Engineering Economy

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Sheet 2
1- Why do we pay interest?
2- If you deposit $2000 on July 1, for each of the next 15 year in a saving and loan account paying
12% annually, how much money will you able to withdraw on July 1 of the fifteenth ear?
3- You wish to invest in a saving and loan account Paying 12% annually an amount of money that
will allow you to draw-out $ 20,000 at the end of four years in order to finance a trip around
the world. How much must you deposit in the account yearly in order to accomplish this?
4- $320000 is invested at 10% for 2 years. Find the interest compounded yearly, semiannually,
quarterly, and monthly?
5- Find the compound amount if $ 3000 is deposited at 10% interest for 10 years if interest is
compounded daily and continuously?.
6- Find the compound amount if $12000 is deposited at 8% interest for 10 years if interest is
compounded continuously and compounded daily interest?.
7- Assume that money can be invested at 10% compounded quarterly. Which is larger, $3000
now or $4000 in 5 years?
8- A man borrowed $10,000 from a bank at 10% interest. Two end-of-year payments: at the end
of the first year, he will repay half of the $10,000 principal plus the interest that is due. At the
end of the second year, he will repay the remaining half plus the interest for the second year?.
9- You have been put in charge of managing your firm’s cash position and noticed that the Plaza
National Bank of Portland, Oregon, has recently decided to begin paying interest
compounded semi-annually instead of annually. If you deposit 1,000 $ with Plaza National
Bank at an interest rate of 12%, what will your account balance be in five years?
10- If you deposit 50,000 $ in an account that pays an annual interest rate of 10% compounded
monthly, what will your account balance be in 10 years?
11- Let’s assume that the Toyota Corporation has guaranteed that the price of a new Prius will
always be 20,000 $, and you’d like to buy one but currently have only 7,752 $. How many
years will it take for your initial investment of 7,752 $ to grow to 20,000 $ if it is invested so
that it earns 9% compounded annually?
12- A Totota Corolla always costs 20,000 $. In 10 years, you’d really like to have 20,000 $ to buy
a new Totota Corolla but you only have 11,167$ now. At what rate must your 11,167$ be
compounded annually for it to grow to 20,000 $ in 10 years?
13- At what rate will 50,000$ have to grow to reach 1,000,000$ in 30 years?
14- Assume that you just received your first credit card statement and the APR, or annual
percentage rate listed on the statement, is 21.7%. When you look closer you notice that the
interest is compounded daily. What is the EAR, or effective annual rate, on your credit card?
15- What is the EAR on a quoted or stated rate of 13% that is compounded monthly?