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EC 314: Public and Private Investment Fall 2012 Q2: Time Value #8
EC 314: Public and Private Investment Fall 2012 Q2: Time Value #8
PASS Name:
NO PASS
F = P (1 + i)N P =A P = P =
(1+i)N 1 i(1+i)N (1+i)N iN 1 G i2 (1+i)N 1(1+g)N (1+i)N A1 ig
or P = A1
N 1+i
10
14 14 13 12 0 0 0
10 6 2
Cash Flow
10
18
0.0 2.5 5.0 7.5 10.0
Period
O By 1. Write an equation, in factor notation, that describes the present worth of this cash One
ow sequence.
2. Write an equivelent equation in factor notation, i.e., decompose the cash ow dierently.
3. Calculate the present worth of this series when the interest rate is 10.00%?
Answer Key
1. Answer: One of many possible answers is: P = 14(P |A,i,8) 1(P |A1 ,i,,g=50%,6) (1+i)2 (1+i)4 2. Answer: You just need to create another variation 3. Answer: The present worth is 35.07