Engineering Economic Analysis

126 MORE INTERESTFORMULAS

lines, and without markers as the chart type. (The other choices are no lines, straight lines, and

adding markers for the data points.) The second step shows us the graph and allows the option

of changing the data cells selected. The third step is for chartoptions. Herewe add titles for the

two axes and turn off showing the legend. (Since we have only one line in our graph, the legend

is not needed. Deleting it leaves more room for the graph.) In the fourth step we choose where

the chart is placed.

Becausexy plots are normally graphed with the origin set to (0, 0), an a~active plot is best

obtained if the minimum and maximum values are changed for each axis. This is done by placing

the mouse cursor over the axis and left-clicking. Handles or small black boxes should appear on

the axis to show that it has been selected. Right-clicking brings up a menu to select format axis.

The scale tab allows us to change the minimum and maximum values.

Summary

The.compoundinterest formulas describedin this chapter,along withthose in Chapter3~will

be referred to throughout the rest of the book. It is very important that the reader understand

the concepts presented and how these formulas are used. The following notation i.sused

consistently.

i =effective interest rate per interest period3(stated as a decimal)

n=number of interest periods

P=a present sum of money

F=a future sum of money: the future sumFis an amount,ninterest periods

from the present, that is equivalenttoPwith interest ratei

A=an end-of-period cash receipt or disbursementin a uniform series

continuing fornperiods; the entire series equivalent toPorFat interest ratei

G=uniform period-by-period increase or decrease in cash receipts or

disbursements; the arithmetic gradient

g=uniform rate of cash flow increase or decrease from period to period; the

geometric gradient..

r =nominal interest rate per interest period (see footnote 3)

ia=effectiveinterestrate per year (annum)

m=number of compounding subperiodsper period (see footnote 3)

P, F=amount of money flowing continuously and uniformly during a given period

Single Payment Formulas (derived in Chapter 3)

Compoundamount:

F=P(1 +i)n = P(FjP,i,n)

3Normally the interest period is one year, but it could be some other period (e.g., quarter, month,

semiannual).

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