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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 5 of 5

ProofLesson PG3.5 in the Proof Gym, stage PG3: Induction. About 40 minutes.

Stage review: two proofs of your own

Simulate

Check the first claim with numbers

This review asks for two proofs of your own: one by induction, one by strong induction. As always, each claim is tested first.

Grow $1 at a rate xx per period. Compounded for nn periods it becomes (1+x)n(1 + x)^n; with simple interest it becomes 1+nx1 + nx. The claim: compounding is never behind, (1+x)n≥1+nx(1 + x)^n \ge 1 + nx.

⌘/Ctrl + Enter runs the cell

Over seven rates from −1-1 to 10 and 50 periods, the difference is never negative: its smallest value is exactly 0. At 5% the two agree for one period, at 1.05, and then compounding pulls ahead: 1.6289 against 1.5 after 10 periods.

⌘/Ctrl + Enter runs the cell

Rates far below −1-1 break the claim. With x=−3x = -3 the difference is −18-18 at n=5n = 5, and with x=−4x = -4 it is −16-16 at n=3n = 3. So the claim is stated for x≥−1x \ge -1, which makes 1+x≥01 + x \ge 0: the proof needs exactly that.

Conjecture

For every number x≥−1x \ge -1 and every whole number n≥1n \ge 1,

(1+x)n≥1+nx(1 + x)^n \ge 1 + nx

Every check with x≥−1x \ge -1 agrees, but the claim is about every nn. It is called Bernoulli's inequality, and lesson PG4.5 uses it to show that (1+1/n)n(1 + 1/n)^n converges.

Format 4

Write it: Bernoulli's inequality

Prove by induction that (1+x)n≥1+nx(1 + x)^n \ge 1 + nx for every x≥−1x \ge -1 and every n≥1n \ge 1. Fix xx first, then write the base case, the inductive step and the conclusion, in sentences.

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

Simulate

Check the second claim with numbers

Every whole number seems to be a sum of different powers of 2, each used at most once: 13=8+4+113 = 8 + 4 + 1. Python's bin writes a number in base 2, and each digit 1 marks a power that is used.

⌘/Ctrl + Enter runs the cell

For every nn from 1 to 10,000 the powers add up to nn; for example, 100=4+32+64100 = 4 + 32 + 64. The claim is special to 2, though. Try the same with powers of 3:

⌘/Ctrl + Enter runs the cell

Different powers of 3 up to 27 make only 15 of the numbers from 1 to 40, and 2 is the first one missed. So the proof must use something true of 2 and not of 3.

Conjecture

Every whole number n≥1n \ge 1 is a sum of different powers of 2:

n=2e1+2e2+⋯+2ejn = 2^{e_1} + 2^{e_2} + \cdots + 2^{e_j}

with whole-number powers e1>e2>⋯>ej≥0e_1 > e_2 > \cdots > e_j \ge 0.

Ten thousand numbers agree, but the claim is about every nn. Its proof needs strong induction: the case it uses is about half of nn, not the case just before.

Format 4

Write it: sums of powers of 2

Prove by strong induction that every whole number n≥1n \ge 1 is a sum of different powers of 2. Hint: write n=2mn = 2m or n=2m+1n = 2m + 1, where mm is a smaller whole number.

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.

The proof is also a method: halve nn, note the remainder, and repeat. The remainders, read from last to first, are the base-2 digits that bin prints.

Summary card

  • Bernoulli's inequality: (1+x)n≥1+nx(1 + x)^n \ge 1 + nx for every x≥−1x \ge -1 and n≥1n \ge 1. The step multiplies by 1+x1 + x, which needs 1+x≥01 + x \ge 0.
  • Every whole number n≥1n \ge 1 is a sum of different powers of 2. The step uses the case mm, about half of nn, so it needs strong induction.
  • Before writing, decide what the step needs: the case just before (induction) or smaller cases further back (strong induction). Then check as many base cases as the step cannot reach.

Free further reading

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