EMT 341/3

Management
for Engineers
Lecture 4
Part II : Economics
Sem 2 2020/21
 Recap
š Equal Value
i) Single-payment compound amount factor (SPCAF)
š Introduction
ii) Single-payment present worth factor (SPPWF)
š Method
iii) Uniform-series compound amount factor (USCAF)
iv) Sinking-fund deposit factor (SFDF)
v) Uniform-series present worth factor (USPWF)
vi) Uniform-series equal end of period payment (USEEPP)

š Different Value
i) Arithmetic Gradient Factor
ii) Geometric Gradient Series Factor
2
 Learning Outcomes

Multiple factor for non-standard placement

•Understand the concept
•Derive basic formula
•Able to solve related problems

Nominal and Effective Interest Rates

• Calculate the interest rates and
cash flows that are on a time
basis other than a year.

3
 Outline
1. Multiple factor for non-standard
placement
• Shifted series
2. Nominal & Effective interest rate
1. Introduction
2. Effective Annual Interest
Rates
3. Effective Interest Rates for
Any Time Period 4
 Multiple factor for non-standard placement
(Shifted series)
Definition : A series that starts at a time other than the
end of Year 1
Ideal case

P A G F

1 2 3 n

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 Multiple factor for non-standard placement
(Shifted series)
Non-Ideal case
How to find the P?
P=? PA=?

year

0 1 2 3 4 5 6 n
A = 50

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 Multiple factor for non-standard placement
(Shifted series)

Example 1.1
One design research group purchased upgraded
Fusion-360 software for RM 10,000 now and annual
payments of RM 1000 per year for 6 years starting
3 years from now for annual upgrades.
Estimate the present worth in year 0 of the
payments if the interest rate is 8% per year?

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 Multiple factor for non-standard placement
(Shifted series)
How to find the F in year (n) of series?

F=?

0 1 2 3 4 5 6 13
(year)

A = 50

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 Multiple factor for non-standard placement
(Shifted series)
Conclusion :
1) To calculate P for a cash flow that includes both uniform
series & single amount:
•Use P/A for the series
•Use P/F for the single amount.

2) To calculate A for the cash flow:

•Convert everything to a P value in year 0 or F value in
the last year.
•Obtain A using A/P or A/F
(n=total number of years over which the A is desired)
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 Outline
1. Multiple factor for non-standard
placement
• Shifted series
2. Nominal & Effective interest rate
1. Introduction
2. Effective Annual Interest
Rates
3. Effective Interest Rates for
Any Time Period
10
 Nominal & Effective interest rate
Rate of interest : the amount earned by a
unit principle

Nominal interest rate :

• Basic annual rate of interest
nominal interest rate,
r = interest rate per time period x number of periods

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 Nominal & Effective interest rate
Effective interest rate (ieff) :
• Actual or the exact rate of interest earned on the principal
during a one-year period.
𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒓𝒂𝒕𝒆 𝒑𝒆𝒓 𝒕𝒊𝒎𝒆 𝒑𝒆𝒓𝒊𝒐𝒅 𝒓
𝒊 𝑬𝒇𝒇𝒆𝒄𝒕𝒊𝒗𝒆 𝒓𝒂𝒕𝒆 𝑪𝑷 = =
𝒄𝒐𝒎𝒑𝒐𝒖𝒏𝒅 𝒑𝒆𝒓𝒊𝒐𝒅 𝒑𝒆𝒓 𝒕𝒊𝒎𝒆 𝒎

𝒎
𝒊𝒊 𝑬𝒇𝒇𝒆𝒄𝒕𝒊𝒗𝒆 𝒂𝒏𝒏𝒖𝒂𝒍 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒓𝒂𝒕𝒆 𝒊𝒂 = 𝟏 + 𝒊 −𝟏

𝒓 𝒎
𝒊𝒊𝒊 𝑬𝒇𝒇𝒆𝒄𝒕𝒊𝒗𝒆 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒑𝒆𝒓 𝒑𝒆𝒓𝒊𝒐𝒅 (𝒊𝒆𝒇𝒇 ) = 𝟏 + −𝟏
𝒎

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Nominal & Effective interest rate

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