EC 314: Public and Private Investment Fall 2012 Q2: Time Value #11

PASS Name:

NO PASS

(F |P, i, N ) (P |A, i, N ) (P |G, i, N ) (P |A1 , g, i, N )

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 i−g

or P = A1

N 1+i

if : i = g Not Factor Note

Consider the following cash flow diagram.

Cash Flow

0

−10

−20

−22
0.0

−19

−16

−13

−10

−7

−4

−1

2

5

8

2.5

5.0

7.5

10.0

Period
Off By 1. Write an equation, in factor notation, that describes the present worth of this cash One

flow sequence.

2. Write an equivelent equation in factor notation, i.e., decompose the cash flow differently.

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 = −22(P |A,i,11) + 3(P |G,i,,11) (1+i)−1 (1+i)−1 2. Answer: You just need to create another variation 3. Answer: The present worth is -70.07

1

Sign up to vote on this title
UsefulNot useful