Core Topic, Chapter 5: Sequences and Series

LESSON 1: Sequences

Definition of a Sequences

A set of numbers connected by a definite law is called a sequence of numbers. Each number
in a sequence is called a term.

Example 1: Describe the following sequences and find the next two terms:
a) 2, 4, 6, 8, 10, …
b) 1, 5, 25, 125, . ..

Solution:
a) The sequence starts at 2, and each term is 2 more than the previous term.
The next two terms are 12 and 14.

b) The sequence starts at 1, and each term is 5 times the previous term.
The next two terms are 625, and 3125.

Notation:

 The terms of the sequence are often denoted by 𝑢1 , 𝑢2 , 𝑢3 , … , 𝑢𝑛 , … where 𝑢1 is the first
term, 𝑢2 is the second term and so on

For example, for the sequence 2, 4, 6, 8, 10, … we have 𝑢1 = 2, 𝑢2 = 4, 𝑢3 = 6, 𝑢4 = 8, and

𝑢5 = 10, ...

 A sequence could be defined by an explicit formula.

For example, if a sequence is defined by the explicit formula 𝑢𝑛 = 3𝑛 + 1, the first four
terms of this sequence are

𝑢1 = 3 × 1 + 1 = 4,
𝑢2 = 3 × 2 + 1 = 7,
𝑢3 = 3 × 3 + 1 = 10,
𝑢4 = 3 × 4 + 1 = 13, …

Exercise 5A, page 104: 4, 7(b, c, e, g) HW: 3, 5, 7(a)

1
LESSON 2: Arithmetic Sequences

Definition of an Arithmetic Sequences

An arithmetic sequence is a sequence in which each term after the first, 𝑢1 , is obtained by
adding the same number, 𝑑, to the preceding term. The constant 𝑑 is called the common
difference.

For example, the sequence 2, 4, 6, 8, 10, …is an arithmetic sequence with

𝑢1 = 1st term = 2 & 𝑑 = common difference = 𝑢𝑛 − 𝑢𝑛−1 = 4 − 2 = 2

Formula for the nth term of an Arithmetic Sequence

The 𝑛th term of an arithmetic sequence is 𝑢𝑛 = 𝑢1 + (𝑛 − 1)𝑑

Example 2: Consider the sequence 2, 9, 16, 23, 30, …

a) Show that the sequence is arithmetic.
b) Find the formula for the general term 𝑢𝑛 .
c) Find the 100th term of the sequence.
d) Is i. 828 ii. 2341 a term of the sequence?

Solution:
a) 9 − 2 = 7, 16 − 9 = 7, 23 − 16 = 7, 30 − 23 = 7
The difference between successive terms is constant.
∴ the sequence is arithmetic with 𝑢1 = 2 and 𝑑 = 7

b) 𝑢𝑛 = 𝑢1 + (𝑛 − 1)𝑑
∴ 𝑢𝑛 = 2 + 7(𝑛 − 1)
∴ 𝑢𝑛 = 7𝑛 − 5

c) 𝑢100 = 7 × 100 − 5 = 695

d) i. Let 𝑢𝑛 = 828 ii. Let 𝑢𝑛 = 2341

∴ 7𝑛 − 5 = 828 ∴ 7𝑛 − 5 = 2341
7𝑛 = 833 7𝑛 = 2346
1
𝑛 = 119 𝑛 = 335 7
∴ 828 is a term of the sequence,
But 𝑛 must be an interger, so 2341
and in fact is the 119th term.
is not a member of the sequence.

2
Example 3: Find 𝑘 given that 3𝑘 + 1, 𝑘, and −3 are consecutive terms of an arithmetic
sequence.

Solution:
Since the sequence is arithmetic, the difference between consecutive terms is constant. Thus,
⟹ 𝑢3 − 𝑢2 = 𝑢2 − 𝑢1
⟹ −3 − 𝑘 = 𝑘 − (3𝑘 + 1)
⟹ −3 − 𝑘 = −2𝑘 − 1
⟹𝑘=2

Example 4: Find the general term 𝑢𝑛 for an arithmetic sequence with third term 8 and
eight term −17.

Solution:
Given: 𝑢3 = 8 and 𝑢8 = −17
(𝑛
Using 𝑢𝑛 = 𝑢1 + − 1)𝑑 gives 𝑢3 = 𝑢1 + 2𝑑 and 𝑢8 = 𝑢1 + 7𝑑
Hence, 𝑢1 + 2𝑑 = 8 …(1)
and 𝑢1 + 7𝑑 = −17 …(2)
Solving (1) and (2) simultaneously gives: 𝑑 = −5 and 𝑢1 = 18
Hence, 𝑢𝑛 = 18 − 5(𝑛 − 1) = 23 − 5𝑛

Example 5: Ryan is a cartoonist. His comic strip has just been bought by a newspaper, so
he sends them 28 comic strips he as draws so far. Each week after the first he
sends 3 more comic strips to the newspaper.
a) Find the total number of comic strips sent after 1, 2, 3, and 4 weeks.
b) Show that the total number of comic strips sent after 𝑛 weeks forms an
arithmetic sequence.
c) Find the number of comic strips sent after 15 weeks.
d) When does Rayan send his 120th comic strips?

Solution:
a) Week 1: 28 comic strips
Week 2: 28 + 3 = 31 comic strips
Week 3: 31 + 3 = 34 comic strips
Week 4: 34 + 3 = 37 comic strips

b) Every week, Rayan sends 3 comic strips, so the difference between successive weeks is
always 3. We have an arithmetic sequence with 𝑢1 = 28 and common difference 𝑑 = 3.

c) 𝑢𝑛 = 𝑢1 + (𝑛 − 1)𝑑 = 28 + 3(𝑛 − 1) = 25 + 3𝑛
Thus, 𝑢15 = 25 + 3 × 15 = 70. After 15 weeks Ryan has sent 70 comic strips.
2
d) We want to find 𝑛 such that 𝑢𝑛 = 120 ⟹ 25 + 3𝑛 = 120 ⟹ 3𝑛 = 95 ⟹ 𝑛 = 31 3.
Rayan sends the 120th comic strip in the 32nd week.

Exercise 5B.1, page 106: 4, 12(c), 13(a), 17 HW: 5, 12(d), 13(c), 18

3
LESSON 3: Series

Definition of a Series

A series is the sum of the terms of a sequence.

Suppose that 𝑢𝑘 is a sequence whose first 𝑛 terms are 𝑢1 , 𝑢2 , 𝑢3 , … , 𝑢𝑛−1 , 𝑢𝑛

The finite series Sn is defined as the sum of the first 𝑛 terms of the sequence.

That is, 𝑆1 = 𝑢1 Note that 𝑆2 − 𝑆1 = 𝑢2

𝑆2 = 𝑢1 + 𝑢2
𝑆3 − 𝑆2 = 𝑢3
𝑆3 = 𝑢1 + 𝑢2 + 𝑢3

⋮
𝑆𝑛 − 𝑆𝑛−1 = 𝑢𝑛
𝑆𝑛−1 = 𝑢1 + 𝑢2 + … + 𝑢𝑛−1
𝑆𝑛 = 𝑢1 + 𝑢2 + … + 𝑢𝑛

Difference Between Consecutive Series

𝑆𝑛 − 𝑆𝑛−1 = 𝑢𝑛

Example 6: Consider the sequence 1, 4, 9, 16, 25, …

Find 𝑆𝑛 for 𝑛 = 1, 2, 3, 4, 𝑎𝑛𝑑 5.

Solution:
𝑆1 = 1
𝑆2 = 1 + 4 = 5
𝑆3 = 1 + 4 + 9 = 14
𝑆4 = 1 + 4 + 9 + 16 = 30
𝑆5 = 1 + 4 + 9 + 16 + 25 = 55

Example 7: Suppose a sequence has 𝑆7 = 91 and 𝑆8 = 112 . Find the value of 𝑢8

Solution:
∵ 𝑢𝑛 = 𝑆𝑛 − 𝑆𝑛−1
∴ 𝑢8 = 𝑆8 − 𝑆7 = 112 − 91 = 21

Exercise 5F, page 125: 1(a, b), 2

4
LESSON 4: Arithmetic Series

When the terms of an arithmetic sequence are added together, the sum is called an arithmetic
series.

For example, for the arithmetic sequence 1, 4, 7, 10, 13, …

S1 = 1,
S2 = 1 + 4 = 5,
S3 = 1 + 4 + 7 = 12,
S4 = 1 + 4 + 7 + 10 = 22,
S5 = 1 + 4 + 7 + 10 + 13 = 35, …

Formulae for an Arithmetic Series

The sum of the first 𝑛 terms in an arithmetic sequence with the first term 𝑢1 , a common
difference 𝑑, and last terms 𝑢𝑛 is given by
𝑛 𝑛
𝑆𝑛 = 2 [2𝑢1 + (𝑛 − 1)𝑑] or 𝑆𝑛 = 2 (𝑢1 + 𝑢𝑛 )

Example 8: Find the sum of 4 + 7 + 10 + 13 + …. to 50 terms.

Solution:
The series is arithmetic with 𝑢1 = 4, 𝑑 = 3, and 𝑛 = 50.
𝑛
Now 𝑆𝑛 = 2 [2𝑎 + (𝑛 − 1)𝑑]
50
∴ 𝑆50 = [2 × 4 + (50 − 1) × 3] = 3875
2

Example 9: Find the sum of −𝟔 + 𝟏 + 𝟖 + 𝟏𝟓 + ⋯ + 𝟏𝟒𝟏.

Solution:
The series is arithmetic with 𝑢1 = −6, 𝑑 = 7, and 𝑢𝑛 = 141. To find the sum, we need to
find 𝑛 first.

Now 𝑢𝑛 = 141.
∴ 𝑢1 + (𝑛 − 1)𝑑 = 141
∴ −6 + 7(𝑛 − 1) = 141
∴ 7(𝑛 − 1) = 147
∴ 𝑛 − 1 = 21
∴ 𝑛 = 22
𝑛
Using 𝑆𝑛 = 2 (𝑢1 + 𝑢𝑛 )
22
∴ 𝑆22 = (−6 + 141) = 1485
2
5
Example 10: An arithmetic sequence has first term 8 and common difference 2.
The sum of the terms of the sequence is 170. Find the number of terms in the
sequence.

Solution:
The series is arithmetic with 𝑢1 = 8, 𝑑 = 2, and 𝑆𝑛 = 170.
𝑛 𝑛
Using 𝑆𝑛 = 2 [2𝑎 + (𝑛 − 1)𝑑], we get [2 × 8 + 2(𝑛 − 1)] = 170
2
𝑛
[16 + 2(𝑛 − 1)] = 170
2
𝑛
[14 + 2𝑛] = 170
2

7𝑛 + 𝑛2 = 170
𝑛2 + 7𝑛 − 170 = 0
(𝑛 + 17)(𝑛 − 10) = 0
𝑛 = −17 or 𝑛 = 10
As 𝑛 > 0, 𝑛 = 10.
Thus, there are 10 terms in the sequence.

Exercise 5G, page 128: 2(a), 3(a, b), 14 HW: 2(d), 4, 15

6
LESSON 5: Geometric Sequence

Definition of a Geometric sequences

A geometric sequence is a sequence in which each term after the first, 𝑢1 , is obtained by
multiplying the preceding term by a fixed number, 𝑟. The constant 𝑟 is called the common
ratio.

For example, the sequence 1, 5, 25, 125, … is a geometric sequence with

𝑢𝑛 5
𝑢1 = 1 & 𝑟=𝑢 =1=5
𝑛−1

Formula for the nth term of a Geometric Sequence

The 𝑛th term of a geometric sequence is 𝑢𝑛 = 𝑢1 𝑟 𝑛−1

.
1
Example 11: Consider the sequence 8, 4, 2, 1, 2 , …
a) Show that the sequence is geometric.
b) Find the general term 𝑢𝑛 .
c) Hence find the 12th term as a fraction.

Solution:
1
4 1 2 1 1 2 1
a) =2 =2 =2
8 4 2 1

1
Consecutive terms have a common ratio of 2
1
∴ the sequence is geometric with 𝑢1 = 8 and 𝑟 = 2

b) 𝑢𝑛 = 𝑢1 𝑟 𝑛−1
1 𝑛−1
= 8×( )
2
= 23 × (2−1 )𝑛−1
= 23 × 2−𝑛+1
= 24−𝑛

1 1
c) 𝑢12 = 24−12 = 2−8 = 28 = 256

7
Example 12: 𝑘 − 1, 2𝑘, and 21 − 𝑘 are consecutive terms of a geometric sequence. Find 𝑘.

Solution:
Since the sequence is geometric, consecutive terms have a common ratio. Thus,
21 − 𝑘 2𝑘
=
2𝑘 𝑘−1
4𝑘 2 = (21 − 𝑘)(𝑘 − 1)
4𝑘 2 = 21𝑘 − 21 − 𝑘 2 + 𝑘
4𝑘 2 = 22𝑘 − 21 − 𝑘 2
5𝑘 2 − 22𝑘 + 21 = 0
7
Solving using the calculator gives: 𝑘=5 or 𝑘=3

Example 13: A geometric sequence has 𝑢2 = −6 and 𝑢5 = 162. Find its general term.

Solution:
𝑢2 = −6 ⟹ 𝑢1 𝑟 = −6 …(1)
𝑢5 = 162 ⟹ 𝑢1 𝑟 4 = 162 …(2)

Dividing (2) by (1) gives:

𝑢1 𝑟 4 162
=
𝑢1 𝑟 −6
𝑟 3 = −27
3
𝑟 = √−27 = −3
Substituting the value of 𝑟 in (1) gives −3𝑢1 = −6 ⟹ 𝑢1 = 2

Thus, 𝑢𝑛 = 2 × (−3)𝑛−1

Example 14: Find the first term of the sequence 6, 6√2, 12,12√2, … which exceeds 1400.

Solution:
The sequence is geometric with 𝑢1 = 6 and 𝑟 = √2.
𝑛−1
Hence, 𝑢𝑛 = 6 × (√2)
We need to find 𝑛 such that 𝑢𝑛 > 1400.
Using a graphing calculator with
Y1 = 6 × (√2)^(𝑋 − 1), we view a table of values as
shown to the right.
Hence, the first term to exceed 1400 is 𝑢17 = 1536.

Exercise 5C, page 111: 3(a), 9(g), 11(a), 12(a) HW: 3(d), 9(h), 11(b), 12(c)

8
LESSON 6: Geometric Series

When terms of a geometric sequence are added together, the sum is called a geometric series.

For example, for the geometric sequence 1, 5, 25, 125, …

S1 = 1,
S2 = 1 + 5 = 6,
S3 = 1 + 5 + 25 = 31,
S4 = 1 + 5 + 25 + 75 = 106,...

Formula for the nth term of a Geometric Series

The sum of the first 𝑛 terms in a geometric sequence with the first term 𝑢1 and a common
ratio 𝑟 is given by

𝑢1 (1 − 𝑟 𝑛 ) 𝑢1 (𝑟 𝑛 − 1)
𝑆𝑛 = = , where 𝑟 ≠ 1
1−𝑟 𝑟−1

Example 15: Find the sum of 2 + 6 + 18 + 54 … to 12 terms.

Solution:
The series is geometric with 𝑢1 = 2, 𝑟 = 3, and 𝑛 = 12.

𝑢1 (1 − 𝑟 𝑛 )
𝑆𝑛 =
1−𝑟

2(1 − 312 )
⟹ 𝑆12 = = 531 440
1−3

Example 16: Find a formula for 𝑆𝑛 , the sum of the first 𝑛 terms of the series

1
9−3+1− +⋯
3
Solution:
−3 1
The series is geometric with 𝑢1 = 9, and 𝑟 = 9 = − 3.

1 𝑛 1 𝑛
𝑛
𝑢1 (1 − 𝑟 ) 9 (1 − (− 3) ) 9 (1 − (− 3) ) 27 1 𝑛
𝑆𝑛 = = = = (1 − (− ) )
1−𝑟 1 4 4 3
1+3 3

9
Example 17: A geometric sequence has the first term is 5 and common ratio 2. The sum of
the first 𝑛 terms is 635. Find 𝑛.

Solution:
The series is geometric with 𝑢1 = 5, and 𝑟 = 2.

𝑢1 (1 − 𝑟 𝑛 ) 5(1 − 2𝑛 )
∴ 𝑆𝑛 = = = −5(1 − 2𝑛 ).
1−𝑟 1−2

To find 𝑛 such that 𝑆𝑛 = 635, we use a table of values

with 𝑌1 = −5 × (1 − 2^𝑋):
𝑆7 = 635, so 𝑛 = 7

Example 18: A child lives 200 meters from school. He walks 60 meters in the first minute,
and in each subsequent minute he walks 75% of the distance he walked in the
previous minute. Show that he takes between 6 and 7 minutes to get to school.

Solution:
Given: For the first n minutes the child walks 𝑆𝑛 = 200 meters, 𝑢1 = 60, and 𝑟 = 0.75
Required: Show that 𝑛 between 6 and 7.

𝑢1 (1 − 𝑟 𝑛 ) 60(1 − 0.75𝑛 )
𝑆𝑛 = = = 240(1 − 0.75𝑛 )
1−𝑟 1 − 0.75

Creating a table of values on the graphical calculator, we can see that

𝑆6 ≈ 197 and 𝑆7 ≈ 208.

So he has not reached the school after 6 minutes, but (if he had gone on walking) he would
have gone more than 200 meters in 7 minutes. That is, he takes between 6 and 7 minutes to
walk to school.

Note: A geometric sequence can be generated when the terms are related by a fixed
percentage. In particular, if every new value

𝑘
(a) If every new value is 𝑘% of the preceding value, then 𝑟 = 100
𝑘
(b) If every new value increases by 𝑘%, then 𝑟 = 1 + 100
𝑘
(c) If every new value decreases by 𝑘%, then 𝑟 = 1 − 100

Exercise 5H, page 133: 2(a), 3(b), 11, 13 HW: 2(c), 3(d), 14(a – c)

10
LESSON 7: Infinite Geometric Series

1 1 1 1 1
For the infinite geometric sequence 1, , , , ,... where 𝑟 = 2
2 4 8 16
S1 = 1,
1
S2 = 1 + 2 = 1.5,
1 1
S3 = 1 + 2 + 4 = 1. 75,
1 1 1
S4 = 1 + 2 + 4 + 8 = 1.875,
1 1 1 1
S5 = 1 + 2 + 4 + 8 + 16 = 1.9375,…

Clearly, as 𝑛 increases, the values of Sn approach 2. We say that the infinite geometric series
converges to 2 and write 𝑺∞ = 2. 𝑺∞ is called the sum to infinity of the series.

Note:

Not all infinite geometric series converge.

For example, for the infinite geometric sequences: 1, 3, 9, 27, 81, … where 𝑟 = 3

S1 = 1,
S2 = 1 + 3 = 4,
S3 = 1 + 3 + 9 = 13,
S4 = 1 + 3 + 9 + 27 = 40,
S5 = 1 + 3 + 9 + 27 + 81 = 121, …

As 𝑛 increases, the values of Sn increase. We say that the infinite geometric series does not
converge or it diverges.

Formula for the infinite Geometric Series

If a geometric sequence has 𝑢1 as the first term and 𝑟 as a common ratio, then

(a) if r  1, then the infinite geometric series converges to

𝑢1
𝑆∞ =
1−𝑟
(b) if r  1, then the infinite geometric series diverges.

11
Example 19: If possible, find the sum of each the following infinite geometric series:
1 1
a) 1 + 4 + 16 + ⋯

b) 1 + 2 + 4 + …

Solution:
1
a) The series is an infinite geometric series with 𝑢1 = 1 and 𝑟 = 4

As |𝑟| < 1, the infinite geometric series converges to

𝑢1 1 4
𝑆∞ = = =
1−𝑟 1−1 3
4
b) The series is an infinite geometric series with 𝑢1 = 1 and 𝑟 = 2.
As |𝑟| ≥ 1, the infinite geometric series diverges.

Example 20: Write 0. 7̅ as a rational number.

Solution:
0. 7̅ = 0.7777 …
= 0.7 + 0.07 + 0.007 + 0.0007 + ⋯
7 7 7 7
= + + + + …
10 100 1000 10000

7 1
The above series is an infinite geometric series with 𝑢1 = 10 and 𝑟 = 10
7 7
𝑢1 10 10 7
∴ 𝑆∞ = = = =
1−𝑟 1− 1 9 9
10 10
7
Hence, 0. 7̅ = 9

Exercise 5I, page 137: 2(b), 4(a) HW: 2(a), 4(b)

12
LESSON 8: Sigma Notation

The finite series 𝑆𝑛 = 𝑢1 + 𝑢2 + … + 𝑢𝑛 can be written more compactly using sigma

notation or summation notation.

The symbol ∑ is called sigma. it is equivalent of capital S in the Geek alphabet.

𝑛

We write 𝑆𝑛 = 𝑢1 + 𝑢2 + … + 𝑢𝑛 as ∑ 𝑢𝑘 .
𝑘=1
𝑛

∑ 𝑢𝑘 reads “the sum of all numbers of the form 𝑢𝑘 where 𝑘 = 1, 2, 3, … 𝑢𝑝𝑡𝑜 𝑛".
𝑘=1

Example 21: Expand and evaluate:

7 5
1
(a) ∑(𝑘 + 1) (b) ∑
2𝑘
𝑘=1 𝑘=1
Solution:
7

(a) ∑(𝑘 + 1) = (1 + 1) + (2 + 1) + (3 + 1) + (4 + 1) + (5 + 1) + (6 + 1) + (7 + 1)
𝑘=1

= 2 + 3 + 4 + 5 + 6 + 7 + 8 = 35
5
1 1 1 1 1 1 1 1 1 1 1 31
(b) ∑ 𝑘
= 1+ 2+ 3+ 4+ 5= + + + + =
2 2 2 2 2 2 2 4 8 16 32 32
𝑘=1

You can also use technology to evaluate the sum of a

series in sigma notation. Press ALPHAa, WINDOW, 2: ∑(

7
Then enter ∑(𝑋 + 1)
𝑋=1

To view the answer, press enter.

13
Example 22: For each of the following sequences:
(i) Write down an expression for 𝑆𝑛 using sigma notation.
(ii) Find 𝑆5
(a) 2, 5, 8, 11, … (b) 1, 2, 4, 8, …
Solution:

(a) (i) The sequence is arithmetic with 𝑢1 = 2 and 𝑑 = 3.

The general term of this sequences is 𝑢𝑛 = 𝑢1 + (𝑛 − 1)𝑑 = 2 + 3(𝑛 − 1) = 3𝑛 − 1.
𝑛

∴ 𝑆𝑛 = ∑(3𝑘 − 1)
𝑘=1

(ii) The first five terms of this sequence are: 2, 5, 8, 11, 14.
Thus, 𝑆5 = 2 + 5 + 8 + 11 + 14 = 40

(b) (i) The sequence is geometric with 𝑢1 = 1 and 𝑟 = 2.

The general term of this sequences is 𝑢𝑛 = 𝑢1 𝑟 𝑛−1 = 1 × 2𝑛−1 = 2𝑛−1 .
𝑛

∴ 𝑆𝑛 = ∑ 2𝑘−1
𝑘=1

(ii) The first five terms of this sequence are: 1, 2, 4, 8, 16

Thus, 𝑆5 = 1 + 2 + 4 + 8 + 16 = 31

If the finite series is an arithmetic series, then

𝑛
𝑛 𝑛
∑ 𝑢𝑘 = 𝑆𝑛 = (2𝑢1 + (𝑛 − 1)𝑑) = (𝑢1 + 𝑢𝑛 )
2 2
𝑘=1

20

Example 23: Evaluate the arithmetic series ∑(3𝑘 − 1)

𝑘=1
Solution:

Let 𝑢𝑘 = 3𝑘 − 1.
Then 𝑢1 = 3 × 1 − 1 = 2 and 𝑢20 = 3 × 20 − 1 = 59.
20
20
∴ ∑(3𝑘 − 1) = (2 + 59) = 610
2
𝑘=1

14
If the finite series is a geometric series, then
𝑛
𝑢1 (1 − 𝑟 𝑛 ) 𝑢1 (𝑟 𝑛 − 1)
∑ 𝑢𝑘 = 𝑆𝑛 = =
1−𝑟 𝑟−1
𝑘=1

15
1 𝑘
Example 24: Evaluate the geometric series ∑ ( )
2
𝑘=1
Solution:
1 𝑘
Let 𝑢𝑘 = (2) .

1 1 1 1 2 1
Then 𝑢1 = (2) = 2 and 𝑢2 = (2) = 4.
1/4 1
Thus, 𝑟 = 1/2 = 2.

1 1 15
(1 − ( 2) )
15
1 𝑘 2
∴ ∑( ) = ≈1
2 1
𝑘=1 1+2

If the infinite series is a geometric series with |𝑟| < 1, then

∞
𝑢1
∑ 𝑢𝑘 = 𝑆∞ =
1−𝑟
𝑘=1

Exercise 5F, page 125: 4(a, c), 5(a, c) HW: 4(b, e), 5(e)
Exercise 5G, page 128: 5(a) HW: 5(b)
Exercise 5H, page 133: 5(a) HW: 5(b)
Exercise 5I, page 137: 5(a) HW: 5(b)

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LESSON 9: Financial Mathematics

A common method for calculating interest is compound interest.

If you leave your money in the bank for a period of time, the interest is automatically added
to your account.

With compound interest, any interest that is added to your account will also earn interest in
the next time period.

Definition of compound interest

Compound interest is calculated as a percentage of the total amount at the end of the
pervious compounding period.

Suppose that you invested $1000 in the bank. You leave the money in
the bank for 3 years, and paid an interest rate of 10% per annum (p.a.).
The interest is added to your investment each year, so the total value
increases.

The percentage increase each year is 10%, so at the end of the year
10
you will have 1 + 100 = 1.1 of the value at its start.

After one year your investment is worth $1000 × 1.1 = $1100

After two years it is worth After three years it is worth

$1100 × 1.1 $1200 × 1.1
= $1000 × 1.1 × 1.1 = $1000 × 1.1 × 1.1 × 1.1
= 1000 × (1.1)2 = 1000 × (1.1)3
= $1210 = $1331

We have a gemetric sequence with first term $1100 and common ratio 1.1.

If the money is left in your account for 𝑛 years it will amount to 1000 × (1.1)𝑛

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Annual Compounded Interest Formula

For interest compounded annually,

𝒓 𝒏
𝑭𝑽 = 𝑷𝑽 × (𝟏 + )
𝟏𝟎𝟎

where 𝐹𝑉 is the future value or the final balance,

𝑃𝑉 is the present value or the amount originally invested,
𝑟 is the interest rate per year,
𝑛 is the number of years,

The interest earned is the difference between the future value and the present value.

𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 = 𝑭𝑽 − 𝑷𝑽

Example 25: $5000 is invested for 4 years at 7% p.a. interest compounded annually.
a) What will it amount to at the end of this period?
b) How much interest has been earned?

Solution:

a) Given: 𝑃𝑉 = 5000, 𝑛 = 4, 𝑎𝑛𝑑 𝑟 = 7.

Required: 𝐹𝑉

7 4
∴ 𝐹𝑉 = 5000 × (1 + ) = 5000 × 1.074 ≈ 6553.98
100

The investment amount to $6553.98

b) The interest earned = $6553.98 − $5000 = $1553.98

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Note:

Interest can be compounded more than once per year. Interest is commonly compounded:

 Half-yearly (2 times per year)

 Quarterly (4 times a year)
 Monthly (12 times per year)

General Compound Interest Formula

𝒓 𝒌𝒏
For interest compounded 𝑘 times per year, 𝑭𝑽 = 𝑷𝑽 × (𝟏 + 𝟏𝟎𝟎𝒌)

Example 26: $5000 is invested for 4 years at 3% p.a. interest compounded quarterly.
Find the value of the investment at the end of this period.

Solution:

Given: 𝑃𝑉 = 5000, 𝑛 = 4, 𝑟 = 3, and 𝑘 = 4.

Required: 𝐹𝑉
4×4
3
∴ 𝐹𝑉 = 5000 × (1 + ) = 5000 × 1.007516 ≈ 5634.96
100 × 4

The investment will amount to £5634.96

Example 27: How much does Ivana need to invest now, to get a maturing value of $10 000
in 4 years’ time, given interest at 8% p.a. compounded twice annually? Give
your answer to the nearest dollar.

Solution:

Given: 𝐹𝑉 = 10 0000, 𝑛 = 4, 𝑟 = 8, and 𝑘 = 2.

Required: 𝑃𝑉
4×2
8
10 000 = 𝑃𝑉 × (1 + )
100 × 2

∴ 10 000 = 𝑃𝑉 × 1.048
10 000
∴ 𝑃𝑉 = ≈ 7306.90 ⟹ Ivana needs to invest $7307 now.
1.048

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Annual Inflation

Definition of inflation

Inflation is the general increase in the price of goods and services over time.

Inflation reduces the purchasing power of your money, because a fixed amount of money will
buy less goods and services as prices rise over time.

Inflation needs to be taken into account when setting investment goals. For example, suppose
you see a painting that you would like to buy, and it costs $5000 today. If it takes you 3 years
to accumulate the $5000, the price of the painting is likely to have increased in that time. So,
you will need to accumulate more than $5000 to purchase the painting.

To find how much you need to accumulate, you must index the value of the painting for
inflation.

Inflation Formula
𝑟 𝑛
𝐹𝑉 = 𝑃𝑉 × (1 + )
100

Example 28: Georgia would like to purchase a painting that is currently worth $5000.
She makes monthly deposits into an investment account, so that she can
purchase the painting in 3 years’ time.

If the inflation average 2.5% per year, calculate the value of the painting
indexed for inflation for 3 years.

Solution:

Given: 𝑃𝑉 = 5000, 𝑛 = 3, and 𝑟 = 2.5

Required: 𝐹𝑉

2.5 3
𝐹𝑉 = 5000 × (1 + ) = 5000 × 1.0253 = 5384.45
100

∴ Indexed value after 3 years is $5384.45

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Depreciation

Assists such as computers, cars, and furniture lose value as time passes. This is due to wear
and tear, technology becoming old, fashions changing, and other reasons.

Definition of depreciation

Depreciation is the loss in value of an item over time.

Mathematically, depreciation is similar to compound interest. In the case of compound

interest, the investment increases by a fixed percentage each time period. For depreciation,
the value decreases by a fixed percentage each time period.

Depreciation Formula

𝑟 𝑛
𝐹𝑉 = 𝑃𝑉 × (1 + 100) , where 𝑟 is negative

Example 29: An industrial dishwasher was purchased for £2400 and depreciated by 15%
each year.
a) Find its value after six years.
b) By how much did it depreciates?

Solution:

a) Given: 𝑃𝑉 = 2400, 𝑛 = 6 , 𝑟 = −15.

Required: 𝐹𝑉

−15 6
∴ 𝐹𝑉 = 2400 × (1 + 100 ) = 2400 × 0.856 ≈ 905.16.

So, after 6 years the value is £905.16

b) The depreciation = £2400 − £905.16 = £1494.84

Exercise 5E.1, page 117: 3, 9, 12 HW: 1, 8, 10

Exercise 5E.2, page 119: 3 HW: 1(a)
Exercise 5E.4, page 121: 2 HW: 3

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LESSON 10: Using technology for financial models

To solve financial problems, we can use the TVM Solver on the graphical calculator.
The TVM Solver can be used to find one of the following variables if all the other variables
are given:

Variable Represents

𝑁 the number of compounding periods, not the number of years.

* That is 𝑁 = 𝑛𝑘 where 𝑘 is the number of times the interest is

compounded per year and 𝑛 is the number of years.

𝐼% the interest rate per year or annum.

𝑃𝑉 the present value of the investment.

𝑃𝑀𝑇 the payment each time period

𝐹𝑉 the future value of the investment.

𝑃/𝑌 the number of payments per year.

* you may assume that P/Y = C/Y = k, unless stated otherwise.

𝐶/𝑌 the number of compounding periods per year.

* C/Y = k.

PMT: END BEGIN this key let you choose between payments at the end of a time period
or payments at the beginning of a time period.

Most interest payments are made at the end of the time period.

Note:

 When you invest your money, 𝑃𝑉 should be entered as a negative value because the
money is moving from you to the bank. The future value is the money you receive at
the end of the investment, so 𝐹𝑉 is positive.

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  To use the TVM Solver for depreciation, the interest rate should be negative.
Example 30: Sally invests $15 000 in an account that pays 4.25% p.a. compounded
monthly. How much is her investment worth after 5 years?
Solution:
𝑁 = 5 × 12 = 60
𝐼% = 4.25
𝑃𝑉 = −15 000
𝑃𝑀𝑇 = 0
𝐹𝑉 = ? ⟹ 18 544.53 ∴ Sally’s investment is worth $18 544.53 after 5 years
𝑃/𝑌 = 12
𝐶/𝑌 = 12

Example 31: Helena is investing money in a term deposit paying 5.2% p.a. compounded
quarterly. How much does she need to deposit now, in order to collect $5000
at the end of 3 years?
Solution:
𝑁 = 3 × 4 = 12
𝐼% = 5.2
𝑃𝑉 = ? ⟹ −4282.10 ∴ $4282.10 needs to be deposited.
𝑃𝑀𝑇 = 0
𝐹𝑉 = 5000
𝑃/𝑌 = 4
𝐶/𝑌 = 4

Example 32: For how long must Magnus invest $4000 at 6.45% p.a. compounded half-
yearly, for it to amount to $10 000?
Solution:
𝑁 =? ⟹ 𝑁 = 28.9 ∴ 29 half-years are required, which is 14.5 years.
𝐼% = 6.45
𝑃𝑉 = −4000
𝑃𝑀𝑇 = 0
𝐹𝑉 = 10 000
𝑃/𝑌 = 2
𝐶/𝑌 = 2

Example 33: Iman deposits $5000 in an account that compounds interest monthly, 2.5
years later, the account has balance $6000. What annual rate of interest has
been paid?
Solution:
𝑁 = 2.5 × 12 = 30
𝐼% = ? ⟹ 𝐼 = 7.32 ∴ the interest rate is 7.32% p.a.
𝑃𝑉 = −5000
𝑃𝑀𝑇 = 0
𝐹𝑉 = 6 000
𝑃/𝑌 = 12
𝐶/𝑌 = 12

Exercise 5E.5, page 122: 1, 10, 13, 16 HW: 3, 11, 14

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