Interest Formulas

(Gradient Series)

MUH 301 Engineering Economics

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 Linear Gradient Series
Gradient Series as a Composite Series of a
AStrictGradientSeries Uniform Series of N Payments of A1 and the
Gradient Series of Increments of Constant
Amount G

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Example 3.18:LinearGradient: Find P, Given A1,
G, N, and i

 Given: A1 = $1,000, G= $250,N = 5 years, and i = 12%

per year
 Find: P

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 Solution

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 Gradient-to-Equal-Payment Series
Conversion Factor, (A/G, i, N)
• Cash Flow Series
Given: G =
$1,000, N = 10
years, i = 12%
Find: A

Solution • Factor Notation

A  $1,000(A / G ,12%,10)
 $1,000(3.5847)
 $3,584.70

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.

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 Example 3.19: Linear Gradient: Find A,
Given A1, G, i, and N
Given: A1 = $1,000, G = $300, N = 6 years, and i =
10% per year

Find: A

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.

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 Solution

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Example 3.20: Declining Linear Gradient Series:
Find F, Given A1, G, I, and N

Given: A1 = $1,200,
G = -$200, N = 5 years,
and i = 10% per year

Find: F

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.

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 Solution
 Strategy: Since we have no
interest formula to compute
the future worth of a linear
gradient series directly, we first
find the equivalent present
worth of the gradient series
and then convert this P to its
equivalent F.
 Solution

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 Present Worth of Geometric
Gradient Series
Formula

Factor Notation

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Example 3.21: Geometric Gradient Series

Given: A1 = $54,600,
g = 7%, N = 5 years,
and i = 12% per year

Find: P

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.

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 Solution

 1  (1  0.07)5 (1  0.12)5 
POld  $54,600  
 0.12  0.07 
 $222,937
PNew  $54,600(1  0.23)(P / A,12%,5)
 $42,042(3.6048)
 $151,552
Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.
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Example 3.22: Retirement Plan: Saving $1
Million

Given:
o F = $1,000,000,
o g = 6%,
o i = 8%, and
o N = 20

Find: A1

Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.

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Contemporary Engineering Economics, 6e, GE Copyright © 2016, Pearson Education, Ltd.
Park All Rights Reserved