EC 314: Public and Private Investment

Name:

Q2: Time Value

N
(F |P, i, N ) F = P (1
 + i)N 
(P |A, i, N ) P = A (1+i) −1
N
 i(1+i)
N −iN −1

(P |G, i, N ) P = G (1+i)2 N
 i (1+i)N 
1−(1+g) (1+i)−N N


(P |A1 , g, i, N ) P = A1 i−g
or P = A1 1+i
if : i = g
Consider the following cash flow diagram.

13
10 11
9
7
5 5
Cash Flow

3
0 0 1 1 1 1 1 1
−5

−10 −10
0 2 4 6 8 10 12
Period

1. Write an equation, in factor notation, that describes the present worth of this cash
flow sequence.

2. Write an equivelent equation in factor notation.

3. What is the present worth of this series when the interest rate is 10.00%?