Brief description for post -13- engineering economy

13-Solved problems, Deposit value for uniform series.

How to find deposit value for uniform series?

The video used in the illustration

This is a link to the video, which has a subtitle and closed caption in English, for the Solved problem, Two solved problems, How to find deposit value for uniform series? The second problem shows to get an A value in terms of n,I,F. While the second problem is how to get an A value in terms of n, I, P

The first solved problem, find the deposit value for uniform series in terms of n,I, and F.

The title is College savings plan: find A, given F,N, and I. F is the future value, N is the number of years, number of deposits, number of time periods,i is the interest.

You want to set up a college savings plan for your daughter. She is currently 10 years old and will go to college at age of 18.

She needs in the bank at least an amount of $100,000. To do this in action, you need to deposit in the bank.

The bank gives a rate of interest equal to 7%. The deposits are done at the end of each year with equal deposits. This is the case of uniform series or A. For the factor used (A/F), it is called the sinking fund factor.

You need $100,000, this sum is the future value, A is unknown, given n and interest rate i%.N value is 8 deposits in eight years and i=7%.

The first solved problem, find the deposit value for uniform series -using cash flows moment.

Suppose we start by using the method of cash flow moment at a pivot point. The pivot point is t=0. The moment caused by the future value F will be equivalent to the moment caused by the uniform series of deposits at the same point.

To get the moment due to the future value, it is equal to F as positive, and the point is at the left side of F; the moment arm to pivot point t=0, will be(1+i)^-8. The moment value is $100,000*(1.07)^-8.

While for the moment, caused by the uniform series of deposits.It will be as -A*(1+i)^-8+(-A)*(1+i)^-7 and so on till we complete the deposits expression. The sum of moments is zero.

 Then all the minus signs will be shifted to the right-hand side with a change sign; the new sign is positive. As we can see, the L.H.S is $100,000*1.07^-8 will be equal to the R.H.S, which is equal to A*1.07^-1+A*1.07^-2 A*1.07^-3+A*1.07^-4+A*1.07^-5+A*1.07^-6+ A*1.07^-7+A*1.07^-8. I am adding all factors by using a calculator. The result can be found as A is multiplied by 5.97129.

The product of A*5.97129 will be equal to $100,000/(1.07)^8=$100,000/1.7181.

You can click on any picture to enlarge, then press the small arrow at the right to review all the other images as a slide show.

Solved problem, How to find deposit value for uniform series?

We simplify the result as 100,000/10.2598=$974.78. The final value of A is $974.78 to be paid at the end of each year for 8 years to get the future value of $100,000.

The first solved problem, find the deposit value for uniform series and use the expression for A/F.

The second method is by using the equation, A =$100,000*(A/F,7%,8)=$9746.71. The value is the same as estimated by the cash flow moment method.

A/F can be estimated by using the formula, A/F=(i)/((1+i)^n-1), i=7%,n=8. We substitute to get A/F as (0.07)/((1.07)^8-1))=0.09746. The value will be multiplied by $100,000, to get the A value.

 How to find deposit value for uniform series?Use A/F

A value will be $100,000*0.09746=$9746.78.

The first solved problem, find the deposit value for uniform series, and use the interest table of 10%.

The next method is by using the interest rate table. We use the interest rate table of 7%; we have n value equal to 8. we need to find A/F value. Check the sinking fund factor A/F for finding A in terms of F. We go vertically and find the intersection with n=8; we get the value of 0.0975.

Solve For A value for uniform series deposits, use the interest table of 10%.

This number matches with the previous calculations.

The first solved problem, find the deposit value for uniform series, using the excel function PMT.

Another way to get the value of A/F is by using the excel function P.M.T. The P.M.T. (rates, which is 0.07, nper is 8 deposits,PV stands for present value,0,Fv stands for the future value which is $100,000, type is zero).

Solve For A value for uniform series deposits, use the excel function PMT.

The A value is by a minus sign since uniform series are outflows.

If we use an excel sheet, use cells. Cell C19 has an interest rate of 7%. The N periods are 8. Cell C21 is for the future value that is equal to 100,000. In the last cell, C23, we can get the A value as a minus. As we can see, I have taken a screen shoot for the cell.

Solve For A value for uniform series deposits, use the excel function PMT.

PMT(C19,C20,0,+C21). The A value can be obtained by using the excel sheet.

The second solved problem, find the deposit value for uniform series -use cash flows moment.

Let us check another problem 2.12, paying off an education Load: Find A, Given P,I, and N. This is another way to get A, but this time in terms of P,  where P is the present value. You borrow from the bank to finance your educational expenses. The loan should be paid back to the bank during the next five years.

The rate of interest given is 6% yearly. the payment should in equal annual installments. The loan will be paid off over five years. As we know for the uniform series, paying is done starting after one year after getting the loan.

The first installment will be due a year later. It is required to estimate the amount of the annual installments A. Refer to figure 2.20. This solved problem requires estimating A in terms of P, while the previously solved problem, was required to estimate A in terms of F.

In this solved problem, I and n are given. First, we will use the method of the estimate of the moment of cash flow about the pivot point. Take the pivot point at time t=0. The P is pointing upwards; then it is +P.

The moment arm for P is (1+i)^0, whether from right or left, the P coincides with the point, arm length is equal to 1. All A installments are directed downwards with a negative value. The Pivot point is at the left side of the A’s cash flows; the arm length will be the sum of (1+i)^-(distance to pivot point).

The moments due to A’s will be equal to -A((1+i)^-1+(1+i)^-2+(1+i)^-3+(1+i)^-4+(1+i)^-5)), . The sum of moments are equal to zero.

P will be as L.H.S, and the product of A by the arm will be set as R.H.S with a changing sign.
The negative exponents are considered as fractions. The equation is modified as we can see , P=A*(1/(1.06)+1/1.06^2)+1/(1.06)^3++1/(1.06)^4+1/(1.06)^5)). The P-value is $21061.82. we equate to the correct value (4.2123)*A.

The second solved problem, find deposit value for uniform series -use cash flows moment.

Finally, the A value is $5000.

This is another alternative, by using the pivot point at time t=1. The sum of moments is shown, based on the selected pivot point. Please refer to the rightside of the slide picture for the sake of comparison between cash flow moments based on a pivot point at t=0, and at a pivot point at t=1.

The second solved problem, finding deposit value for uniform series -using cash flows moment. Select another pivot point.

Finally, the A value is $5000.

The second solved problem, find the deposit value for uniform series, use the expression for A/P.

Here we use an equation, where A=P(A/P,i,n), P is given A is unknown. P=$21061.82. A/P value can be obtained from the known equation as equal to (i*(1+i)^n/(1+i)^n-1)).

 The second solved problem, find the deposit value for uniform series, use the expression for A/P.

A/P value is equal to 0.2374. A/P will be multiplied by P. the deposit value A =21061*0.2374=$5000. The same value for A matches with the previous calculation by the moment of cash flows.

This is a link to the Pdf file used for the illustration of this post.

This is a good link -Engineering Economy. Applying Theory to Practice.

Scroll to Top