Chapter 02

Factors
(Compound Interest Factors)
• Single Amount Factors
• Uniform Series Factors
• Gradient Series Factors
• Geometric Series Factors
A A A A
Uniform Series:
….

0 1 2 3 …. n

1+𝑖 𝑛 −1
P=A Uniform Series, Present Worth Factor 𝑃Τ𝐴 𝑖, 𝑛
𝑖 1+𝑖 𝑛

𝑖 1+𝑖 𝑛
A=P 1+𝑖 𝑛 −1
Capital Recovery Factor 𝐴Τ𝑃 𝑖, 𝑛
F
A A A A
Uniform Series:
….

0 1 2 3 …. n

1+𝑖 𝑛 −1
F =A 𝑖
Uniform Series, Compound Amount Factor 𝐹 Τ𝐴 𝑖, 𝑛
𝑖
A=F 1+𝑖 𝑛 −1
Sinking Fund Factor 𝐴Τ𝐹 𝑖, 𝑛
A + (n-1) G
A+2G
A+G

Gradient: A

….

An = A1 ± (n – 1) G 0 1 2 3 …. n

A A A A P
(n -1) G
2G
= ….
± G
….

0 1 2 3 …. n 0 1 2 3 …. n

Uniform Series Basic Gradient

P = A (P/A i, n) ± G (P/G i, n)
A + (n-1) G
A+2G
A+G

Gradient: A

….

An = A1 ± (n – 1) G 0 1 2 3 …. n

A A A A
(n-1)
2G
G
= ….
± G
….

0 1 2 3 …. n 0 1 2 3 …. n
Uniform Series Basic Gradient
A=A ± G (A/G i, n)
Gradient

1+i n − i n −1
𝑃=G 𝑃Τ𝐺 𝑖, 𝑛
i2 1+i n

1 n
𝐴=G − 𝐴Τ𝐺 𝑖, 𝑛
i 1+i n −1
Gradient

(P/G i, n)
(A/G i, n)

G
Using Interest Tables:
𝑋Τ𝑌 𝑖, 𝑛
i Page
n Raw Number
(P/G i, n) (A/G i, n) X/Y Column Number
G
Example 5: The present worth of $400 in year 1 and amounts increasing
by $30 per year through year 5 at an interest rate of 12% per year is
closest to:
(A) $1,532 (B) $1,634 (C) $1,744 (D) $1,829

Data: P=? A = $400 G = $30 n=5 i = 12%

P = A (P/A i%, n) + G (P/G i%, n)
= 400 (P/A 12%, 5) + 30 (P/G 12%, 5)
= 400 (3.6048) + 30 (6.3970)
= $1,633.83 Answer is (B)
Example 6: The uniform series worth of $400 in year 1 and amounts
increasing by $30 per year through year 5 at an interest rate of 12% per
year is closest to:
(A) $454 (B) $634 (C) $744 (D) $382

Data: A=? A = $400 G = $30 n=5 i = 12%

A = A + G (A/G i%, n)
= 400 + 30 (A/G 12%, 5)
= 400 + 30 (1.7746)
= $453.24 Answer is (A)
Example 7: The future worth of $400 in year 1 and amounts increasing
by $30 per year through year 5 at an interest rate of 12% per year is
closest to:
(A) $4,540 (B) $6,340 (C) $2,880 (D) $3,825

Data: F=? A = $400 G = $30 n=5 i = 12%

F = A (F/A i%, n) + G (F/G i%, n)
= 400 (F/A 12%, 5) + 30 (A/G 12%, 5) (F/A 12%, 5)
= 400 (6.3528) + 30 (1.7746) (6.3528)
= $2,879.33
Answer is (C)
Another Solution:

Data: F=? A = $400 G = $30 n=5 i = 12%

F = {A + G (A/G i %, n)} (F/A i %, n)
= {400 + 30 (A/G 12%, 5)} (F/A 12%, 5)
= {400 + 30 (1.7746)} (6.3528)
= $2,879.33

Answer is (C)
Geometric: A1 (1+g) n-1

A1 (1+g) 2….
A1 (1+g)
A1

0 1 2 3 …. n
An = A1 (1+g) n - 1
P
𝑛
1+𝑔
1 −
1+𝑖
𝐴1 𝑖≠𝑔
𝑃= 𝑖 −𝑔 𝑃Τ𝐴1 𝑖, 𝑔, 𝑛
𝑛
𝐴1 𝑖=𝑔
1+𝑖
F

Geometric: A1 (1+g) n-1

A1 (1+g) 2….
A1 (1+g)
A1

0 1 2 3 …. n
An = A1 (1+g) n - 1

(1+𝑖)𝑛 − 1+𝑔 𝑛
𝐴1 𝑖≠𝑔
F= ൞ 𝑖 −𝑔 𝐹 Τ𝐴1 𝑖, 𝑔, 𝑛
𝑛
𝐴1 𝑖=𝑔
(1+𝑖)𝑛−1
Geometric:

(P/A1 i, g, n) (F/A1 i, g, n)

g
Using Interest Tables:
𝑋Τ𝐴1 𝑖, 𝑔, 𝑛
X Present/Future table
i Page
(P/A1 i, g, n) (F/A1 i, g, n) g Column Number
g
n Raw Number
Example 8: Find the present worth of $1,000 in year 1 and amounts
increasing by 8% per year through year 10. Use an interest rate of 10%
per year.
(a) $5,670 (b) $8,3825 (c) $12,670 (d) $13,550

Data: P=? A1 = $1,000 g = 8% n = 10 i = 10%

P = A1 (P/ A1 i %, g%, n)
P = 1,000 (P/ A1 10%, 8%, 10)
= 1,000 (8.3520)
Answer is (B)
= $8,3820
Example 9: A contractor purchased equipment for $60,000 which
provided income of $16,000 per year for 10 years. The annual rate of
return of the investment was closest to:
(a) 15% (b) 18% (c) 20% (d) 23%

Data: P = 60,000 A = $16,000 n = 10 i=?

A = P (A/P i%, n)
16,000 = 60,000 (A/P i %, 10)
(A/P i %, 10) = 0.2667
From the interest tables, i is between 22% and 24%
Answer is (D)
Example 10: A contractor purchased equipment for $60,000 that
provided income of $8,000 per year. At an interest rate of 10% per year,
the length of time required to recover the investment was closest to:
(a) 10 years (b) 12 years (c) 15 years (d) 18 years

Data: P = 60,000 A = $8,000 i = 10% n=?

A = P (A/P i %, n)
8,000 = 60,000 (A/P 10 %, n)
(A/P 10 %, n) = 0.1333
From the interest tables for i = 10%, n is between 14 and 15
Answer is (C)
Chapter 02
Factors: How Time and Interest Affect Money

• Single Amount Factors (F/P & P/F)

• Uniform Series (P/A, A/P, F/A, and A/F)

• Gradient Series (P/G & A/G)

• Geometric Series (P/A1 & F/A1)
Chapter 2 Problems:
• Use of Interest Tables: 1 1
• Determination of F, P, and A: 2 – 20 2, 5, 9, 10, 19, & 20
• Factor Values: 21 – 24

• Arithmetic Gradient: 25 – 32 25, 26, 27, & 31

• Geometric Gradient: 33 – 37 34 & 37
• Interest Rate & Rate of Return: 38 – 44 39
• Number of Years: 45 – 53 45, 47, 50, & 52
• Additional Problems (MCQ): 54 – 71