Professional Documents
Culture Documents
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Series and Arithmetic Series
• A series is the sum of the terms of a
sequence.
• The sum of an arithmetic progression (an
arithmetic series, difference between one
and the previous term is a constant)
sn a (a d ) (a 2d ) (a 3d ) ... (a (n 1)d )
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Sum of terms of a finite AP
S n a (a d ) (a 2d ) ... [a (n 2)d ] [a (n 1)d ]
S n a (a d ) (a 2d ) ... (a nd 2d ) (a nd d )
S n (a nd d ) (a nd 2d ) ... (a 2d ) (a d ) a
2 S n a (2a nd ) (2a nd ) ... (2a nd ) (2a nd ) a
There are (n) 2a terms 2a n 2an;
There are (n - 1) nd terms nd (n - 1) nd (n - 1) ; Therefore,
2Sn 2an nd (n 1)
2 S n n[2a (n 1)d ]
n
S n [2a (n 1)d ]
2
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Arithmetic Gradient Series
• A series of N receipts or disbursements that increase
by a constant amount from period to period.
• Cash flows: 0G, 1G, 2G, ..., (N–1)G at the end of
periods 1, 2, ..., N
• Cash flows for arithmetic gradient with base annuity:
A', A’+G, A'+2G, ..., A'+(N–1)G at the end of
periods 1, 2, ..., N where A’ is the amount of the base
annuity
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Arithmetic Gradient to Uniform Series
• Finds A, given G, i and N
• The future amount can be “converted” to an
equivalent annuity. The factor is:
1 N
( A / G, i , N )
i (1 i )N 1
• The annuity equivalent (not future value!)
to an arithmetic gradient series is A =
G(A/G, i, N)
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Arithmetic Gradient to Uniform Series
• The annuity equivalent to an arithmetic
gradient series is A = G(A/G, i, N)
• If there is a base cash flow A', the base
annuity A' must be included to give the
overall annuity:
Atotal = A' + G(A/G, i, N)
• Note that A' is the amount in the first year
and G is the uniform increment starting in
year 2.
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Arithmetic Gradient Series with
Base Annuity
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Example 3-8
• A lottery prize pays $1000 at the end
of the first year, $2000 the second,
$3000 the third, etc., for 20 years. If
there is only one prize in the lottery,
10 000 tickets are sold, and you can
invest your money elsewhere at 15%
interest, how much is each ticket
worth, on average?
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Example 3-8: Answer
• Method 1: First find annuity value of prize
and then find present value of annuity.
A' = 1000, G = 1000, i = 0.15, N = 20
A = A' + G(A/G, i, N) = 1000 + 1000(A/G,
15%, 20)
= 1000 + 1000(5.3651) = 6365.10
$1000
$1150
A A A A A
$1300
$1450
(1 i ) n (1 ni ) $1600
A Ag G
i[(1 i ) n 1]
(1 0.20)5 (1 5 * 0.20)
$1,000 $150
0.20[(1 0.20)5 1]
$1,246
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Arithmetic Gradient Conversion Factor
(to Present Value)
P
(1 i ) n 1 1 (1 ni )(1 i ) n
PA G
i (1 i ) n
i2
(1 0.20)5 1 1 (1 5 * 0.20)(1 0.20) 5
$1,000 $150
0.20(1 0.20) 5
(0.20) 2
$3,727
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Geometric Gradient Series
• A series of cash flows that increase or decrease
by a constant proportion each period
• Cash flows: A, A(1+g), A(1+g)2, …, A(1+g)N–1
at the end of periods 1, 2, 3, ..., N
• g is the growth rate, positive or negative
percentage change
• Can model inflation and deflation using
geometric series
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Geometric Series
• The sum of the consecutive terms of a
geometric sequence or progression is
called a geometric series.
• For example:
Sn a ak ak 2 ak 3 .... ak n 2 ak n 1
Is a finite geometric series with quotient
k.
• What is the sum of the n terms of a finite
geometric series
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Sum of terms of a finite GP
Sn a ak ak 2 .... ak n 2 ak n 1
kSn ak ak 2 .... ak n 2 ak n 1 ak n
Sn kSn a 0 0 ..... 0 0 ak n
Sn (1 k ) a (1 k n )
(1 k n )
Sn a
(1 k )
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Compound Interest Factors
Discrete Cash Flow, Discrete Compounding
Compound Amount (1 i ) n 1
F A Factor (uniform series) i
i
A F Sinking Fund Factor (1 i ) n 1
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Compound Interest Factors
Discrete Cash Flow, Discrete Compounding
Compound Amount e rn 1
F A Factor (uniform series) er 1
er 1
A F Sinking Fund Factor e rn 1
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Compound Interest Factors
Discrete Cash Flow, Continuous Compounding
Arithmetic Gradient
Conversion Factor (to e rn 1 n(e r 1)
P G present value) e rn (e r 1) 2
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Compound Interest Factors
Continuous Uniform Cash Flow, Continuous Compounding
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Quiz---Who will be there
• U, U, U, U, and U!!!!
• CraigTipping ctipping@uvic.ca
• Group 1 (Last NameA-M) ELL 168
• LeYang yangle@ece.uvic.ca
• Group 2 (Last Name N-Z) ELL 061
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Quiz---Problems, Solutions
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Quiz---Based on Chapter 1.2.3.
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Quiz---Important Points
• Simple Interests
• Compound Interests
• Future Value
• Present Value
• Key: Compound Interest
• Key: Understand the Question
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Quiz---Books in Library!!!
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Calculator Talk
• No programmable
• No economic function
• Simple the best
• Trust your ability
• Trust your teaching group
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• Questions?
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Project----Time Table
• Find your group: Mid-October
• Select Topic: End of October
• Survey finished: End of October
• Project: November (3 Weeks)
• Project Report Due: Final Quiz
32
Project----Requirements
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Project Topic----What to do
• You Find it
• Practical
• Example: Run a Pizza Shop
• Example: Run a Store for computer renting
• Example: Survey on the Tuition Increase
• Example: Why ??? Company failed…..
• Team Work
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Project----Recourse
• Not your teaching group
• No spoon feed: Independent work
• Example: Government Web
• Example: Library, Database, Google
• Example: Economics Faculty
• Example: Newspaper, TV
• Example: Friends
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Summary
• Conversion for Arithmetic Gradient Series
• Conversion for Geometric Gradient Series
• Quiz: My slides and the examples in slides
• Project: Good Idea, be open, independent
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