5. Find the equivalent present worth of a series of annual payments if the first payment equals $500 andbegins in year 4, each subsequent annual payment increases by $100, and the final payment occurs in year11. Assume i = 10% compounded yearly.

Answered: 5. Find the equivalent present worth of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Find the equivalent present worth of a series of annual payments if the first payment equals $500 and
begins in year 4, each subsequent annual payment increases by $100, and the final payment occurs in year
11. Assume i = 10% compounded yearly.

Expert Solution

Step 1: Determine the cash flow diagram:

This is an example of uniform gradient series cash flow. The uniform gradient series starts from 4th year with cash flow $500 and each subsequent annual payment increases by $100.

For uniform gradient series, G= 100 and A₁ =500.

i=10%

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