Semester 2, 2019

ENGINEERING MANAGEMENT 3000/5039

TUTORIAL SET 7
Q1. Part of the income that a plastic forging machine generates is put aside
into a sinking fund to buy a replacement when it wears out. If $2,000 is
deposited annually with a compound interest of 7 % how many years
does the machine have to be kept before a replacement can be bought for
with a future value $30,000? (ANS: 10.61 years)

Q2. Using the information from question 1 above, calculate the number of
years it would take to save for the same future value of $30,000 given
that this time we make $1000 deposits every 6 months and is
compounded bi-annually.(ANS: 10.43 years)

Q3. a) A department store offered you a credit card that charges interest at
0.95% per month compounded monthly. What is the nominal interest
rate? What is t he effective annual interest rate? (ANS: 11.4%, 12.01%)

b) What is the effective interest rate per quarter if the nominal

interest rate is 6% compounded monthly? (ANS: 1.508%)

c) What is the effective interest rate per month if the nominal

interest rate is 8% compounded continuously? (ANS: 0.669%)

d) What is the required quarterly payment to repay a loan of $20,000

in five year s if nominal interest rate is 8% but compounded continuously?
(ANS: $1,225.50 per quarter)

Q4. You make quarterly deposits into a savings account that earns 9% interest
compounded monthly – what is the effective interest rate per quarter?
(ANS: 2.267% per quarter)

Q5. You have purchased a ware house t o s t o r e y o u r r e f u r b i s h e d d i e s e l

g e n e r a t o r s for a total purchase price of $350,000. You have negotiated
with your lending institution an interest of 6.5% pa compounded monthly.
You want pay the loan o f f in 30 years.

a) What are the monthly payments? (ANS: $2212.11 per month)

b) What is the total amount of money you will have paid over the 30 years.

(ANS: $796,359.5 over 30 years)

ENGINEERING MANAGEMENT 3000/5039 1 Tutorial 7

 Q6. A company wants to start a major project in three years time.
They have decided to deposit a sum of $10,000 every three months into a fund
that offers an annual interest of 9% but compounded monthly. In addition to
regular savings, a lump sum of $30,000 is deposited at the end of the first
year, and $50,000 is deposited at the end of the second year.

What is the balance at the end of three years? (ANS: $226,735)

Q7. How much would you have to invest in an account earning 8% interest
compounded continuously, for it to be worth one million dollars in 30 years?
Assume money is accrued over 12 months and is deposited annually.
(Ans: $90,717.95)

Q8. A one off amount of $2,500.00 is deposited in a bank paying an annual

interest rate of 3.1%, compounded continuously. Find the balance
after 3 years. (Ans: $2743.65)

Q9. Calculate the amount “Y” of yearly deposits such that you will be able to
withdraw the amounts shown in the cash-flow diagram in order to
break even.

a) If the interest rate is 8% compounded monthly? (Ans:$24,417.09)

b) If the interest rate is 8% compounded quarterly? (Ans: $24,450.69)

ENGINEERING MANAGEMENT 3000/5039 2 Tutorial 7