Assume you were asked to prepare a table of compound interest factor values (like those in the back of this book) used in calculating the present worth of a geometric gradient series. Determine the two values for n = 1 and 2 for an interest rate of 10% per year and a rate of change g of 5% per year.

What will be an ideal response?


Find (P/A,g,i,n) using Equation [2.32] and A 1 = 1
For n = 1: P g = 1*{1 – [(1 + 0.05)/(1 + 0.10)] 1 }/(0.10 – 0.05)
= 0.90909

For n = 2: P g = 1*{1 – [(1 + 0.05)/(1 + 0.10)] 2 }/(0.10 – 0.05)
= 1.77686

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