Financial

Mathematics
 Sequence and Series
O Set of numbers each of which is formed according to a definite
rule is sequence
O Eg. a. 1,2,3,4,5…..
b. 3,9,27,81,243,…..
O Series is a sequence in which each term is connected by
algebraic sum plus or minus.
O Thus, if tn is nth term of sequence, then,
t1 + t2 +………….+tn is a given series of n terms
 Progression
O A sequence or series is called a progression
if the difference or the ratio between two
successive terms is constant
O Sequence 2,6,10,14,18…… is the difference
between two successive terms is always
equal to 4, called AP
O Again, in the sequence 1,3,9,27,81,……..is
the ratio of two successive terms is always
equal called GP
 Arithmetic Series (or AP)
O A sequence or series in which every term is greater or less
than the preceding term by a constant number
O Such constant number is common difference
O Common difference is obtained by subtracting any term
from its immediate next term
O For Eg. a. 2+4+6+8+10+……(as with CD 2)
b. 10,5,0,-5,-10,……(as with CD -5)
Now, nth term = a+(n-1)d
Sum to n terms = n/2[2a+(n-1)d] or n/2(a+l)
 Example
O Find 14th term of AS 4,7,10,13,……..
here,
first term(a) = 4
second term(t2) = 7
CD = t2-t1 = 3
t14 = ?
we know,
tn= a+(n-1)d
t14= 4+(14-1)3
= 4+ 13*3
= 43
Geometric sequence (or GP)
O A sequence is said to be in GP if each of its
term, after the first is obtained by multiplying by
a constant quantity.
O The constant quantity(ratio) is obtained by
dividing the succeeding term by the preceding
term and is called common ratio
O For Eg. a. 4,12,36,108,……….
b. 1+1/2+1/4+1/8+……….
Now, nth term= ar^(n-1)
Sum to nth term= a(r^n-1)/(r-1)
 Example
O Find 7th term of GS 4,20,100,…….
first term(a)= 4
second term(t2)= 20
common ratio(r)= t2/a =5
t7 = ?
we know,
tn= ar^(n-1)
t7= 4*5^(7-1)
= 4*5^6
=62500
 Sum of infinite geometric
series
O An infinite geometric series is the sum of an
infinite geometric sequence
O This series would have no last term
O Formula:
O S∞ = a / (1-r )
Introduction of S.I and C.I

O When we deposit a money in a bank for

certain interval of time.
O Then the bank will pay us some additional
amount of money under a certain condition.
O Whereason their sum, then it is known as
compound interest.
O , if the interest is added each year to the
principal and for the following year the
interest is calculated
 Formula Of Simple and Compound
Interests
1. Simple interest I=p*n*i.
2. Amount (future value) A= P+I
3. Annual payment = r* (price of bond)
4. Compound growth rate L= (1+r/100)
5. Compound amount after n years is A= PLn =P (
1+r/100)n
6. Compound interest = A-P = P{( 1+ r/100)n-1}
7. Amount compounded k times a year A=P ( 1+
r/k*100)kn
8. Effective rate re = 100 [ ( 1 + r/k*100 )k – 1 ]
DIFFERENCE BETWEEN SI AND CI
SIMPLE INTEREST
Simple interest is charged on the
principal amount.
S.I concept is utilized on small
terms loans, automobile loans
etc.
The principal remains constant.
The returns computed are less.
COMPOUND INTEREST
Compound interest is imposed on
principal and the accumulated
interest.
C.I concept is used by Banks,
Financial institution on Deposits etc.
Principal keeps on changing during
the duration of borrowing.
Returns are on the higher side.
 DEPRECIATION
O Loss caused in the value of the fixed assets
O Eg: machinery, physical infrastructures, etc. by their
constant use
O Annual simple depreciation= (V-S)/n
O Compound depreciation is the loss in the value of
an asset, the loss in successive years being
proportional to the depreciated value of asset at the
commencement of the year.
O S= V(1 − 𝑖)𝑛
Where, V= Original cost
S= Scrap value
n= number of year of its life
i= r/100
r= rate of compound interest
 What is Net Present Value
(NPV)?
O Net Present Value (NPV) is the value of all future
cash flows (positive and negative) over the entire
life of an investment discounted to the present.
O NPV analysis is a form of intrinsic valuation and
is used extensively across finance and
accounting for determining the value of a
O business
O investment security
O capital project, new venture
O cost reduction program
O anything that involves cash flow
 Formula of NPV
O NPV = Present value of cash inflows – the
present value of cash outflows
 What is Internal Rate of
Return (IRR)?
O The internal rate of return (IRR) is a metric
used in capital budgeting to estimate the
profitability of potential investments.
O The internal rate of return is a discount rate
that makes the net present value (NPV) of
all cash flows from a particular project equal
to zero.
O IRR calculations rely on the same formula as
NPV does.
Formula of IRR
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