

a) How many terms are there in the sequence?
b) Find the sum of the terms in this sequence

Solution
=a = 1024
In this case, a= 4 and q= 2, so 4 1024
= 256
log = log 256
(n – 1) log 2 = log 256
n= 9
( ) ( )
= = 2044
 Applications in Economics

Test Yourself
Kate has just completed her degree and her starting salary with her first
employer is 21000 $ per annum. She has been promised an increase of
1000 $ each year for the first five years and then a salary review at that
point.
a) What is her salary in her fifth year?
b) What will her total earnings be after five years

a=21000$;d=1000; =25800$; S=117000$

 Applications in Economics

Simple interest is the interest that accrues on a given sum in a set time
period. It is not reinvested along with the original capital. The amount of
interest earned on a given investment each time period will be the same
(if interest rates do not change) as the total amount of capital invested
remains unaltered.

Example
An investor puts 20,000$ into a deposit account and has the annual
interest paid directly into a separate current account and then spends it.
The deposit account pays 8.5% interest. How much interest is earned in the
fifth year?
Solution
The interest paid each year will remain constant at 8.5% of the original
investment of £20,000. Thus in year 5 the interest will be
0.085 × 20,000$ = 1,700 $
 Applications in Economics

Compound interest is interest which is added to the original investment

every time it accrues. The interest added in one time period will itself earn
interest in the following time period. The total value of an investment will
therefore grow over time.
Example
If 600$ is invested for 3 years at 8% interest compounded annually at the
end of each year, what will the final value of the investment be?
Solution
Initial sum invested 600.00$
Interest at end of year 1 = 0.08 48.00 $
Total sum invested for year 2 648.00 $
Interest at end of year 2 = 0.08 = = 51.84 $
Total sum invested for year 3 699.84 $
Interest at end of year 2 = 0.08 = 55.99 $
Final value of investment 755.83 $
 Applications in Economics

A is the initial sum invested,

F is the final value of the investment,
i is the interest rate per time period (as a decimal fraction)
n is the number of time periods.

Value after 1 year = A(1 + i)

Value after 2 years = A(1 + i)(1 + i) = A 2
Value after 3 years = A(1 + i)2(1 + i) = A 3
The formula for the final value F of an investment of A for n time periods at
interest rate i is therefore
Example (Rework)
If 600$ is invested for 3 years at 8% then the known values for the formula will
be A = 600; n = 3; i = 8% = 0.08
Thus the final sum will be F = 600(1.08)3 = 600(1.259712) = 755.83 $
 Applications in Economics

Test Yourself
1. If 4,000$ is invested at 5% interest for 3 years what will the final sum be?
2. How much will 200$ invested at 12% be worth at the end of 4 years?
3. A parent invests 6,000$ for a 7-year-old child in a fixed interest scheme which
guarantees 8% interest. How much will the child have at the age of 21?
4. If 525$ is invested in a deposit account that pays 6% interest for 6 years, what
will the final sum be?
5. What will 24,000$ invested at 11% be worth at the end of 5 years?
 Applications in Economics

Initial amount - Present Value (PV)

A formula to calculate A, when values for F, i and n are given, can be derived as
follows. Since the final sum formula is F = A n
Then, dividing through by (1 + i)n, we get the initial sum formula

Example
How much money needs to be invested now in order to accumulate a final
sum of 12,000 $ in 4 years’ time at an annual rate of interest of 10%?
Solution
Using the formula derived above, the initial amount is
= 12,000(1.1)-4
= 12,000/1.4641
= 8,196.16$
 Applications in Economics

The net present value (NPV) of an investment project is defined as the PV of

the future returns minus the cost of setting up the project

C is the cost of setting up the project

B = F is the final value of the investment
r = i is the interest rate per time period
NPV = B( 1+ r)-n – C or NPV= PV – C

Example
An investment project involves an initial outlay of 600$ now and a return of
1,000$ in 5 years’ time. Money can be invested at 9%. What is the NPV?
Solution
The PV of 1,000$ in 5 years’ time at 9% can be found using the initial amount
formula as A = F(1 + i)-n = 1,000(1.09)-5 = 649.93$
Therefore NPV = 649.93 $- 600$ = 49.93$.
 Applications in Economics

The investor thus has the choice of:

(a) putting 600$ into this investment project and securing 1,000$ in 5 years’ time
Or
(b) investing 600$ at 9%, accumulating 923.17$ in 5 years

Solution
Option (a) is clearly the winner.
If the outlay is less than the PV of the future return an investment must be a
profitable venture.
The basic criterion for deciding whether or not an investment project is
worthwhile is therefore NPV > 0
 Applications in Economics

Example
An investor can put money into any one of the following three ventures:
Project A costs 2,000$ now and pays back 3,000 $ in 4 years
Project B costs 2,000 $ now and pays back 4,000 $ in 6 years
Project C costs 3,000 $ now and pays back 4,800 $ in 5 years
The current interest rate is 10%. Which project should be chosen?

Solution
NPV of project A = 3,000(1.1)-4 - 2,000 = 2,049.04 - 2,000 = 49.04$
NPV of project B = 4,000(1.1)-6 - 2,000 = 2,257.90 - 2,000 = 257.90 $
NPV of project C = 4,800(1.1)-5 - 3,000 = 2,980.42 - 3,000 = - 19.58 $
Project B has the largest NPV and is therefore the best investment.
Project C has a negative NPV and so would not be worthwhile even if there
was no competition.
 Applications in Economics

Test Yourself
1. The following investment projects all involve an outlay now and a single
return at some point in the future. Calculate the NPV and say whether or not
each is a worthwhile investment:
a) 1,100 $ outlay, 1,500 $ return after 3 years, interest rate 8%
b) 750 $ outlay, 1,000 $ return after 5 years, interest rate 9%
c) 50,000 $ outlay, 75,000 $ return after 3 years, interest rate 14%
2. An investor has to choose between the following three projects:
Project A requires an outlay of 35,000 $ and returns 60,000 $ after 4 years
Project B requires an outlay of 40,000 $ and returns 75,000 $ after 5 years
Project C requires an outlay of 25,000 $ and returns 50,000 $ after 6 years
Which project would you advise this investor to put money into if the cost of
capital is 10%?