Scribd
Upload
22K views8 pages

Gradient Series Problems and Solutions

The document contains 5 engineering economy problems involving uniform and geometric gradient series calculations. Problem 1 calculates the present worth of a motorcycle purchased through 5 installment payments with increasing amounts. Problem 2 finds the equivalent annual yield of a gold mine yielding decreasing amounts over 4 years. Problem 3 determines the accumulated amount in a savings account after 5 deposits increasing uniformly each month. Problem 4 calculates the equivalent uniform series of 7 annual payments increasing by $800 each year. Problem 5 finds the present worth of a 10-year warehouse lease with annually increasing rent amounts.

Uploaded by

Noel So jr
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
22K views8 pages

Gradient Series Problems and Solutions

The document contains 5 engineering economy problems involving uniform and geometric gradient series calculations. Problem 1 calculates the present worth of a motorcycle purchased through 5 installment payments with increasing amounts. Problem 2 finds the equivalent annual yield of a gold mine yielding decreasing amounts over 4 years. Problem 3 determines the accumulated amount in a savings account after 5 deposits increasing uniformly each month. Problem 4 calculates the equivalent uniform series of 7 annual payments increasing by $800 each year. Problem 5 finds the present worth of a 10-year warehouse lease with annually increasing rent amounts.

Uploaded by

Noel So jr
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
  • Problem #1
  • Problem #2
  • Problem #3
  • Problem #4
  • Problem #5

ENEECO30 -Engineering Economy

PROBLEM SET # 6

UNIFORM ARITHMETIC AND GEOMETRIC GRADIENT SERIES

PROBLEM #1

A secondhand motorcycle can be purchase by 5 end-of-month payments. The first payment

would be Php. 5,000.00 and would increase by Php. 500.00 every payment. Should a buyer opt to

pay it at once rather by installment, how much would it cost him if money is worth 6%

compounded quarterly?

Given:
𝐴 = 𝑃ℎ𝑝 5,000.00
𝐺 = 𝑃ℎ𝑝 500.00
𝑖 = 6%
𝑛 = 5 𝑚𝑜𝑛𝑡ℎ𝑠

Solution:
Solve for the Total Present Worth
 𝑃 =𝑃 + 𝑃 Note: Increasing so positive

Get the value of 𝑃


( )
 𝑃 =𝐴

Note: interest rate is nominal compounded quarterly, convert into nominal


compounded monthly.

Instructor: Engr. Michael Benjamin M. Diaz


ENEECO30 -Engineering Economy

 𝐸𝐼𝑅 = 𝐸𝐼𝑅

 1+ −1= 1+ −1

.
 1+ −1= 1+ −1

 𝑖 = 0.0597 or 5.97%

Substitute the values to get 𝑃


( )
 𝑃 =𝐴
.

 𝑃 = 5,000 .

 𝑃 = 𝑃ℎ𝑝 24,631.16

Get the value of 𝑃


( )
 𝑃 = − 𝑛 (1 + 𝑖)
.
.
 𝑃 = . . −5 1+

 𝑃 = 𝑃ℎ𝑝 4,901.79

Substitute the value to get Total Present Worth


 𝑃 = 24,631.16 + 4,901.79
 𝑃 = 29,532.95

Answer:
𝑷𝑻 = 𝟐𝟗, 𝟓𝟑𝟐. 𝟗𝟓

PROBLEM #2

A small gold mine yielded an equipment of Php. 500,00.00 during its first year of operation.

Php 460,000.00 on its second year, and amount decreasing by Php. 40,000.00 every year, what is

its equivalent annual yield if interest rate is 10%?

Given:
𝐴 = 𝑃ℎ𝑝 500,000.00

Instructor: Engr. Michael Benjamin M. Diaz


ENEECO30 -Engineering Economy

𝐺 = 𝑃ℎ𝑝 40,000.00
𝑖 = 10%
𝑛 = 4 𝑦𝑒𝑎𝑟𝑠

Solution:
Solve for the Total Present Worth
 𝑃 =𝑃 − 𝑃 Note: Decreasing so negative

Get the value of 𝑃


( )
 𝑃 =𝐴
( . )
 𝑃 = 500,000
.

 𝑃 = 𝑃ℎ𝑝 1,584,932.72

Get the value of 𝑃


( )
 𝑃 = − 𝑛 (1 + 𝑖)
( . )
 𝑃 = − 4 (1 + 0.1)
. .

 𝑃 = 𝑃ℎ𝑝 175,124.65

Instructor: Engr. Michael Benjamin M. Diaz


ENEECO30 -Engineering Economy

Substitute the value to get Total Present Worth


 𝑃 = 1584932.72 + 175124.65
 𝑃 = 𝑃ℎ𝑝 1,409,808.07

Get the equivalent annual yield (A’) using 𝑃

 𝐴=𝑃 ( )

.
 𝐴 = 1409808.07 ( . )

 𝐴 = 𝑃ℎ𝑝 444.753.29

Answer:
𝑨 = 𝑷𝒉𝒑 𝟒𝟒𝟒. 𝟕𝟓𝟑. 𝟐𝟗

PROBLEM #3

An individual makes five deposits that increase uniformly by Php. 300.00 every month in

a saving account that earns 12% compounded monthly. If the initial deposit is Php. 4,500.00.

Determine the accumulated amount in the account just after the last deposit.

Given:
𝐴 = 𝑃ℎ𝑝 4,500.00
𝐺 = 𝑃ℎ𝑝 300.00
𝑖 = 12%
𝑛=5

Instructor: Engr. Michael Benjamin M. Diaz


ENEECO30 -Engineering Economy

Solution:
Solve for the Total Present Worth
 𝑃 =𝑃 + 𝑃 Note: Increasing so positive

Get the value of 𝑃


( )
 𝑃 =𝐴
.

 𝑃 = 4,500 .

 𝑃 = 𝑃ℎ𝑝 21,840.44

Get the value of 𝑃


( )
 𝑃 = − 𝑛 (1 + 𝑖)
.
.
 𝑃 = . . −5 1+

 𝑃 = 𝑃ℎ𝑝 2883.08

Substitute the value to get Total Present Worth


 𝑃 = 21,840.44 + 2,883.08
 𝑃 = 24,723.52

Solve for the accumulated amount after last deposit.


 𝐹 = 𝑃 (1 + 𝑖)
.
 𝐹 = 24,723.52 1 +

 𝐹 = 25,984.67

Answer:
𝑭𝑻 = 𝟐𝟓, 𝟗𝟖𝟒. 𝟔𝟕

Instructor: Engr. Michael Benjamin M. Diaz


ENEECO30 -Engineering Economy

PROBLEM #4

A series of seven annual payments starting with Php. 4,000.00 on the first year increases

by Php. 800.00 yearly. If the interest is 10% effective, determine the equivalent uniform series of

payments.

Given:
𝐴 = 𝑃ℎ𝑝 4,000.00
𝐺 = 𝑃ℎ𝑝 800.00
𝑖 = 10%
𝑛=7

Solution:
Solve for the Total Present Worth
 𝑃 =𝑃 − 𝑃 Note: Decreasing so negative

Get the value of 𝑃


( )
 𝑃 =𝐴

Instructor: Engr. Michael Benjamin M. Diaz


ENEECO30 -Engineering Economy

( . )
 𝑃 = 4,000
.

 𝑃 = 𝑃ℎ𝑝 19,743.68

Get the value of 𝑃


( )
 𝑃 = − 𝑛 (1 + 𝑖)
( . )
 𝑃 = − 7 (1 + 0.1)
. .

 𝑃 = 𝑃ℎ𝑝 10,210.50

Substitute the value to get Total Present Worth


 𝑃 = 19.743.68 + 10,210.50
 𝑃 = 𝑃ℎ𝑝 29,954.18

Get the equivalent annual yield (A’) using 𝑃

 𝐴=𝑃 ( )

.
 𝐴 = 29,954.18 ( . )

 𝐴 = 𝑃ℎ𝑝 6,152.75

Answer:
𝑨 = 𝑷𝒉𝒑 𝟔, 𝟏𝟓𝟐. 𝟕𝟓

PROBLEM #5

A warehouse is initially rented for Php. 100,000.00 a year. If the 10-year lease contract

indicates that the rent increases by Php. 10,000.00 each year, determine the present worth of the

lease. Money is worth 8% compounded monthly.

Given:
𝐴 = 𝑃ℎ𝑝 100,000.00
𝐺 = 𝑃ℎ𝑝 10,000.00
𝑖 = 8%
𝑛 = 10

Instructor: Engr. Michael Benjamin M. Diaz


ENEECO30 -Engineering Economy

Solution:
Solve for the Total Present Worth
 𝑃 =𝑃 + 𝑃 Note: Increasing so positive

Get the value of 𝑃


( )
 𝑃 =𝐴
.

 𝑃 = 100,000.00 .

 𝑃 = 𝑃ℎ𝑝 964,290.31

Get the value of 𝑃


( )
 𝑃 = − 𝑛 (1 + 𝑖)
.
, .
 𝑃 = . . − 10 1+

 𝑃 = 𝑃ℎ𝑝 428,645.04

Substitute the value to get Total Present Worth


 𝑃 = 21,840.44 + 2,883.08
 𝑃 = 1,392,395.35

Answer:
𝑷𝑻 = 𝟏, 𝟑𝟗𝟐, 𝟑𝟗𝟓. 𝟑𝟓

Instructor: Engr. Michael Benjamin M. Diaz

Common questions

Powered by AI

To determine cost-effectiveness, calculate the present worth of the installment series and compare it to the lump-sum payment. If the installment present worth is lower, paying in installments is cost-effective, considering the time value of money reflected in the interest rate applied .

The present worth of a series with constant increment is calculated by summing the present worth of an annuity (constant payment) and the present worth of a gradient series (incremental increase). Formula: P_T = P_A + P_G, where P_A = A[(1-(1+i)^-n)/i], and P_G = G/i[((1+i)^n-1) / i-n]*(1+i)^-n .

The effective interest rate adjusts nominal rates to match cash flow frequency, serving as the basis for calculating present or future values, ensuring equivalent valuation under compound interest principles across different cash flow structures .

To find the accumulated future value of increasing deposits, first calculate the present worth of the deposits using annuity and gradient formulas, then compound this through the number of periods using F_T = P_T*(1+i)^n, where i is the monthly interest rate .

The equivalent uniform annual yield can be calculated by first determining the total present worth of the cash flows (considering both the initial amount and the decreasing increments) and then converting this present worth into an annual series using the annuity formula: A' = P_T*(i/(1-(1+i)^-n)).

To convert a nominal interest rate compounded quarterly to a monthly nominal rate, you need to use the formula for effective interest conversion: (1 + i_m/m_m)^(m_m-1) = (1 + i_q/m_q)^(m_q-1), where i_m is the monthly nominal rate, m_m = 12 months, i_q is the quarterly nominal rate, m_q = 4 quarters. Solving this gives the monthly interest rate as approximately 5.97% .

Graduated cash flows necessitate using gradient calculations to forecast accurately, affecting budgeting and cash reserves. They require pre-planning for increased outflows or evaluating investing mechanisms to capitalize on inflows effectively .

Increasing annual rental costs require calculating the present worth using a combination of annuity and gradient formulas, as the series involves initial regular payments with an annual increment. Adjustments must be made for these increases to find the accurate present value of the lease .

First, convert the annual increase into present terms using a gradient formula, combine it with an annuity formula for the base payment, then adjust using the given interest rate compounded monthly for the full term to find the total present worth .

Adjustment is important because the effective interest rate per compounding period must align with the cash flow periods to accurately calculate present or future values; mismatched periods can lead to incorrect valuations .

ENEECO30 -Engineering Economy Instructor: Engr. Michael Benjamin M. Diaz PROBLEM SET # 6 UNIFORM ARITHMETIC AND GEOMETRIC
ENEECO30 -Engineering Economy Instructor: Engr. Michael Benjamin M. Diaz  𝐸𝐼𝑅௠௢௡௧௛௟௬ = 𝐸𝐼𝑅௤௨௔௥௧௘௥௟௬  ቀ1 + ௜೘
ENEECO30 -Engineering Economy Instructor: Engr. Michael Benjamin M. Diaz 𝐺= 𝑃ℎ𝑝 40,000.00 𝑖= 10% 𝑛= 4 𝑦
ENEECO30 -Engineering Economy Instructor: Engr. Michael Benjamin M. Diaz Substitute the value to get Total Present Worth 
ENEECO30 -Engineering Economy Instructor: Engr. Michael Benjamin M. Diaz Solution: Solve for the Total Present Worth 
ENEECO30 -Engineering Economy Instructor: Engr. Michael Benjamin M. Diaz PROBLEM #4 A series of seven annual payments st
ENEECO30 -Engineering Economy Instructor: Engr. Michael Benjamin M. Diaz  𝑃஺= 4,000 ቂ ଵି(ଵା଴.ଵ)షళ ଴.ଵ ቃ  𝑃஺= 𝑃ℎ𝑝
ENEECO30 -Engineering Economy Instructor: Engr. Michael Benjamin M. Diaz Solution: Solve for the Total Present Worth 

You might also like