Lecture No.

8
Chapter 3
Contemporary Engineering Economics
Copyright © 2010

Contemporary Engineering Economics, 5th edition, © 2010

Linear Gradient Series
Gradient Series as a Composite Series of a Uniform Series
A Strict Gradient Series of N Payments of A1 and the Gradient Series of
Increments of Constant Amount G.

(1 + i )N − iN − 1 1 − iN (1 + i )− N − (1 + i )− N 1
lim (P G , i, N ) = lim = lim =
N →∞ N →∞ i (1 + i )
2 N N →∞ i 2
i2
Contemporary Engineering Economics, 5th edition, © 2010
Example3.21 Linear
Gradient: Find P,
Given A1, G, N, and i
 Given: A1 = $1,000, G = $250,
N = 5 years, and i = 12% per
year
 Find: P

 Excel Solution:

Contemporary Engineering Economics, 5th edition, © 2010

Gradient-to-Equal-
Payment Series Conversion
Factor, (A/G, i, N)
 Cash Flow Series
 Given: G = $1,000, N = 10
years, i = 12%

 Find: A

 Solution:
A = $1,000(A / G ,12%,10)
= $1,000(3.5847)
 Factor Notation
= $3,584.70

A = G ( A G , i, N ) = G (P G , i, N )( A P , i, N )
Contemporary Engineering Economics, 5th edition, © 2010
Example 3.22 – Linear
Gradient: Find A, Given
A1, G, i, and N
 Given: A1 = $1,000, G = $300,
N = 6 years, and i = 10% per
year
 Find: A

Contemporary Engineering Economics, 5th edition, © 2010

Example 3.23
Declining Linear
Gradient Series
 Given: A1 = $1,200, G = -
$200, N = 5 years, and i = 10%
per year
 Find: F
 Strategy: Since we have no
interest formula to compute the
future worth of a linear gradient
series directly, we first find the
equivalent present worth of the
gradient series and then convert
this P to its equivalent F.

Contemporary Engineering Economics, 5th edition, © 2010

Present Worth of
Geometric
Gradient Series
 Formula:

 Factor Notation:

An = An −1 (1 ± g )
An = A1 (1 ± g )n −1
Contemporary Engineering Economics, 5th edition, © 2010
Example 3.24 –
Geometric Gradient
Series
 Given: A1 = $54,600, g =
7%, N = 5 years, and i = 12%
per year
 Find: P

P = $54,600(P / A1 , 7%, 12%, 5)

1 − (1 + 0.07 )5 (1 + 0.12 )−5 

$54,600 
 0 .12 − 0 . 07 
$222,973

Contemporary Engineering Economics, 5th edition, © 2010

Example 3.25
Retirement Plan –
Saving $1 Million
 Given: F = $1,000,000, g =
6%, i = 8%, and N = 20

 Find: A1

 Solution:

Contemporary Engineering Economics, 5th edition, © 2010