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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