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Chapter 3 (modify)- Spring 2010

# Chapter 3 (modify)- Spring 2010 - More Interest Rate...

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More Interest Rate Examples Given i = 3% /yr. compounded yearly year i a / % 3 = Given i = 12% /yr. compounded monthly year i n / % 3 = permonth i a % 1 12 12 = = year i n / % 12 = year i year efor / % 3 1 = ( 29 1 1 2 - + = n year efor i i ( 29 1 03 . 1 2 2 - + = year efor i ( 29 1 01 . 1 12 1 - + = year efor i years i year efor 2 / % 09 . 6 2 = % 68 . 12 1 = year efor i

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CGN 4101 CIVIL ENGR COST ANALYSIS SPRING 2010 LECTURE CHAPTER 3
Review Interest Rate Examples Given i = 4% / quarter quarter i a / % 4 = Given i = 1% /month ( 29 ( 29 year i n / % 16 % 4 4 = = permonth i a % 1 = ( 29 ( 29 year i n / % 12 % 1 12 = = ( 29 1 04 . 1 4 1 - + = year efor i ( 29 1 04 . 1 12 3 - + = year efor i ( 29 1 01 . 1 4 4 - + = months efor i years i year efor 3 / 10 . 60 3 = % 06 . 4 4 = months efor i % 99 . 16 1 = year efor i

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CHAPTER 3 CHAPTER 3 The Value of one future The Value of one future payment compared to a payment compared to a uniform series of payments uniform series of payments F/A “F given A” A/F “A given F”
HW #2 HW #2 Due 01/21/10 Due 01/21/10 Chapter 3 A.2 A.4 B.1 B.5 E.2

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CHAPTER OUTLINE CHAPTER OUTLINE (A/F, i, n) Meaning “Find A given F or (F/A, i, n) Find F given A” Finding the annual value given the future value Finding the future value given the annual value Finding the future sum of periodic payments Solving for A, F, i, and n
Additional Information Additional Information ( 29 - + = i i A F n 1 1 Definitions A = Uniform Series F = Future Worth i = Interest Rate n = # of periods Uses Future sum of periodic payment Planning for a large future expense New Equipment New Car Parks or buildings Functional Notation F = A (F/A, i, n) A = F (A/F, i, n)

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Additional Information Additional Information ( 29 - + = i i A F n 1 1 / COMMON USAGE The term below is commonly called, “The Uniform Series Compound Amount Factor”
Cash Flow Diagrams Cash Flow Diagrams 0 1 2 3 4 5 6 7 8 9 10 11 n F A A A A A A A A A A A A

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MY Cash Flow Diagrams MY Cash Flow Diagrams 0 1 2 3 4 5 6 7 8 9 10 11 n F A =
Cash Flow Diagrams Cash Flow Diagrams 0 1 2 3 4 5 6 7 8 9 10 11 n F A A A A A A A A A NO “A” occurs at t=0 A transaction occurs at t = 1 and F occurs at time = n

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Shifting Cash Flow Diagrams Shifting Cash Flow Diagrams Cash flow diagrams are shifted when equation time zero does not match problem time zero Shift to match the front cover of the book You must shift to make equations and tables usable If the cash flow and periods are not set up like the front cover of the book, the equations and tables will not work
For Example For Example 0 1 2 3 4 5 6 7 8 9 10 11 12 F A A A A A A A A A A 0 1 2 3 4 5 6 7 8 9 10 n = 10 n = 10 Our new Equation time 0 is our old time 2 Our new Equation time 0 is our old time 2

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Example 3.1 GIVEN In one year your car will need some major work, (timing chain, tires etc.) You estimate it will cost you \$1,000 (this is your F) QUESTION (This per month interest rate How much money do you need to put into your savings account each month (A) if your account earns 1% interest per month in order to have the \$1000 you need?
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Chapter 3 (modify)- Spring 2010 - More Interest Rate...

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