This preview shows pages 1–5. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: 1 Compound Interest: Different Interest Rates in Each Interest Period P = Present worth ($) i = Interest rate per period N = Number of periods F = Future ($) at end of N periods If interest rate i is same in each interest period, F = P (1 + i ) N If interest rate is different in each interest period, F = P (1 + i 1 )(1 + i 2 )(1 + i 3 ) …… (1 + i N ) where i 1 , i 2 , …… , i N are the interest rates in interest periods 1, 2, …… , N IOE 201 Lecture Notes 5 2 1 2 3 Time Interest Periods P F Compound Interest: Different Interest Rates in Each Interest Period F = P (1 + 0.03)(1 + 0.05)(1 + 0.02) 3% 5% 2% Example: Interest Rates 3 Inflation Inflation : Loss of purchasing power over time (cost of an item increases over time) Deflation (opposite of inflation): Gain in purchasing power over time (cost of an item decreases over time) Consider inflation : Denote inflation rate (% per year) by f Inflation rate f generally changes in each year 4 Inflation If inflation rate is 5% in first year 7% in second year...
View
Full
Document
This note was uploaded on 03/17/2010 for the course IOE 201 taught by Professor Dennisblumenfield during the Fall '09 term at University of MichiganDearborn.
 Fall '09
 DennisBlumenfield

Click to edit the document details