earned on this investment?

2.50 At an interest rate of 12%, what is the present value of an asset that produces
$800 a year in perpetuity?

Linear Gradient Series

2.51 Kim deposits her annual bonus into a savings account that pays 7% interest
compounded annually. The size of her bonus increases by $3,000 each year, and
the initial bonus amount is $10,000. Determine how much will be in the account
immediately after the fifth deposit.
2.52 Five annual deposits in the amounts of $15,000, $14,000, $13,000, $12,000, and
$11,000 are made into a fund that pays interest at a rate of 7% compounded
annually. Determine the amount in the fund immediately after the fifth deposit.
2.53 Compute the value of P for the accompanying cash flow diagram. Assume i =
6% per year.

$700
$600
$500
$400
$300
$200
0
I 2 3 4 5 6
I
I Years
I
I

'p

2.54 What is the equal-payment series for 10 years that is equivalent to a payment
series starting with $10,000 at the end of the first year and decreasing by $1,000
each year over 10 years? Interest is 7% compounded annually.
2.55 The maintenance expense on a machine is expected to be $5,000 during the
first year and to increase $500 each year for the following ten years. What
present sum of money should be set aside now to pay for the required main-
tenance expenses over the ten-year period? (Assume 8% compound interest
CHAPTER 2 Time Value of Money
per year.)

2.56 Consider the cash flow series given in the accompanying table. What value of C
makes the deposit series equivalent to the withdrawal series at an interest rate
of 6% compounded annually?

5C
3C
2C - 1 - - ,( I
C -1- A I I

5
A -
I
I
I
I
I
I
I
0 2 3 4 I I I I I

6 7 8 9 10

Geometric-Gradient Series
2.57 Matt Christopher is a 30-year-old mechanical engineer, and his salary next year
will be $80,000. Matt expects that his salary will increase at a steady rate of 6%
per year until his retirement at age 60. If he saves 10% of his salary each year
and invest these savings at an interest rate of 8%, how much will he have at his
retirement?
2.58 Suppose that an oil well is expected to produce 12, 00,000 barrels of oil during
its first production year. However, its subsequent production (yield) is expected
to decrease by 9% over the previous year's production. The oil well has a
proven reserve of 10,500,000 barrels.
(a) Suppose that the price of oil is expected to be $120 per barrel for the next six
years. What would be the present worth of the anticipated revenue trim at
an interest rate of 10% compounded annually over the next six years?
(b) Suppose that the price of oil is expected to start at $120 per barrel during