Arithmetic Gradient: Compute de Present Value in the following Diagram.

Compute the value of P in the diagram.Use a 10% interest rate.

SOLUTION

With the arithmetic gradient series present worth factor, we can compute a present sum J.

It is important that you closely examine the location of J. Based on the way the factor was derived, there will be one zero value in the gradient series to the right of  J. (If this seems strange or incorrect, review the beginning of this section on arithmetic gradients.)

Then

P = J(P / F, 10%,2)

To obtain the present worth of the future sum J, use the (P / F, i, n)  factor. Combining, we have

The value of P is $180.90.