EC 314: Public and Private Investment Fall 2011 Q2: Time Value #2

http://www.youtube.com/watch?v=Y3dxzKbZaKM

PASS Name:

NO PASS

(F |P, i, N ) (P |A, i, N ) (P |G, i, N ) (P |A1 , g, i, N )

F = P (1 + i)N P =A P = P =
(1+i)N 1 i(1+i)N (1+i)N iN 1 G i2 (1+i)N 1(1+g)N (1+i)N A1 ig

or P = A1

N 1+i

if : i = g Not Factor Note

Consider the following cash ow diagram.

4 3

4 4 4 4 4 3 2 1 0 1 2
0 5 10 15

3 2 1 0 1 2
Period

Cash Flow

2 1 0 1 2

1. Write an equation, in factor notation, that describes the present worth of this cash ow sequence.

O By One

2. Write an equivelent equation in factor notation, i.e., decompose the cash ow dierently.

3. Calculate the present worth of this series when the interest rate is 10.00%?

Answer Key
1. Answer: See Video 2. Answer: See Video 3. Answer: The present worth is 11.7898935095553