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Mathimatics For Finance CH 2

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CHAPTER TWO

MATRIX ALGEBRA AND ITS APPLICATION


2.1. Introductions
Brevity in mathematical statements is achieved through the use of symbols. The price
paid for brevity, of course, is the effort spent in learning the meaning of the symbol.

In this unit we shall learn the symbols for matrices, and apply them in the statement and
solution of input-output problems and other problem involving linear systems

2.2. Matrix algebra

Algebra is a part of mathematics, which deals with operations (+, -, x, ).

A matrix is a rectangular array of real numbers arranged in m rows & n columns. It is


symbolized by a bold face capital letter enclosed by a bracket or parentheses.

Example ajj are real

numbers

Each number appearing in the array is said to be an element or component of the matrix.
Element of a matrix are designated using a lower case form of the same letter used to
symbolize the matrix itself. These letters are subscripted as a ij, to give the row & column
location of the element with in the array. The first subscript always refers to the raw
location of the element; the second subscript always refers to its column location. Thus,
component aij is the component located at the intersection of the ith raw and jth column.

The number of rows (m) & the number of columns (n) of the array give its order or its
dimension; M x n (reads “M” by “n”)

Examples The following are examples of matrices

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1 7 element a12 = 7
A= 5 3 this is 3 x 2 matrix a21 = 5
4 2 a32 = 2

X= 1 5 9 15 this is a 4 x 4 matrix
2 6 10 20 Element X44 = 45
3 7 11 30 X34 = 30
4 8 12 45 X42 = 8
X32 = 7

2.2.1 Types of Matrices


There are deferent types of matrices. These are
1. Vector matrix – is a matrix, which consists of just one row or just one column. It is an
m x 1 or 1 x n matrix.

1.1 Row vector is a 1 x n matrix i.e. a matrix with 1 row

Example W = -1 0 6 1x3
1.2. Column vector:
vector: is an m x 1 matrix i.e. a matrix with one column only
Example 0
Z= 20
5 3x1
2. Square matrix:
matrix: - a matrix that has the same number of rows & columns. It is also called
n-th order matrix
Example 2 x 2, 3 x 3, nxn X= 1 2
3 4 2x2

3. Null or zero matrixes:


matrixes: - is a matrix that has zero for every entry.
It’s generally denoted by m x n Example. Y = 0 0
0 0

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4. Identity (unit) matrix: - a square matrix in which all of the primary diagonal entries are
ones & all of the off diagonal entries are zeros. It’s denoted by I.

eg. I2 = 1 0 1 0 0 0
0 1 2x2 I2 = 0 1 0 0
0 0 1 0
0 0 0 1 4x4

N.B.
N.B. Each identity matrix is a square matrix
* Primary diagonal represents: a11, a22, a33, a44---------ann entries element
5. Scalar matrix: - is a square matrix where elements on the primary diagonal are the
same
“An identity matrix is a scalar matrix but a scalar matrix may not be an identity
matrix”.

2.2.2 Matrix operations (Addition, Subtraction, Multiplication)


Matrix Addition/ Subtraction

Two matrices of the same dimension are said to be conformable for addition.
addition. Adding
corresponding elements from the two matrices & entering the result in the same raw-
column position of a new matrix perform the addition.

If A & B are two matrices, each of site m x n, then the sum of A & B is the m x n matrix
C whose elements are:

Cij = aij +bij for i = 1, 2 --------m C11 = a11 + b11


j = 1, 2 ---------n C22 = a22 + b22
C12 = a12 + b12 etc

Example 1 3 7 9 8 12
2 4 + 8 -10 = 10 –6

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Example –2 7 2 + 8 7
4 6 9 6 4

These two matrices aren’t conformable for addition because they aren’t of the same
dimension.

Laws of matrix addition


The operation of adding two matrices that are conformable for addition has these two
basic properties.

1. A + B = B + A  the commutative law of matrix addition

2. (A + B) + C = A + (B + C)  the associative law of matrix addition.

 The laws of matrix addition are applicable to laws of matrix subtraction, that the two
matrices are conformable for subtraction A – B = A + (-B)

eg. A= 1 2 B= 0 1
3 4 2 5

A–B= 1 1

1 -1
Matrix Multiplication

a) By a constant (scalar multiplication)


A matrix can be multiplied by a constant by multiplying each component in the matrix
by a constant. The result is a new matrix of the same dimension as the original matrix.
If K is any real number & A is an M x n matrix, then the product KA is defined to be the
matrix whose components are given by K times the corresponding component of A; i.e.

KA = Kaij (m x n)

Example If X = 6 5 7, then 2X = (2 x 6) (2 x 5) (2 x 7)

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2X = 12 10 14

Laws of scalar multiplication


The operation of multiplying a matrix by a constant (a scalar) has the following basic
properties. If X & Y are real numbers & A & B are m x n matrices, conformable for
addition, then

1. XA = AX 3. X (A + B) = XA + XB
2. (X + Y) A = XA + YA 4. X (YA) = XY (A)

Laws of scalar multiplication


eg. Given matrices A & B and two real numbers X & Y

A= 1 2 3 B= 4 2 1
4 5 6 3 0 5

X=2 Y=4

1) XA = AX
Proof: XA = 2* 1 2 3 AX = 1 2 3 *2
4 5 6 4 5 6

XA = 2 4 6 AX = 2 4 6
8 10 12 8 10 12

Therefore XA = AX
2) (X + Y) A = (XA + YA) let Proof:
 (X + Y) A means first add X with Y and then multiply the result by matrix A.
The result of X + y is (2 + 4) = 6 then 6 will be multiplied by matrix A

6 1 2 3 becomes 6 12 18
4 5 6 24 30 36

Therefore (X + Y) A = 6 12 18

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24 30 36

 XA + YA mean multiply the constant numbers X and Y with matrix A


independently, and then add the two results together.

XA = 2 * 1 2 3 YA = 4* 1 2 3
4 5 6 4 5 6

XA = 2 4 6 YA= 4 8 12
8 10 12 16 20 24

Then add the result XA with YA

XA + YA = 2 4 6 + 4 8 12
8 10 12 16 20 24

= 6 12 18
24 30 36

Therefore it is true that (X + Y) A is equal with XA + YA

3) X (A + B) = XA + XB
Proof:
 X (A + B) means add matrix A and B first and then multiply the result by a constant X

Given constant number X = 2 matrices A and B then the result of X (A + B) will be

A= 1 2 3 B= 4 2 1 A+B= 5 4 4
4 5 6 3 0 5 7 5 11

X (A + B) = 2 5 4 4
7 5 11

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= 10 8 8
14 10 22

 XA + XB means multiply matrices A and B by a constant number X independently


then add the results

XA = 2* 1 2 3 XB = 2* 4 2 1
4 5 6 3 0 5

2 4 6 XB= 8 4 2
XA = 8 10 12 6 0 10

Then Add XA with XB


i.e. XA + XB = 2 4 6 + 8 4 2
8 10 12 6 0 10

= 10 8 8
14 10 22

Therefore it is true that X (A + B) is equivalent with XA + XB

4) X (YA) = XY (A)
Proof:
 X (YA) means multiply the second constant number Y with matrix A first and then
multiply the first constant number X with the result.

YA = 4 1 2 3 X (YA) = 2 4 8 12
4 5 6 16 20 24

= 4 8 12 = 8 16 24
16 20 24 32 40 48

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 XY (A) means multiply the two constant real numbers X and Y first and multiple
the results by matrix A.

XY = 2 X 4 XY (A) = 8 1 2 3
= 8 4 5 6

= 8 16 24
32 40 48

Therefore it is also true that X (YA) = XY (A) of columns in B

b) Matrix by matrix multiplication


If A & B are two matrices, the product AB is defined if and only if the number of
Columns in A is equal to the number of rows in B, i.e. if A is an m x n matrix, B should
be an n x b.
If this requirement is met., A is said to be conformable to B for multiplication. The
matrix resulting from the multiplication has dimension equivalent to the number of rows
in A & the number columns in B

If A is a matrix of dimension n x m (which has m columns) & B is a matrix of dimension


p x q (which has p rows) and if m and p aren’t the same product A.B is not defined. That
is, multiplication of matrices is possible only if the number of columns of the first equals
the number of rows of the second.

If A is of dimension n x m & if B is of dimension m x p, then the product A.B is of


dimension n x p

A B

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Dimension Dimension
n x m m x p

Must be the same

Dimension of A.B
nxp

eg. A= 2 3 4 B= -1 7
6 9 7 2x3 0 8
5 1 3x2

AB = (2x – 1) + (3 x 0) + (4 x 5) (2 x 7) + (3 x 8) + (4 x 1)
= 18 = 42
(6x – 1) + (9 x 0) + (7 x 5) (6 x 7) + (9 x 8) + (7 x 1)
= 29 = 121

 AB = 18 42
29 121

Find BA =
B= -1 7 A= 2 3 4
0 8 6 9 7 2x3
5 1
3x2
B A
BA = (-1 x 2) + (7 x 6) (-1 x 3) + (7 x 9) (-1 x 4) + (7 x 7)
=40 60 45

(0 x 2) + (8 x 6) (0 x 3) + (8 + 9) (0 x 4) + (8 x 7)
= 48 72 56

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(5 x 2) + (1 x 6) (5 x 3) + (1 x 9) (5 x 4) + (1 x 7)
16 24 27

BA = 40 60 45
48 72 56
16 24 27

Special properties of matrix application


1. The associative & distributive laws of ordinary algebra apply to matrix
multiplication.
Given three matrices A, B & C which are conformable for multiplication,

i. A (BC) = AB (C)  Associative law, (not C (AB)


ii. A (B+C) = AB + AC  Distributive property
iii. (A + B) C = AC + BC  Distributive property

2. on the other hand, the commutative law of multiplication doesn’t apply to matrix
multiplication. For any two real numbers X & Y, the product XY is always
identical to the product YX. But for two matrices A & B, it is not generally true
that AB equals BA. (in the product AB, we say that B is pre multiplied by A &
that A is post multiplied by B.)

3. In many instances for two matrices, A & B, the product AB may be defined while
the product BA is not defined or vice versa.

In some special cases, AB does equal BA. In such special cases A & B are said to be
Commute. A = 1 1 B= 2 2 AB = 4 4
1 1 2 2 4 4
2x2 2x2

BA = 4 4
4 4

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4. Another unusual property of matrix multiplication is that the product of two
matrices can be zero even though neither of the two matrices themselves is zero:
we can’t conclude from the result AB = 0 that at least one of the matrices A or B
is a zero matrix

A= 3 0 0 B= 0 0 0 AB = 0 0 0
2 0 0 7 –10 4 0 0 0
1 0 0 8 3 2 0 0 0

5. Also we can’t, in matrix algebra, necessarily conclude from the result aB = AC


that B= C even if A  0. Thus the cancellation law doesn’t hold, in general, in
matrix multiplication

Example A= 1 3 B= 4 3 C= 1 2
-2 –6 2 5 3 4

AB = AC = 10 14 but B  C
-20 –28

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