Finance
Concept of geometric progression is a cornerstone in finance, used widely for forecasting and planning financial growth and strategies. Financial analysts leverage geometric progressions extensively to decipher potential growth trends for investments and generate substantial financial forecasts.
For example, imagine you invest ₹1,000 into a savings account compounding interest annually at a rate of 5%. Initially, your balance is ₹1,000. After a year, the balance isn’t just ₹1,000 plus 5% of ₹1,000; instead, the interest is calculated on the balance of ₹1,000 plus the interest already accrued, i.e., (₹1,000 + ₹50).
Therefore, after one year, your deposit has risen to ₹1,000 × 1.05 = ₹1,050.
In the second year, you’re earning interest not just on your initial principal amount of ₹1,000, but also on the ₹50 interest accumulated in the first year. So, at the end of the second year, the amount in the account would be ₹1,050 × 1.05 = ₹1,102.50
Real-life Applications of Geometric Progression
Geometric Progression is a sequence of numbers whereby each term following the first can be derived by multiplying the preceding term by a fixed, non-zero number called the common ratio. For example, the series 2, 4, 8, 16, 32 is a geometric progression with a common ratio of 2. It may appear to be a purely academic concept, but it is widely used in our day-to-day life. From calculating compound interest to estimating the number of bacteria in a culture, geometric progression is applied. We will discuss these applications of geometric progression in detail in this article.
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