7/6/2019

Dr. Nidal Hussein

Examples of P, F & A

0 1 N-1 N

0
1 N-1 N
P
N
0 1 N-1 F

0 1 N-1 N

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Compound Interest Factors for

Annuities
Annuities (A): Series of uniform receipts or disbursements that
start at the end of the first period and continue over N Periods.

A A A A A

0 1 2 N-1 N N+1
A

0 1 2 N-1 N N+1

 What would you have to invest now P in order

to withdraw A dollars at the end of each of
the next n periods?
 In this case, it is the P/A factor used to
calculate the equivalent P value in year 0 for a
uniform series of A values beginning at the
end of period 1 and extending for n periods

 The term in brackets is the conversion factor

known as the uniform-series present worth
factor (USPWF)
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 Reverse situation, the present worth P is known

and the equivalent uniform-series amount A is
sought
 The first A value occurs at the end of period 1,
that is, one period after P occurs

 The term in brackets is called the capital recovery

factor (CRF), or A/P factor. It is like investing P
now and getting the equivalent through annual
uniform n number of equal payments (A)
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 How much money should you be willing to

pay now for a guaranteed JD600 per year for
9 years starting next year, at a rate of return
of 16% per year?
 The present worth is:
P = 600(P/A,16%,9) = 600×(4.6065) = JD2,763.90

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 Suppose we are interested in the future amount F

of a fund to which we contribute A JD each period
and on which we earn interest at a rate of i per
period
(A/F,i,n)

 The expression in brackets is the A/F or sinking

fund factor

 The above equation can be rearranged to find F for

a stated A series in periods 1 through n

Uniform-series
compound amount
factor (F/A,i,n)
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Note that A payments start at the end of the first year

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2015 price is JD1000/m2

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