CIVILEN 3080 Lecture Notes - Lecture 2: Compound Interest, Cash Flow, Effective Interest Rate
2 May 2016
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Document Summary
Interest the cost of money; simple, compound. Market interest rate measures the time value of money. Cash flow diagram graphical representation of cash transactions over time. Equal (uniform) payment series at regular intervals. Linear gradient series: payment increases/decreases by a fixed amount (linear) Geometric gradient series: payment increases/decreases by a fixed rate (exponential) Compounding process finding an equivalent future value of a current cash payment f = p(1+i)n. Discounting process finding an equivalent present value of a future cash payment f = p(1+i)-n. Given: p = , i = 10%, n = 8 years. Approximates how long it will take for an amount of money to double. Ron"s under-withholding uniform series: (assuming equally spaced & interest rate doesn"t change) Given: a = . 33, n = 12 months, i = 0. 10% per month. Or use factor (appendix: interest factors for discrete compounding) N = 10 years, i = 7% per year where the first deposit is made at n=0.
