Scribd
Upload
98 views

Module 5 Econ Uniform Gradient

This document discusses uniform arithmetic and geometric gradients. A uniform arithmetic gradient is a series where each payment increases or decreases by a constant amount each period. A uniform geometric gradient is where each payment increases or decreases by a fixed percentage each period. The document provides formulas to calculate the present worth, future worth, and equivalent uniform periodic payment for both types of gradients. It also includes an example problem calculating these values for an amortization schedule.

Uploaded by

Rodman Cajes
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
98 views

Module 5 Econ Uniform Gradient

This document discusses uniform arithmetic and geometric gradients. A uniform arithmetic gradient is a series where each payment increases or decreases by a constant amount each period. A uniform geometric gradient is where each payment increases or decreases by a fixed percentage each period. The document provides formulas to calculate the present worth, future worth, and equivalent uniform periodic payment for both types of gradients. It also includes an example problem calculating these values for an amortization schedule.

Uploaded by

Rodman Cajes
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 11

Uniform Arithmetic

and Geometric
Gradient
Module 5
Uniform Arithmetic Gradient
In some scenario, economic analysis problems involve receipts or disbursement that
increase or decrease by a uniform amount each period. For example, maintenance and
repair expenses on specific equipment or property may increase by a relatively constant
amount each period.
A. Uniform Arithmetic Gradient
Is a series of disbursements or receipts that increases or decreases in each succeeding period by constant
amount.

0 1 2 3 4 …. n-1 n
A
A+G A+2G A+3G
A+(n-2)G
P A+(n-1)G
The above cash flow can be converted into its equivalent annuity and uniform arithmetic gradient whose present worth are PA and PG

The Total Present Worth

P=PA +/- PG gradient

Annuity

Where:
PA= present worth of the series of equal payment

PG=
Total Future Worth
F=FA + FG

where: FA = Future worth of the series of equal payment

FG =

G = arithmetic gradient change in the periodic amounts at the end of each period.

Equivalent Periodic Amount


A=G
GEOMETRIC GRADIENT
A geometric gradient series is a sequence consisting of end-of-period payments,
where each payment increases or decreases by a fixed percentage. In a geometric,
gradient, payment begins at the end of the first period.
B. Uniform Geometric Gradient
Is a series consisting of end-of-period payments, where each payment
increases or decreases by fixed percentage.

0 1 2 3 4 … n-1 n
G
G(1+r)

Present Worth

P=

where:

x== 1 , thus r = i

G= first payment at the end of the first period


(1+r)= rate of increase or decrease

when r = 1, then x = 1.

P=
Future Worth
where: x = 1

F = Gn

when x = 1

F = Gn
Problem 1: An amortization of a debt is a form of a gradient series as
shown. What is the equivalent present worth of the debt if interest is
5%. Determine also the future amount of the amortization as well as
the equivalent uniform periodic payment.
P
0 1 2 3 4
3500
4500 4000

5000

a) P=PA-PG PG= P = PA – PG

PA= PG= = 17,729.75 – 2,551.41


= P = 15, 178.34
PG= 2,551.41
PA = 17,729.75
b. F = FA – FG
FA =
= c. A1 = G
FA = 21,550.625 = 500
A1 = 719.527
FG =
= A2 = A – A1
FG = = 5,000 – 719.527
A2 = P4,280.47

F = FA - FG
F = 21,550.625 – 3,101.25
F = 18,449.375
Problem 2: What is the present worth of the given cash flow diagram if
interest rate is 10%? Determine also its equivalent future worth?
P
0 1 2 3 4 5
P=
500
P = 2,191.49
540
583.20
629.856 680.24448 Solving for its future worth, F
this is an example of uniform geometric gradient since the next term in F=P
the series is a fixed percentage of the previous term.
= 2,191.49
Solution:
Solving for the fixed percentage, 1 + r
F = 3,529.54
1+r = 540/500
1+r = 1.08
r = 0.08
Since r is not equal to I, then x = 1
P=
x=
= x = 0.9818
Thank You

You might also like