UNIFORM ARITHMETIC GRADIENT

Maintenance and repair expenses on specific equipment of property may

increase by a relatively constant amount each period.
Four possibilities for gradient
Change in every succeeding period is constant. And there is no disbursement on
the first year.
1. A>0 and G>0 means positive and increasing
2. A>0 and G<0 means positive but decreasing
3. A<0 and G>0 means negative but becoming less so
4. A<0 and G<0 means negative and becoming more so
P = Pa + Pg
n
G [ (1+i ) 1 ]
1
Pg =
n
i
i
( 1+i )n
Ex. A loan was to be amortized by a group of four end of year payments forming an
ascending arithmetic progression. The initial payment was to be 5,000 and the
difference between successive payments was to be 400. But the loan was
renegotiated to provide for the payment of equal rather tha uniformly varying
sums. If the interest rate of the loan was 15%, what was the annual payment?

][ ]

Ans. 5530.51
Ex. A contract has been signed to lease a building at 2k per year with annual increase
of 1500 for 8 years. Payments are to be made at the end of each year, starting one
year from now, the prevailing rate is 7%. What lump sum paid today would be
equivalent to the 8-year lease plan
Ans 147, 609
UNIFORM GEOMETRIC GRADIENT
When the ratio of the payment of two consecutive periods is constant
0

1
G

2
rg

P=

F=

3
r2g

4
r3g

n
rn-1g

r
1+

( 1+i )n

A [ ( 1+i )n(1+r )n ]
(ir )

Example.
Airplane ticket price will increase 8% in each of the next four years. The cost at
the end of the first year will be $180. How much should be put away now to
cover a students travel home at the end of each year for the next four years?
Assume 5%.
A graduating CE is going to make $35,000/yr with Granite Construction. A total
of 10% of the CE salary will be placed in the mutual fund of their choice. The

CE can count on a 3% salary increase with the standard of living increases for
the next 30 years of employment. If the CE is aggressive and places their
retirement in a stock index fund that will average 12% over the course of their
career, what can the CE expect at retirement?