ENGINEERING ECONOMICS (FORMULAs)
SIMPLE INTEREST
Interest, I
๐ผ = ๐๐๐
Future Worth, F
๐น = ๐ + ๐ผ
๐น = ๐(1 + ๐๐)
Where:
โข I = interest
โข P = present worth / principal amount
โข F = future worth
โข i = interest rate
โข n = number of interest periods in a
year
โข Ordinary Simple Interest = 30 days a
month or 360 days a year.
โข Exact Simple Interest = based on the
exact number of days in a year.
o 365 days = ordinary year
o 366 days = leap year
COMPOUND INTEREST
Present Worth, P
๐ = ๐น(1 + ๐)โ๐
Future Worth, F
๐น = ๐(1 + ๐)๐
a. Nominal Rate of Interest, j
๐ = ๐
๐
Where:
โข i = rate of interest per period
โข j = nominal rate of interest
โข n1 = number of interest periods in one
year
Methods of
Compounding
Value of n1
Annually
1
Semi-annually
(every 6 months)
2
Quarterly (every 3
months)
4
Bi-monthly (every
2 months)
6
Monthly
12
Daily
365
b. Effective Rate of Interest, ie
ie = (1 + ๐)๐โ 1
ie = (1 + ๐
๐)๐โ 1
c. Continuous Compounding of Interest
๐น = ๐๐๐๐
ie = ๐๐โ 1
DISCOUNT
d. Rate of Discount, d
๐ท = ๐น โ ๐
๐ = 1 โ (1 + ๐)โ1 =๐ท
๐น
๐ = ๐
1 โ ๐ =๐ท
๐
e. Equation of Value
Sums of Cash Inflows = Sums of Cash Outflows