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The maintenance costs of a car increase by $200 each year. This cash flow pattern is best described by which of the following?

The maintenance costs of a car increase by $200 each year. This cash flow pattern is best described by which of the following?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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The maintenance costs of a car increase by $200 each year. This cash flow pattern is best described by which of the following? a) geometric series b) Infinite series O c) Arithmetic Gradient series O d) Uniform series
Transcribed Image Text:The maintenance costs of a car increase by $200 each year. This cash flow pattern is best described by which of the following? a) geometric series b) Infinite series O c) Arithmetic Gradient series O d) Uniform series
Expert Solution
Step 1

Geometric Series:

In geometric series, the payment is spaced uniformly from one period to the next period by a constant percent.

For example, the first payment is $100, and further payment increases by 5% (gradient percent).

Hence, the second payment is $105 (100 * 1.05) & the third payment is $110.25 (105 * 1.05) & so on.

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