CE482

Construction Management

03 Engineering Economics II
Using Interest Tables
Single payment compound
amount factor (SPCAF)
To find F given P for n compounding periods at an
interest rate of i%
SPCAF denoted by (F/P, i%,n)

P i%, n

0 1 2 n

F
Interest tables

Factor Symbol
Present-Worth Factor (single payment) (P/F, i, n)
Sinking fund factor (uniform series) (A/F, i, n)
Series compound factor (uniform series) (F/A, i, n)
Capital recovery factor (uniform series) (A/P, i, n)
Series present worth factor (uniform series) (P/A, i, n)
Arithmetic gradient conversion factor (to uniform (A/G, i, n)
series)
Gradient present worth factor (P/G, i, n)
Example #1
You deposit Rs. 500 every 6 months for 7 years,
how much money will you have in your account at
the end of 7 years @20% per year compounded
quarterly

Effective semi-annual interest rate = 1.05^2-1 =

10.25% semi-annually
Find F = A*(F/A,i,n) = Rs. 14,244.50
Example #2
You purchased a new car for Rs. 8,50,000. You plan to
borrow money from bank and repay it monthly over
a period of 4 years. If the nominal interest rate is
12% per year compounded monthly, what would be
your monthly installments be (EMI!) ?

A = 8,50,000 (A/P, 1%, 48)

= Rs. 22381
Example #3
Calculate the amount of money that would be there
in a savings account after 12 months if the deposits
were made as shown below. The bank pays 6% per
year compounded semi-annually.
Solution for #3
Treat the in-between periods as earning simple
interest
After 6 months
100 + 100X0.03X5/6 + 90 + 90X0.03X3/6 + 80
= 273.85
Second deposit at 12 months
233.93
F = 273.85 (1.03) + 233.93 = Rs. 516
Example #4
Your uncle has agreed to make five Rs. 700 per year deposits into a savings account
for you starting now.

You have in turn agreed not to withdraw any money until the end of year 9, at
which time you plan to remove Rs. 3000 from the account.

Further, you plan to withdraw the remaining amount in 3 equal year-end

installments after the initial withdrawal.

Diagram the cash flows for your uncle and for yourself. Assume i=8%
Solution #4

F=A (F/A, 8, 4) = 700x 4.5061= 3154

F= P (F/P, i, n) =3154(F/P, 8, 5) = 3154 x 1.4693 = 4634.5689

After drawing 3000 remaining amount is 1634.56

Distributing along 3 years
A=1634.56(A/P, 8, 3) = 1634.56x0.38803= 634.26
Introduction to Inflation
Inflation
What is inflation?
Inflation occurs when the prices of goods and
services increases as the purchasing power of
money declines
The concept of equivalence is valid only when the
underlying currency does not lose value or value
remains constant.
Inflation
Current dollars and Constant dollars (Rupees?)
Inflation rate of f
Constant dollar return rate/ Real return rate of i
Market return rate of if

if = (1+i) (1+f) - 1
How to determine inflation rate f?

CPI Consumer price index

Usually not constant over time.
Average over some years can be chosen as
approximate measure.

If CPI rose from 176 to 216 in 3 years, then average

f during that period is
176 x (i+f)3 = 216 => f = 7.1%