Chapter 2 Flashcards
Single payment compound factor SPCAF
(1+i)^n also called the F/P factor
Find F given P
F= P(1+i)^n
Find P given F
P=F[1/(1+i)^n] = F(1+i)^-n
Single payment present worth factor SPPWF
Or P/F factor
(1+i)^-n
What does (F/P,6%,20) mean
The factor that is used to calculate the future amount F accumulated in 20 periods if the interest rate is 6% per period.
Standard notation equation for F
F= P(F/P,i,n)
Standard notation equation for P
P=F(P/F,i,n)
A/F or Sinking fund factor
It determines the uniform annual series a that is equivalent to a given future amount F.
A = F[i/(1+i)^n -1]
F/A factor or uniform series compound amount factor USCAF
When multiplied by the given uniform annual amount, a, it yields the future worth of the uniform series.
F=A[(1+i)^n -1/i]
Arithmetic gradient
Is a cash flow series that either increases or decreases by constant amount each period. The amount of change is called the gradient.
Conventional gradient
A gradient that begins between years 1 and 2.
The total present worth P
The total present worth for a series that includes a base amount a and conventional arithmetic gradient must consider the present worth of both the uniform series defined by a and the arithmetic gradient series. The addition of the two results in Pt
Pt= Pa +- Pg
The general relation to convert an arithmetic gradient, G, not including the base amount for 10 years into a present worth at zero years.
Pg= G/i [(1+i)^n -1/i(1+i)^n - n/(1+i)^n]
F/G factor
Arithmetic gradient, future worth factor
Fg= G(1/i)[(1+i)^n-1/i)-n]
A geometric gradient series
Is a cash flow series that either increases or decreases by constant percentage each. Period the uniform change is called the right of change.
g- constant rate of change in decimal form which can be cash full values increase or decrease from one period to the next period the gradient G can be positive or negative
A- initial cash flow in one of the geometric series
Pg- present of the entire geometric gradient series, including the initial amount A1
