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# CTC 475 Review

Uniform Series
Find F given A
Find P given A
Find A given F
Find A given P
Rules:
1. P occurs one period before the first A
2. F occurs at the same time as the last A
3. n equals the number of A cash flows

CTC 475
Geometric Series
Objectives
Know how to recognize and solve
Know how to recognize and solve
geometric series problems

Cash flows start at
zero and vary by a
constant amount G

EOY Cash Flow
1 \$0
2 \$200
3 \$400
4 \$600
5 \$800

Find P given G
Find A given G
There is no find F given G
Find P/G and then multiply by F/P or
Find A/G and then multiply by F/A

(differs from uniform/geometric)

P occurs 2 periods before the first G

n = the number of cash flows +1

Find A given G
EOY Cash Flow
0 0
1 0
2 G
3 2G
4 3G
5 4G
EOY Cash Flow
0 0
1 A
2 A
3 A
4 A
5 A
Find P given G
How much must be deposited in an
account today at i=10% per year
compounded yearly to withdraw
\$100, \$200, \$300, and \$400 at
years 2, 3, 4, and 5, respectively?

P=G(P/G
10,5
)=100(6.862)=\$686
Find P given G
How much must be deposited in an
account today at i=10% per year
compounded yearly to withdraw \$1000,
\$1100, \$1200, \$1300 and \$1400 at years
1, 2, 3, 4, and 5, respectively?

This is not a pure gradient (doesnt start
at \$0) ; however, we could rewrite this
cash flow to be a gradient series with
G=\$100 added to a uniform series with
A=\$1000
EOY Cash Flow
0 0
1 0
2 G=\$100
3 G=\$200
4 G=\$300
5 G=\$400
EOY Cash Flow
0 0
1 A=\$1000
2 A=\$1000
3 A=\$1000
4 A=\$1000
5 A=\$1000
Combinations

Uniform + a gradient series (like
previous example)
What deposit must be made into an
account paying 8% per yr. if the
\$800, \$700, \$600, \$500, \$400 at
years 1, 2, 3, 4, and 5 years
respectively.

P=800(P/A
8,5
)-100(P/G
8,5
)

Example
What must be deposited into an account
paying 6% per yr in order to withdraw
\$500 one year after the initial deposit and
each subsequent withdrawal being \$100
greater than the previous withdrawal? 10
withdrawals are planned.
P=\$500(P/A6,10)+\$100(P/G6,10)
P=\$3,680+\$2,960
P=\$6,640

Example
An employee deposits \$300 into an
account paying 6% per year and increases
the deposits by \$100 per year for 4 more
years. How much is in the account
immediately after the 5
th
deposit?
A=100(A/G6,5)=\$188
A=\$188+\$300=\$488
Find F given A
F=\$488(F/A6,5)=\$2,753

Geometric Series
Cash flows differ by a constant percentage
j. The first cash flow is A
1

Notes:
j can be positive or negative
geometric series are usually easy to
identify because there are 2 rates; the
growth rate of the account (i) and the
growth rate of the cash flows (j)

Tools

Find P given A
1
, i, and j

Find F given A
1
, i, and j
Geometric Series Rules

P occurs 1 period before the first A
1

n = the number of cash flows

Geometric Series Equations
(i=j)
P=(n*A
1
) /(1+i)

F=n*A
1
*(1+i)
n-1
Geometric Series Equations
(i not equal to j)

P=A
1
*[(1-((1+j)
n
*(1+i)
-n
))/(i-j)]

F=A
1
*[((1+i)
n
-(1+j)
n
)/(i-j)]
Geometric Series Example
How much must be deposited in an
account in order to have 30 annual
withdrawals, with the size of the
withdrawal increasing by 3% and the
account paying 5%? The first withdrawal
is to be \$40,000?

P=A
1
*[(1-(1+j)
n
*(1+i)
-n
)/(i-j)]
A
1
=\$40,000; i=.05; j=.03; n=30
P=\$876,772
Geometric Series Example
An individual deposits \$2000 into an
account paying 6% yearly. The size of the
deposit is increased 5% per year each
year. How much will be in the fund
immediately after the 40
th
deposit?

F=A
1
*[((1+i)
n
-(1+j)
n
)/(i-j)]
A
1
=\$2,000; i=.06; j=.05; n=40
F=\$649,146
Next lecture
Changing interest
rates
Multiple
compounding
periods in a year
Effective interest
rates