Engineering Economic Analysis

Uniform Series Compound Interest Formulas 91

n= 60

i=1%

p

=

'SOlUfflbN,)" ,I.. .,'

In this problem we are being offered a contract that will pay $140 per month for 60 months. We

must determine whether the contract is worth $6800, if we consider 1% per month to be a suitable

interestrate. Using the uniform series pt:esentworth formula, w~ \yill <;;.omgutethepresent worth

of the cOntract.

P - A(PjA,i,n) .140(PjA, 1%,60)

= 140(44.955)

= $6293.70

It is clear that if we pay the $6800 asking price for the contract, we wil).receive less than the 1%
per month interest we desire. We wi11,therefore,reject the investor's offer.

• .- .~--.-

Suppose we decided to pay the $6800 for the time purchase contract in Example 4-4. What
monthly rate of return would we obtain on our investment?

In this situation, we knowP,.A,andn,but we do not knowi.The problem may be solved by
using either the uniform series present worth formula

P=A(PjA,i,n)

or the uniform series capital recovery formula

I

r

I

A=P(AjP,i,n)

Either way, we have one equation with one unknown.

P =$6800 A=$140 n-^60 i- unknown

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