Question Video: Solving an Applied Problem Using Geometric Sequences Mathematics

Chloe joined a company with a starting salary of $28,000. She receives a 2.5% salary increase after each full year in the job. The total Chloe earns over 𝑛 years is a geometric series. What is the common ratio? Write a formula for 𝑆_𝑛, the total amount in dollars Chloe earns in 𝑛 years at the company. After 20 years with the company, Chloe leaves. Use your formula to calculate the total amount she earned there. Explain why the actual amount she earned will be different from the amount calculated using the formula.

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Video Transcript

Chloe joined a company with a starting salary of 28,000 dollars. She receives a 2.5 percent salary increase after each full year in the job. The total Chloe earns over 𝑛 years is a geometric series. What is the common ratio? Write a formula for 𝑆 sub 𝑛, the total amount in dollars Chloe earns in 𝑛 years at the company. After 20 years with the company, Chloe leaves. Use your formula to calculate the total amount she earned there.

And there’s one more part to this question we will discuss later. In this question, we’re given a real-world problem involving the amount of money Chloe will earn at a company over a period of time. We’re told that Chloe has a starting salary of 28,000 dollars and that she receives a 2.5 percent salary increase after every full year she is in her job. In fact, this is enough information to determine that the amount she earns in 𝑛 years will be a geometric series. However, we’re also told this piece of information in the question.

We need to determine the common ratio of this geometric series. To do this, we first need to recall that when we say the ratio of a geometric series, we mean the ratio of the geometric sequence which makes up this geometric series. And remember, in a geometric sequence, to get the next term in our sequence we need to multiply it by some common ratio we call 𝑟. We call 𝑎 the initial value of our sequence, and we call 𝑟 the common ratio. Then when we add these together because we’re adding terms of a geometric sequence together, we call this a geometric series.

And remember, in this question, we’re told the total amount of money that Chloe earns in 𝑛 years at the company is the geometric series. So, each term in this series is actually going to be the amount of money Chloe earns each year. There’s a few different ways of finding this ratio. One way is to take the quotient of two successive terms. So, let’s find two of these successive terms. We can find the initial value by finding the amount of money Chloe will earn in year one in her company. And we’re told this in the question; it’s equal to 28,000 dollars.

We then want to work out how much money she makes in the second year at the company. Remember, at this point, she will have worked one full year in her company, so she would have had a 2.5 percent salary increase. And there’s a few different ways of calculating this value. For example, we could write this as 28,000 dollars plus 2.5 percent to 28,000 dollars. However, we’ll write this as 28,000 dollars multiplied by 1.025.

And this is enough to find the common ratio. However, there is one thing worth pointing out here. We can do exactly the same thing to find the amount earned in year three. Once again, she’ll get a 2.5 percent salary increase for working another full year, which means we would then need to increase the amount earned in year two by 2.5 percent. We would need to once again multiply this by 1.025. And this is, of course, true for any number of years. This is why this makes a geometric series.

Now, there’s a few different ways of finding our ratio 𝑟. For example, we could divide the amount made in year two by the amount made in year one. However, we can also notice we’re just multiplying by 1.025 each time. And that’s enough to answer our question. The common ratio of this geometric sequence 𝑟 is going to be 1.025.

The second part to this question wants us to writes a formula for 𝑆 sub 𝑛, the total amount of dollars Chloe earns in 𝑛 years at the company. Now, it’s worth pointing out we can just directly answer this question by using our formula for the sum of a geometric series. However, let’s first show why this is true. In this case, 𝑆 sub 𝑛 is the total amount in dollars that Chloe earns in 𝑛 years at the company. To find this value, we just need to add together the amount she earns in year one added to the amount she earns in year two, all the way up to the amount she would earn in year 𝑛.

In the first year, we’ve already shown she makes 28,000 dollars. In the second year, she gets a salary increase of 2.5 percent. So, she’ll make 28,000 multiplied by 1.025. Adding these two together gives the amount that she will earn in two years at the company. And, of course, we know this is true for any number of years, so we can keep going all the way up to the amount she will earn in year 𝑛. At this point in time, she will have worked 𝑛 minus one full years in the company. So, she would have got 2.5 percent salary increase 𝑛 minus one times. So, the amount she earns in year 𝑛 is 28,000 dollars multiplied by 1.025 raised to the power of 𝑛 minus one.

And just as we showed before, this is a geometric series with initial value 𝑎, 28,000 dollars, and ratio of successive terms 𝑟, 1.025. And we know a formula to find the sum of the first 𝑛 terms of a geometric series. 𝑆 sub 𝑛 will be equal to 𝑎 multiplied by 𝑟 to the 𝑛th power minus one all over 𝑟 minus one. So, we substitute 𝑎 is 28,000 dollars and 𝑟 is 1.025 into this formula to get that 𝑆 sub 𝑛 is equal to 28,000 dollars multiplied by 1.025 to the 𝑛th power minus one all over 1.025 minus one.

And all we need to do is evaluate this expression, in our denominator, we have 1.025 minus one, which we can evaluate is 0.025. Then all we need to do is divide 28,000 by 0.025. And if we calculate this, we get 1,120,000, which gives us our final answer. 𝑆 sub 𝑛, the total amount of dollars Chloe will earn in 𝑛 years at the company, is equal to 1,120,000 multiplied by 1.025 to the 𝑛th power minus one dollars.

The third part of this question wants us to determine how much money Chloe will make if she leaves her company after 20 years. And we’re told to do this by using our formula. This is because we could just calculate the amount she earns in each year and then add all of these together. However, it’s far easier to use our formula for 𝑆 sub 𝑛. Remember, since we’re finding the amount she earns after 20 years at the company, our value of 𝑛 is going to be 20.

So, we substitute 𝑛 is equal to 20 into our formula for 𝑆 sub 𝑛 we found in the previous question. We get 𝑆 sub 20 is equal to 1,120,000 multiplied by 1.025 to the 20th power minus one dollars. And if we just calculate this expression and give our answer to the nearest cent, we get 715,250 dollars 41 cents.

But there’s still one more part to this question to answer, so let’s clear some space.

The last part of this question asked us to explain why the amount she earned will be different from the amount calculated using the formula. Option (A) she spent part of the money in 20 years. Option (B) the value of the dollar varies with time. Option (C) the actual amount will have a different percentage compared to the amount calculated using the formula. Option (D) the actual amount will have a different starting value compared to the amount calculated using the formula. Or option (E) when necessary, the new annual salary will be rounded.

The last part of this question gives us an interesting problem. If Chloe were to calculate the amount she should’ve earned by using our formula, she would find that her answer will be different from the actual amount she earned. We’re given five possible options as to why this will be the case. We can actually answer this directly from our line of working. However, let’s just go through our five options first.

Option (A) tells us that she will have spent part of the money in 20 years. Now, while it is true, she probably did spend part of the money in the 20 years, this will not affect the total amount that she earned in those 20 years. All this would really affect is the total amount of money she has left. So, option (A) is not the correct answer.

Option (B) tells us the correct answer should be that the total amount she earned in 20 years will be different because the value of the dollar varies with time. And, of course, we do know it is true that the value of the dollar will vary with time. However, for the entire 20 years that Chloe worked for the company, she was paid in dollars. So, then no point would the value of the dollar change the total amount of money she made because she was only ever paid in dollars anyway. So, option (B) is not true. It won’t change the total amount of money that she earned. However, you could make an argument that it would change the value of the amount of money that she made, but not the total.

Option (C) tells us that we should have used a different percentage when we were calculating by using the formula. Once again, we know this won’t be true because we’re told every year her salary will increase by 2.5 percent, and we used this value throughout. So, option (C) can’t be correct because we know her salary increases by 2.5 percent each year.

Option (D) tells us that we should have used a different starting value for our formula. And once again, we know this is not true because we’re told in the question that her initial starting salary is 28,000 dollars. So, after one full year in her job, she will make 28,000 dollars. This will be the initial starting value. So, option (D) also can’t be correct.

This then leaves us with option (E), which tells us, when necessary, the new annual salary will be rounded. Let’s discuss why this might change the actual amount that she earned. And to really highlight this, let’s calculate the amount of money she would earn in each year at her company. Let’s start with the first year. Of course, in the first year, she earns her starting salary 28,000 dollars. In the second year, she’ll earn the 28,000 dollars plus her salary increase of 2.5 percent. So that’s 28,000 multiplied by 1.025. And if we calculate this value, we’ll get 28,700 dollars exactly.

And let’s do the same for year three and year four. In year three, we’ll calculate that she makes 28,000 multiplied by 1.025 squared and in year four 28,000 dollars multiplied by 1.025 cubed. And if we calculate these, in year three, her salary is 29,417 dollars 50 cents. And in year four, we get 30,152 dollars and 93 cents. But we also get an extra 0.75 cents. And this is where our problem would start to rise because the company can’t give her 0.75 of a cent. So, most likely, the company would round up and give her 30,152 dollars and 94 cents.

However, our formula adds together the exact amount calculated each year, whereas the actual amount she earned would be using the exact value she gets given. And this rounding can make our formula incorrect in this case. And it’s worth pointing out that this is only true when we’re working in dollars and cents because we can’t in this case give 0.75 of a cent. But this isn’t always true. For example, if we were working in length, then we can keep going as low as we want. This is why when working with real-world problems, it’s very important to know all of the things you’re working with.

We were able to show that the amount that she earned was different to the amount we calculated using the formula because of options (E), when necessary, the new annual salary will need to be rounded.

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