Geometric series

A geometric series is a series associated with a geometric sequence, i.e., the ratio (or quotient) q of two consecutive terms is the same for each pair.

Thus, every geometric series has the form

$a+aq+aq^{2}+aq^{3}+\cdots$

where the quotient (ratio) of the (n+1)th and the nth term is

${\frac {aq^{n}}{aq^{n-1}}}=q.$

The sum of the first n terms of a geometric sequence is called the n-th partial sum (of the series); its formula is given below (S_n).

An infinite geometric series (i.e., a series with an infinite number of terms) converges if and only if |q|<1, in which case its sum is $a \over 1-q$, where a is the first term of the series.

In finance, since compound interest generates a geometric sequence, regular payments together with compound interest lead to a geometric series.

Remark
Since every finite geometric sequence is the initial segment of a uniquely determined infinite geometric sequence every finite geometric series is the initial segment of a corresponding infinite geometric series. Therefore, while in elementary mathematics the difference between "finite" and "infinite" may be stressed, in more advanced mathematical texts "geometrical series" usually refers to the infinite series.

Examples

Positive ratio		Negative ratio
The series $6+2+{\frac {2}{3}}+{\frac {2}{9}}+{\frac {2}{27}}+\cdots +{\frac {6}{3^{n-1}}}+\cdots$ and corresponding sequence of partial sums $6,8,{\frac {26}{3}},{\frac {80}{9}},{\frac {242}{27}},\dots ,6\cdot {1-\left({\frac {1}{3}}\right)^{n} \over 1-{\frac {1}{3}}},\dots$ is a geometric series with quotient $q={\frac {1}{3}}$ and first term $a=6\,$ and therefore its sum is ${6 \over 1-{\frac {1}{3}}}=9$		The series $6-2+{\frac {2}{3}}-{\frac {2}{9}}+{\frac {2}{27}}-+\cdots (-1)^{n-1}{\frac {6}{3^{n-1}}}\cdots$ and corresponding sequence of partial sums $6,4,{\frac {14}{3}},{\frac {40}{9}},{\frac {122}{27}},\dots ,6\cdot {1-\left(-{\frac {1}{3}}\right)^{n} \over 1-{\frac {1}{3}}},\dots$ is a geometric series with quotient $q=-{\frac {1}{3}}$ and first term Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle a = 6\, } and therefore its sum is Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle { 6 \over 1- \left( - \frac 13 \right) } = \frac 9 2 }

The sum of the first 5 terms — the partial sum S₅ (see the formula derived below) — is for q = 1/3

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle S_5 = 6 + 2 + \frac 2 3 + \frac 2 9 + \frac 2 {27} = 6 \left[ 1+\frac{1}{3} + \Big(\frac{1}{3}\Big)^2 + \Big(\frac{1}{3}\Big)^3 + \Big(\frac{1}{3}\Big)^4 \right] = 6 \left[ \frac{1-(\frac{1}{3})^5 }{ 1-\frac{1}{3} } \right] = \frac{242}{27} }

and for q = −1/3

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle S_5 = 6 - 2 + \frac 2 3 - \frac 2 9 + \frac 2 {27} = 6 \left[ 1-\frac{1}{3} + \Big(\frac{1}{3}\Big)^2 - \Big(\frac{1}{3}\Big)^3 + \Big(\frac{1}{3}\Big)^4 \right] = 6 \left[ \frac{ 1+(\frac{1}{3})^5 }{ 1+\frac{1}{3} } \right] = \frac{122}{27} }

Application in finance

When regular payments are combined with compound interest this generates a geometric series:

Regular deposits

If, for n time periods, a sum P is deposited at an interest rate of p percent, then — after the n-th period —

the first payment has increased to Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle P_n = P \left( 1 + {p\over100} \right)^n }

the second to Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle P_{n-1} = P \left( 1 + {p\over100} \right)^{n-1} }

etc., and the last one Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle P_1 = P \left( 1 + {p\over100} \right) }

Thus the cumulated sum

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle P_1+P_2+\cdots P_n = Pq + Pq^2 + \cdots + Pq^n \qquad \text {where } q = 1 + {p\over100} }

is the n-th partial sum of a geometric series.

Regular down payments

If a loan L is to be payed off by n regular payments P, the total payment nP has to cover both the loan L and the accumulated interest I.

The interest for the payment at the end of the first time period is

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle I_1 = P \left( {p\over100} \right) } ,

for the payment after two time periods it is

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle I_2 = P \left( {p\over100} \right)^2 } ,

etc., and for the last payment after n time periods the interest is

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle I_n = P \left( {p\over100} \right)^n } ,

thus the accumulated interest

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle nP-L = I_1 +I_2 + \cdots + I_n = Pq + Pq^2 + \cdots + Pq^n \qquad \text {where } q = 1 + {p\over100} }

is the n-th partial sum of a geometric series. (From this equation, P can easily be calculated.)

Power series

By definition, a geometric series

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle \sum_{k=1}^\infty a_k \qquad ( a_k \in \mathbb C ) }

can be written as

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle a \sum_{k=0}^\infty q^k }

where

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle a = a_1 \qquad \textrm{and} \qquad q = { a_{k+1} \over a_k } \in \mathbb C \hbox{ is the constant quotient} }

The partial sums of the power series Σq^k are

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle S_n = \sum_{k=0}^{n-1} q^k = 1 + q + q^2 + \cdots + q^{n-1} = \begin{cases} {\displaystyle \frac{1-q^n}{1-q}} &\hbox{for } q\ne 1 \\ n \cdot 1 &\hbox{for } q = 1 \end{cases} }

because

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle (1-q)(1 + q + q^2 + \cdots + q^{n-1}) = 1-q^n }

Since

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle \lim_{n\to\infty} {1-q^n \over 1-q } = {1-\lim_{n\to\infty}q^n \over 1-q } \quad (q\ne1)}

it is

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle \lim_{n\to\infty} S_n = {1 \over1-q } \quad \Longleftrightarrow \quad |q|<1 }

Summary: Convergence behaviour of the geometric series

The geometric series

• converges (more precisely: converges absolutely) for |q|<1 with the sum

Failed to parse (SVG (MathML can be enabled via browser plugin): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle \sum_{k=1}^\infty a_k = { a \over 1-q }}

• and diverges for |q| ≥ 1.

• For real q:

For q ≥ 1 the limit is +∞ or −∞ depending on the sign of a.

For q = −1 the series alternates between a and 0.

For q < −1 the sign of partial sums alternates, the limit of their absolute values is ∞, but no infinite limit exists.

• For complex q:

For |q| = 1 and q ≠ 1 (i.e., q = −1 or non-real complex) the partial sums S_n are bounded but not convergent.

For |q| > 1 and q non-real complex the partial sums oscillate, the limit of their absolute values is ∞, but no infinite limit exists.