Ch 8 and 9 Intro to Engineer Economics Flashcards
Calculating simple interest
I= Pni
I= interest accrued P= principle amount n= interest periods i= interest rate per period
Rate of return
Equivalent compound interest rate that must be earned on investment to profit
Compound interest
Interest on top of interest
F= P(1+i)^n
How to calculate: Annual compounded interest Semiannual compounded interest Quarterly compounded interest Monthly compounded interest
Annual: F= P(1+i)^n
Semiannual: F= P(1+i/2)^2n
Quarterly: F= P(1+i/4)^4n
Monthly: F= P(1+i/12)^12n
Cash flow diagram rules
Horiz line= time
⬆️= $ in
⬇️= $ out
Value of any transaction changes with time because…
Interest
Present worth
Worth of a $ transaction at current time
Amount of money needed to be invested now to profit in future
Future worth
Worth of money transaction at same point in future
Annual worth
Worth of money transaction converted to equivalent uniform annual costs
Annuity
Involves series of equal payments at regular intervals
Paying certain amounts per month/period to retire debt
Arithmetic gradients
Money increases or decreases in equal amounts per year
Geometric gradients
For when uniform payment increases or decreases by constant percentage
Annual future worth
Aka sinking fund
Annuity designed to produce money in future
Ex. Saving for Christmas gifts
Annual present worth
Aka installment loan Used to retire debt Make periodic payments instead of one large payment Payment plan Used to determine retirement money
Capitalized costs
Infinite life analysis
Present worth of an investment expected to last forever
P= A/i
