Linear Gradient

Geometric Gradient
Combining Factors
Uniform Arithmetic
and
Geometric Gradient
.
Linear Gradient
Linear Gradient- A cash flow series that increases or decreases
by a constant amount each period is known as an arithmetic
gradient series. The gradient is the measurement of how
much something has changed. Year-end amounts are equal in
formulas previously developed for an A series.
Geometric Gradient
Geometric Gradient-A geometric gradient series is a
cash flow series that either increases or decreases by a
constant percentage. each period. The uniform change
is called the rate of change.
Combining Factors
Combining Factors- It is the combination of Arithmetic gradient
and Geometric gradient to solve common problems. And its
elements are
P is located one interest period before the start of the first
A in the uniform series
F is located at the end of uniform series A
The number of periods n in the P/A and F/A is equal to the
number of uniform-series values. It is the combination of
factors to create a new component to solve problems.
 Uniform arithmetic
gradient is a series of
disbursement or receipts
that increases or decreases
in each succeeding period
Uniform by constant amount.
Arithmetic .

Gradient
The cash flow on slide 5 can be converted into its equivalent
annuity and uniform arithmetic gradient whose present worth
are P1 and P2, respectively.
The total present worth P is
equal to sum of P1 and P2,
mathematically.

Total Present Amount:

P = P1 + P2
Also,
Future Total Amount:
F = F1 + F2
A. Present Worth

Let P = present worth of the following uniform arithmetic gradient

.
P = G[ + + + . . + + ]

equation 1
Multiply both sides of equation 1 by (1 + i)
P (1+i) = G[+ + + . . + + ] eq. 2

Subtract equation 1 from equation 2

Pi = G[ + + + . . + + - ] eq. 3

This forms a geometric progressions. The sum of these terms may be

calculated using the formula for geometric progression.
 .

Let a1 = 1st term For the sum, S, of the series

a2 = 2nd term S= eq. 4
a3 = 3rd term
.
.
Substitute a1 and r to eq. 4 and
Solving for the common ratio
simplify
r= = =
S= eq. 5
 Substitute eq. 5 to eq. 3

Pi = G[- ]

P = [- ]

where: G = arithmetic gradient change in the periodic amounts

at the end of each period
B. FUTURE WORTH

Let F = future worth of the F=P

uniform arithmetic
gradient
F = [- ]

F = [- n]
where: G = arithmetic gradient change in the
periodic amounts at the end of each period.
C. EQUIVALENT PERIODIC AMOUNT
Let A = equivalent periodic amount
Using formula for annuity
P= eq. 6
But P = [- ]
Substitute P to eq. 6, simplify and
equal solve for A
A = G[ - ]
 Uniform
Geometric .
Gradient
Uniform geometric
gradient is a series
consisting of end-of-
period payments,
where each payment
increases or
decreases by a fixed
percentage.
 P =G[ + + + . . . + + ] eq. 7

A. PRESENT Multiply eq. 7 by

WORTH, P
P =[ + + + . . . + + ] eq. 8

Let x = P = [x + + + . . . + + ] eq. 9

Geometric Progression

Let a1 = x a2 = a3 = . . .
r = a2/a1 = = x
Sum of geometric progression,
P = [(]
S

S= But a1 = x and r = x
P = []

S= Substitute S in eq. 9
where: x = ≠ 1, thus r ≠ 1
G = first payment at the end of the first period
P = [x + + + . . . + + ] eq. 9 (1+r) = rate of increase or decrease
when r = 1, then x = 1
P = [] but x =

Let = n thus P =
 B. FUTURE F = []
WORTH, F
F=G

Let = n

F = []

F= F = Gn
when x = ≠ 1

F=P
Sample Problem 1
Given the cash flow diagram
as shown. If interest rate is
10%, determine the following:
a. Equivalent total present
worth
b. Equivalent total future
worth Given: interest rate, i = 10%
c. Equivalent uniform gradient, G = 1 500 – 1 000
payment for the uniform G = 500
gradient only n=4
Required: a. total present worth, P
b. total future worth, F
c. equivalent uniform payment
 Solution:
a. Equivalent total present worth, P
P = P 1 + P2
where:
P1 = present worth of uniform
arithmetic gradient
Using formula for annuity
P2 = present worth of annuity
P3 =
P1 = [- ] Substitute values for A = 500, I = 10% and n = 3
P3 = 1 243.42
Substitute values for G = 500, i = 10%
and n = 4 in equation above P2 = = P2 = 1 130.39
Thus
P1 = 2 189.06 P = 2 189.06 + 1 130.39 P = 3 319.45
b. Equivalent total future
worth, F
F = F1 + F2
where: Solving for F2
F1 = future worth of uniform
F2 =
arithmetic gradient
F2 = future worth of annuity Substitute values for A = 500, i = 10%
and n = 3
F1 = [- n] F2 = 1 655
Substitute values for G = 500, I = 10% and Thus
n=4
F1 = 3 205
F = F1 + F2 = 3 205 + 1 655
F = 4 860
c. Equivalent A=G[-]
periodic
payment for Substitute values for G = 500, i = 10%
and n = 4
the uniform
gradient, A
A = 690.58