Lecture_15.1_Engineering_Economics_V

Lecture_15.1_Engineering_Economics_V - AE309 Lecture 15.1...

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AE309 Lecture 15.1 Engineering Economics V Reference: Lindeburg, Engineering Economic Analysis Inflation What is Inflation? ………………………………………………………………………………. To address inflation, we will revise the interest rate to consider the effect of inflation. Interest Rate Considering Inflation f = inflation rate / period i = effective interest rate / period d = interest rate both inflation and time value of money d = (1+ f) (1+ i) – 1 ………………………………………… d = [1+ i + f + (i x f)] – 1 ………………………………………… d = (i + f) + (i x f) ………………………………………… Example 23: Inflation . Assuming 7% inflation, what do you expect to be the worth in ten years on an item worth $10 today. d = (i + f) + (i x f) i= f= d = ( _________ + ___________ ) + ( _________ x ___________ ) d = _____________________________ F = P (F/P, i, n) F = ____________ (F/P, ____________ , _______ ) F = _________________________
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