Engineering Economic Analysis

114 MORE INTEREST FORMULAS

3-month interest period or an effectiveifor each time period between withdrawals. Let's solve

the problem both ways.

Compute an equivalentAfor each 3-month time period.

If we had been required to compute the amount that could be withdrawn quarterly, the diagram

would be as follows:"

AAAAAAAAA A A A A A A A A A A A

iiiiii i i i i i i i i i i i i i i

0-1-2-3-4-5-6-7-8-9-10-11-12-13-14-15-16-17-18-19-20

1

i= 2% per quarter

n= 20 quarters

$5000

A=P(AI P, i, n)=5000(AI P,2%, 20) = 5000(0.0612) = $306

Now, since we knowA, we can construct the diagram that relates it to our desired equivalent

annualwithdrawal,W:

1111111111111111111 r$3~

0-1-2-3-4-5-6-7-8-9-10-11-12-13-14-15-16-17-18-19-20

1 1 1 1 1

w w w w w

Looking at a one-year period,

A=$306

i i t i

0-1~2~3-4

1

• w-

i==2% per quarter

n=4 quarters

- ------

W=A(FIA,i,n) .306(FIA,2%,4) 306(4.122)

= ,,= 'II ..

.._ ___ iii _ .__