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Mathematical Foundations for Quant Finance
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    1. PG3.1 Why induction worksProof · 30 min
    2. PG3.2 The geometric series, provedProof · 35 min
    3. PG3.3 The annuity formula, provedProof · 35 min
    4. PG3.4 Strong inductionProof · 40 min
    5. PG3.5 Stage review: two proofs of your ownProof · 40 min
Proof Gym overview →

Proof Gym PG3 Induction Lesson 2 of 5

ProofLesson PG3.2 in the Proof Gym, stage PG3: Induction. About 35 minutes.

The geometric series, proved

Simulate

Check the claim with numbers

Lesson 1.5.2 found a formula for the sum of a geometric series. Take a ratio rr and add its first nn powers, starting from r0=1r^0 = 1. Before proving the formula, test it: add the terms one by one and compare.

⌘/Ctrl + Enter runs the cell

For r=0.95r = 0.95 the two columns agree to six decimal places: 4.524381 for five terms, 12.830282 for twenty. Decimals are rounded, so the next cell uses Fraction, which keeps every value exact. It also tries a ratio above 1 and a negative one.

⌘/Ctrl + Enter runs the cell

With exact arithmetic the gap is exactly 0, for every nn from 1 to 30 and all three ratios. One ratio is still missing: r=1r = 1.

⌘/Ctrl + Enter runs the cell

Five terms of 1 add up to 5, but the formula asks for 00\frac{0}{0}, which is not a number. So the claim needs r≠1r \ne 1. Keep that in mind: one of the proofs below forgets it.

Conjecture

For every whole number n≥1n \ge 1 and every number r≠1r \ne 1,

1+r+r2+⋯+rn−1=1−rn1−r\begin{gathered} 1 + r + r^2 + \cdots + r^{n-1} \\ = \frac{1 - r^n}{1 - r} \end{gathered}

Every check agrees, for four ratios and up to 30 terms. That is evidence, not a proof: the claim is about every nn, and no computer can try them all.

How an induction proof goes

Write P(n)P(n) for the claim with nn terms. Induction proves P(n)P(n) for every n≥1n \ge 1 in two steps. Think of a row of dominoes: the first one falls, and each one knocks over the next, so they all fall.

Rule: Proof by induction

P(1) is trueP(k)⇒P(k+1) for every k≥1so P(n) is true for every n≥1\begin{gathered} P(1) \text{ is true} \\ P(k) \Rightarrow P(k+1) \text{ for every } k \ge 1 \\ \text{so } P(n) \text{ is true for every } n \ge 1 \end{gathered}

The base case proves the first claim, P(1)P(1). The inductive step assumes the claim for some kk, the induction hypothesis, and uses it to prove the claim for k+1k + 1.

Try it

Here is one inductive step with numbers, for r=2r = 2. The claim for k=3k = 3 says 1+2+4=71 + 2 + 4 = 7. Adding the next term, 23=82^3 = 8, gives 15, and the formula for four terms gives 15 too.

The formula prints as 15.0 because / always returns a decimal. The proof does the same step with letters, so it works for every kk and every r≠1r \ne 1.

⌘/Ctrl + Enter runs the cell

Format 1

Reorder the steps

Here is the induction proof, with its lines shuffled. Put them in order with the arrows, or drag a line by its handle.

  1. Its top simplifies to 1−rk+11 - r^{k+1}, so the right side is the formula for n=k+1n = k + 1.
  2. Fix a number r≠1r \ne 1. Base case: for n=1n = 1 the left side is 11, and the right side is 1−r1−r=1\dfrac{1 - r}{1 - r} = 1.
  3. Both steps hold, so by induction the formula holds for every n≥1n \ge 1.
  4. Over a common denominator, the right side becomes 1−rk+rk(1−r)1−r\dfrac{1 - r^k + r^k(1 - r)}{1 - r}.
  5. Add the next term, rkr^k, to both sides. The left side becomes 1+r+⋯+rk1 + r + \cdots + r^k.
  6. Inductive step: assume the formula holds for some n=k≥1n = k \ge 1.

Format 2

Fill the gap

The same proof, with its key steps left out. Type each missing piece as you would a quick answer, such as r^k or (1-r)/(2+r), then check.

Base case: for n=1n = 1 the right side is 1−r1−r\dfrac{1 - r}{1 - r}, which is , the same as the left side.

Inductive step: assume that 1+r+⋯+rk−1=1−rk1−r1 + r + \cdots + r^{k-1} = \dfrac{1 - r^k}{1 - r}. Add the next term, , to both sides.

The right side becomes 1−rk1−r+rk\dfrac{1 - r^k}{1 - r} + r^k. Over one fraction, that is .

That is the formula with n=n = , so the step holds. By induction, the formula holds for every n≥1n \ge 1.

How to type answers
  • Powers with ^, brackets round a power that is a sum: r^k, r^(k+1).
  • Fractions with / and brackets: (1-r)/(1+r). Multiply with * or side by side: 2k+1.
  • Press Enter in any box to check them all.

Format 3

Find the error

A different proof, by subtraction, as in lesson 1.5.2. One line claims more than the lines before it have shown. Select it.

Simulate

A claim of your own to prove

Add up the odd numbers in order: 11, then 1+31 + 3, then 1+3+51 + 3 + 5. The totals look familiar.

⌘/Ctrl + Enter runs the cell

Each row prints nn, the sum of the first nn odd numbers, and n2n^2. The last two columns match, from 1 up to 64 for n=8n = 8. The kk-th odd number is 2k−12k - 1, so the list stops at 2n−12n - 1.

Conjecture

For every whole number n≥1n \ge 1,

1+3+5+⋯+(2n−1)=n21 + 3 + 5 + \cdots + (2n - 1) = n^2

Eight rows agree. Now prove it for every nn, with the same two steps as the geometric series.

Format 4

Write it

Prove by induction that 1+3+5+⋯+(2n−1)=n21 + 3 + 5 + \cdots + (2n - 1) = n^2 for every n≥1n \ge 1. Write the base case, the inductive step and the conclusion, in sentences.

Saved in this browser as you type.

Write your own first: a proof you have tried to write teaches far more than one you only read.

Case study 1.5.5 uses the geometric series to price annuities and bonds.

Summary card

  • Induction proves a claim for every n≥1n \ge 1 in two steps: the base case, P(1)P(1), and the inductive step, P(k)⇒P(k+1)P(k) \Rightarrow P(k + 1).
  • The geometric series: 1+r+⋯+rn−1=1−rn1−r1 + r + \cdots + r^{n-1} = \frac{1 - r^n}{1 - r} for every r≠1r \ne 1. For r=1r = 1 the sum is nn.
  • Before dividing, make sure the divisor cannot be zero. The subtraction proof is sound once it assumes r≠1r \ne 1.
  • The sum of the first nn odd numbers is n2n^2.

Free further reading

Optional. This lesson covers what you need; these add more examples and practice. All are free to read.