EC 314: Public and Private Investment Fall 2011 Q2: Time Value #10 http://youtu.

be/nhx4M11sCME

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 2

4 4 4 4

Cash Flow

0 2 4 6 8

111

2 4 6 8

10

15

Period
O By One

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

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 4.9984066062811