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MUH 301 Engineering Economics - Week 6

The document discusses interest formulas for gradient series including linear, declining linear, and geometric gradient series. Examples are provided to show how to calculate present worth, future worth, and annuity payments for various gradient series cash flows given interest rates and time periods.

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11 views14 pages

MUH 301 Engineering Economics - Week 6

The document discusses interest formulas for gradient series including linear, declining linear, and geometric gradient series. Examples are provided to show how to calculate present worth, future worth, and annuity payments for various gradient series cash flows given interest rates and time periods.

Uploaded by

seda97bb
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Interest Formulas

(Gradient Series)

MUH 301 Engineering Economics

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


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Linear Gradient Series
Gradient Series as a Composite Series of a
AStrictGradientSeries Uniform Series of N Payments of A1 and the
Gradient Series of Increments of Constant
Amount G

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


Park All Rights Reserved
Example 3.18:LinearGradient: Find P, Given A1,
G, N, and i

 Given: A1 = $1,000, G= $250,N = 5 years, and i = 12%


per year
 Find: P

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


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Solution

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


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Gradient-to-Equal-Payment Series
Conversion Factor, (A/G, i, N)
• Cash Flow Series
Given: G =
$1,000, N = 10
years, i = 12%
Find: A

Solution • Factor Notation


A  $1,000(A / G ,12%,10)
 $1,000(3.5847)
 $3,584.70

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


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Example 3.19: Linear Gradient: Find A,
Given A1, G, i, and N
Given: A1 = $1,000, G = $300, N = 6 years, and i =
10% per year

Find: A

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


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Solution

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


Park All Rights Reserved
Example 3.20: Declining Linear Gradient Series:
Find F, Given A1, G, I, and N

Given: A1 = $1,200,
G = -$200, N = 5 years,
and i = 10% per year

Find: F

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


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Solution
 Strategy: Since we have no
interest formula to compute
the future worth of a linear
gradient series directly, we first
find the equivalent present
worth of the gradient series
and then convert this P to its
equivalent F.
 Solution

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


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Present Worth of Geometric
Gradient Series
Formula

Factor Notation

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


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Example 3.21: Geometric Gradient Series

Given: A1 = $54,600,
g = 7%, N = 5 years,
and i = 12% per year

Find: P

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


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Solution

 1  (1  0.07)5 (1  0.12)5 
POld  $54,600  
 0.12  0.07 
 $222,937
PNew  $54,600(1  0.23)(P / A,12%,5)
 $42,042(3.6048)
 $151,552
Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.
Park All Rights Reserved
Example 3.22: Retirement Plan: Saving $1
Million

Given:
o F = $1,000,000,
o g = 6%,
o i = 8%, and
o N = 20

Find: A1

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.


Park All Rights Reserved
Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.
Park All Rights Reserved

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