UNIFORM ARITHMETIC GRADIENT

 Maintenance and repair expenses on specific equipment of property may increase by a relatively
constant amount each period.
 Four possibilities for gradient
 Change in every succeeding period is constant. And there is no disbursement on the first year.
1. A>0 and G>0 means positive and increasing
2. A>0 and G<0 means positive but decreasing
3. A<0 and G>0 means negative but becoming less so
4. A<0 and G<0 means negative and becoming more so

P = Pa + Pg
𝐺 [(1+𝑖)𝑛 − 1] 1
Pg = 𝑖 [ − 𝑛] [(1+𝑖)𝑛]
𝑖
Ex. A loan was to be amortized by a group of four end of year payments forming an ascending arithmetic
progression. The initial payment was to be 5,000 and the difference between successive payments was
to be 400. But the loan was renegotiated to provide for the payment of equal rather tha uniformly
varying sums. If the interest rate of the loan was 15%, what was the annual payment?

Ans. 5530.51

Ex. A contract has been signed to lease a building at 2k per year with annual increase of 1500 for 8 years.
Payments are to be made at the end of each year, starting one year from now, the prevailing rate is 7%.
What lump sum paid today would be equivalent to the 8-year lease plan
Ans 147, 609

UNIFORM GEOMETRIC GRADIENT

When the ratio of the payment of two consecutive periods is constant

0 1 2 3 4 n
G rg r2g r3g rn-1g

𝐴 [(1+𝑖)𝑛 − (1+𝑟)𝑛 ]
P= ( 𝑖−𝑟)(1+𝑖)𝑛

𝐴 [(1 + 𝑖)𝑛 − (1 + 𝑟)𝑛 ]

𝐹=
( 𝑖 − 𝑟)

Example.
 Airplane ticket price will increase 8% in each of the next four years. The cost at the end of the first
year will be $180. How much should be put away now to cover a students travel home at the end
of each year for the next four years? Assume 5%.

 A graduating CE is going to make $35,000/yr with Granite Construction. A total of 10% of the CE
salary will be placed in the mutual fund of their choice. The CE can count on a 3% salary increase
with the standard of living increases for the next 30 years of employment. If the CE is aggressive
and places their retirement in a stock index fund that will average 12% over the course of their
career, what can the CE expect at retirement?