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3.1)
(a) No min al int erest rate 12 1.5 18%
m
r
(b) Effective int erest rate 1 1 1 0.015 1 0.1956 19.56%
12
3.2)
1400
3.3) Effective int erest rate 100 16.27 Ans.
8600
3.4)
m
r
Effective int erest rate 1 1
m
0.07 m
0.72 (1 ) 1 m 12 i.e. monthly compounding Ans.
m
3.5)
4
Interest rate per week 0.6667%
600
Effective int erest rate for 13 weeks (1 0.00667)13 1 9.026%
No min al Interest rate per year 52 0.00667 34.6667% Ans.
Effective int erest rate per year (1 0.00667)52 1 41.29% Ans.
3.6)
2
Weekly no min al int erest rate 0.0025 0.25%
800
Annual no min al int erest rate 52 0.0025 13% Ans.
Effective annual int erest rate 1 0.0025 1 13.86% Ans.
52
Fundamentals of Engineering Economics, 3rd ed. 2012
3.7)
250 12
No min al int erest rate 13.63% Ans.
22000
3.8)
Total amount paid in 36 month 36 *525 $18900
Total interest paid in 36 month $900
900 / 3
No min al int erest rate 1.667% per year. Ans.
18000
3.9)
Total amount paid in 60 months 400 60 24000
24000 20000
No min al interest paid per year $800
5
No min al int erest rate 800 / 20000 4.0%
12
0.04
Effective int erest rate per year 1 1 4.07% Ans.
12
3.10)
$20, 000 $922.90( P / A, i, 24)
( P / A, i, 24) 21.6708
i 0.8333%
APR 0.8333% 12 10%
3.11)
12
0.12
Effective int erest rate of Bank A 1 1 12.68%
12
365
0.118
Effective int erestrate of bank B 1 1 12.52%
365
Bank B is preferred .
Page | 2
Fundamentals of Engineering Economics, 3rd ed. 2012
3.12)
K 1
r 0.08
(a) ia 1 1 1 1 0.667% Ans.
CK 12 1
3
0.08
(b) ia 1 1 2.01% Ans
43
6
0.08
(c ) ia 1 1 4.067% Ans
2 6
12
0.08
(d ) ia 1 1 8.2% Ans
112
3.13)
3
0.1
ia 1 1 2.52% Ans
43
3.14)
r 0.09
ia e 1 e
K 12
1 0.75% Ans.
3.15)
r 0.08
ia e 1 e
K 4
1 2.02% Ans.
3.16)
Total amount paid in 48 months 650 48 $31200
Total int erest paid in 48 months 31200 30000 $1200
1200 4
Total int erest paid per year 1.0%
30000
12
0.01
ia 1 1 1.004% Ans.
12
3.17)
Page | 3
Fundamentals of Engineering Economics, 3rd ed. 2012
1
0.1
(a) ia 1 1 0.0.1%
1
2
0.09
(b) ia 1 1 9.20%
2
4
0.12
(c ) ia 1 1 12.55%
4
365
0.07
d ia 1 1 7.25%
365
3.18)
2
0.08
(a) ia 1 1 8.16%
2
F P ( P / A,8.16%,12) 6000(1 0.0816)12 $15379.82
4
0.06
(b) ia 1 1 6.13%
4
F P ( P / A, 6.13%,18) 14,500(1 0.0613)18 $42,311.16
12
0.08
(c ) ia 1 1 8.29%
12
F P ( P / A,8.29%, 7) 12,500(1 0.0829)7 $21,828.73
3.19)
1
0.08
(a) ia for six months 1 1 0.04%
2 1
F A( F / A, 4%, 24) 12, 000 39.0826 $468,991.2
1
0.12
(b) ia for three months 1 1 3.0%
4 1
F A( F / A,3%, 24) 8000 34.4625 $275412
1
0.06
(c ) ia for one month 1 1 0.5%
12 1
F A( F / A, 0.5%, 60) 6000 353.5837 $2121502.2
3.20)
Page | 4
Fundamentals of Engineering Economics, 3rd ed. 2012
1
0.08
(a) ia for six months 1 1 0.04%
2 1
A F ( A / F , 4%, 20) 1700 0.0336 $571.2
1
0.03
(b) ia for three months 1 1 0.75%
4 1
A F ( A / F , 0.75%, 24) 9000 0.0382 $343.8
1
0.12
(c ) ia for one month 1 1 0.83%
12 1
A F ( A / F ,1%,84) 4000 0.0077 $30.80
3.21)
1
0.08
(a) ia for six months 1 1 0.04%
2 1
P A( P / A, 4%, 20) 2, 700 13.5903 $36693.0
1
0.12
(b) ia for three months 1 1 3.0%
4 1
P A( P / A,3%, 24) 10, 000 16.9355 $169355
1
0.06
(c ) ia for one month 1 1 0.5%
12 1
P A( P / A, 0.5%, 24) 14, 000 22.5629 $315880.6
3.22)
1
0.08
ia for 3 months 1 1 2%
4 1
C [2,500{( P / F , 2%, 2) ( P / F , 2%, 4) ( P / F , 2%, 6)} 3,500( P / F , 2%,8)]( A / P, 2%,8)
$1354.045
3
0.08
ia 1 1 2.01%
43
F $8,000 F/A, 2.01%,12 .
Page | 5
Fundamentals of Engineering Economics, 3rd ed. 2012
3
0.08
ia 1 1 2.013%
43
3.25)
1
0.09
ia 1 1 0.75%
12 1
100, 000 A( F / A, 0.75%, 24)
A 100, 000 / 26.1885 $3818.46
3.26)
12
0.06
ia 1 1 6.16%
12
F 4000( F / P, 6.16%,9) 5000( F / P, 6.16%, 6) 7000( F / P, 6.16%, 4)
4000 (1 0.0616)9 5000 (1 0.0616)6 7000 (1 0.0616) 4 22898.168
F / 2 11449.08
For First Scheme, F 11449.08(1 0.0616)6 $16388.38 Ans
4
0.08
Now, For Second Scheme, ia 1 1 8.24%
4
F 11449.08(1 0.0824)6 $18411.84 Ans
3.27)
Page | 6
Fundamentals of Engineering Economics, 3rd ed. 2012
1
0.09
ia quarterly 1 1 2.25%
4 1
F A( F / A, 2.25%,100) 360.84 A
4
0.09
ia annually 1 1 9.3%
4 1
P A( P / A,9.3%,10) 50, 000 6.333 $316688.76 360.84 A
A $877.643 Ans.
3.28)
12
0.09
ia 1 1 9.38%
12
{600( P / A,9.38%, 4) 400( P / G,9.38%, 4)}( P / F ,9.38%,3) C ( P / A,9.38%, 7)
600 0.3212 400 4.461 0.7641 C 4.9684
C $304.06 Ans.
3.29)
M 12
r 0.05
ia 1 1 1 1 0.0616
M 12
F A( F / A, i %,12) 1000 12.3356 12335.6
1.0616 N 1
300, 000 12335.6 N 15.315 years Ans.
0.0616
3.30)
F 300, 000 100, 000 $200, 000
A $2, 000, Monthly int erest rate 0.08 /12 0.006667
1 0.0066 N 1
200, 000 A( F / A, i, N ) 2000 N
N 164 months Ans
0.0066 1 0.0066
3.31)
Page | 7
Fundamentals of Engineering Economics, 3rd ed. 2012
3.32)
4
0.12
ia 1 1 12.55%
4
Quarterly int erest rate 0.12 / 4 0.03 3%
A1 ( F / A,3%, 60) 30000 30, 000( P / A,12.55%,3)
1.12553 1
30000 30000 3
30000 30, 000( P / A,12.55%,3) 0.1255 1.1255
A1 $621.76 per quarter Ans.
( F / A,3%, 60) 163.0534
3.33)
1
0.12
ia 1 1 3% Quarterly
4 1
2
0.12
ia 1 1 6.05% semiannualy
2 2
Quarterly int erest rate 0.12 / 4 0.03 3%
A1 ( F / A,3%,80) 55, 000( P / A, 6.05%,10)
1.060510 1
55, 000 10
55, 000( P / A,12.55%,10) 0.0605 1.0605
A1 $1256.9 per quarter Ans.
( F / A,3%,80) 321.3630
3.34)
Page | 8
Fundamentals of Engineering Economics, 3rd ed. 2012
1 0.0066 36 1
$12, 000 A 36
$375.59.
0.0066 1 0.0066
F12 paid 375.59 F / A, 0.66%,12 $4674.34 paid upto 12th month.
F12 12, 000 1 0.0066 $12985.66Value of $12, 000 after 1 year .
12
3.35)
Monthly int erest rate 8 /12 0.666%
F P( F / P, 0.66%, 48) 1,500, 000(1 0.0066)48 2, 056,949.88
2, 056,949.88 A( F / A, 0.66%, 48) A 56.25
A $36,563.081 Ans.
3.36) First compute the equivalent present worth of the energy cost during the first
operating cycle:
Then, compute the total present worth of the energy cost over 5 operating cycles.
Page | 9
Fundamentals of Engineering Economics, 3rd ed. 2012
May June July Aug. Sept. Oct. Nov. Dec Jan. Feb. Mar. Apr.
0 1 2 3 4 5 6 7 8 9 10 11 12
3.37)
Option 1
.06 1
i (1 ) 1 1.5%
4
F $1, 000( F / A,1.5%, 40)( F / P,1.5%, 60) $132,587
Option 2
.06 4
i (1 ) 1 6.136%
4
F $6, 000( F / A, 6.136%,15) $141,111
Select (b)
3.38)
A1 $4,800, g 3% 0.03, i 8 /12 0.666%, N 25 12 300 years
A1 1 1 i 1 g 4800 1 1 0.0066 1 0.03
N N 300 300
(1 0.0066)300
F F / P, 0.0066%,12
ig 0.0066 0.03
$141,82, 63,541Ans.
3.39)
Page | 10
Fundamentals of Engineering Economics, 3rd ed. 2012
4
0.08
(a) ia 1 1 0.0824
4
3P P(1 0.0824) N
log 3
N 13.874Years Ans.
log1.0824
12
0.08
(b) ia 1 1 0.0829
12
3P P(1 0.0829) N
log 3
N 13.794Years Ans
log1.0829
(c ) ia e0.08 1 0.0832
3P P(1 0.0832) N
log 3
N 13.746Years Ans
log1.0832
3.40)
(a) P A( P / A,3%, 24) 6000 16.9355 $101, 613 Ans.
(b) P A( P / A,1%, 72) 6000 51.1504 $306,902.4 Ans.
(c ) e.12 1 12.74%
e0.12746 1
P A( P / A,12.74%, 6) 6000 0.12746 0.1274 $23,598.22 Ans.
e e
1
3.41)
erN 1 e0.0810 1
F A r 5000 0.08 $73,573.50 Ans.
e 1 e 1
(a)
(b)
Page | 11
Fundamentals of Engineering Economics, 3rd ed. 2012
3.43)
3.44) (a)
F $2, 000( F / A, 0.7444%, 72)
$189, 605.75
1
0.09 3
Note: i 1 1 0.7444% per month
4
(b)
(c)
3.45)
F P e rN 30, 000 e0.096 51480.205
r 9 / 4 2.25%, N 6 4 24
e0.022524 1
51480.205 A 0.0225 A 31.46
e 1
A $1636.065 Ans.
3.46)
Page | 12
Fundamentals of Engineering Economics, 3rd ed. 2012
r 8 / 4 2%, N 4 4 16
erN 1 e0.0216 1
P A rN r 2500 0.0216 0.02 $33890.19 Ans
e e 1 e e 1
3.47)
r 6 / 4 1.5%, N 10 4 40
erN 1 rN1 e0.01540 1 0.065
F A r e 5000 0.015 e $367147.343
e 1 e 1
3.48)
0.15
2
F 5000 e 12 5000 e0.025 $5126.57 Ans.
3.49)
M
r
ia 1 1
M
4
0.2
Bank A : ia 1 1 21.55%
4
365
0.195
Bank B : ia 1 1 21.52%
365
(a) Wrong
(b) Right
(c) Right
(d) Wrong
3.50)
Page | 13
Fundamentals of Engineering Economics, 3rd ed. 2012
3.51)
(a) Bank A : ia (1 0.0165)12 1 21.659% Ans.
0.2 12
Bank B : ia (1 ) 1 21.939% Ans.
12
(b) FA 525( F / P,1.65%, 24) $790.39
FB 500( F / P,1.666, 24) $743.34
Bank B should be preferred .
3.52)
(a) Monthly int erest rate 15 /12 1.25%
1 0.0125 36 1
15000 1 0.0125 A
36
(b)
0.0125
A $519.97 Ans.
1 0.0125 22 1
(c ) Payoff balance at the end of 14th payment 519.97 22
$9947.31
0.0125 1 0.0125
Interest paid in 15th payment 9947.31 0.0125 $124.34 Ans.
(d )
Total int erest paid 15000 1 0.0125 1 $8459.15 Ans.
36
Remaining
End of Interest Repayment of Loan
month Payment Principal Balance
0 $0.00 $0.00 $15,000.00
1 $112.50 $364.50 $14,635.50
2 $109.77 $367.23 $14,268.27
3 $107.01 $369.99 $13,898.28
4 $104.24 $372.76 $13,525.52
5 $101.44 $375.56 $13,149.96
6 $98.62 $378.38 $12,771.58
Page | 14
Fundamentals of Engineering Economics, 3rd ed. 2012
3.54)
(a) Monthly int erest rate 8 /12 0.666%
0.0066 1 0.0066 300
A 200, 000 $1533.24
1 0.0066 300 1
1 0.0066 240 1
(b) Payoff balance at the end of 5th year 1533.24 184, 405.81
0.0066 1 0.0066 240
After 5th year , monthly int erest rate 9 /12 0.75%
0.0075 1 0.0075 240
A 184, 405.81 $1659.157 Ans.
1 0.0075 240 1
H int :
(a) Balance to be paid in two years 15000 3000 12000; Monthly int erest rate 8 /12 0.666
0.0066 1 0.0066 24
A 12, 000 $542.28 Ans
1 0.0066 24 1
1 0.0066 12 1
(b) P 542.28 $6236.58
0.0066 1 0.0066 12
3.56)
Page | 15
Fundamentals of Engineering Economics, 3rd ed. 2012
3.57)
Monthly int erest rate 12 /12 1%
0.011 0.0148
A 25000 $658.58
1 0.0148 1
1 0.0128 1
Payoff balance after 20th payment 658.58 $16017.65 Ans.
0.011 0.0128
3.58)
3.59)
M 12
r 0.08
ia 1 1 1 1 0.0825
M 12
F P( F / P,8.25%, 20) 425, 000 1 0.0825 $2, 074, 660.462 Ans
20
Interest over 5 years 425, 000 1 0.0825 425, 000 $206725.56 Ans
5
3.60)
The amount to be paid $420, 000 0.8 $336, 000
Monthly int erest rate 12 /12 1%
0.011 0.01240
A P A / P,1%, 240 360, 000 $3963.70
1 0.01240 1
Monthly income required 3 A 3 3963.7 $11,891.12 Ans.
3.61) Given: purchase price = $180,000, down payment (sunk equity) = $30,000, i = 0.75%
per month,and N = 360 months,
Monthly payment:
A $150,000( A / P,0.75%,360)
$1,200
Page | 16
Fundamentals of Engineering Economics, 3rd ed. 2012
The $32,006.1 represents the net gains (before tax) from the transaction.
3.62) Given: i = 0.75% per month, mortgages for families A, B and C have identical
remaining balances prior to the 20th payment = $150,000,find interest on 20th
payment for A, B, and C. With equal balances, all will pay the same interest.
3.63) Given: loan amount = $260,000, points charged = 3%, N = 360 months, i = 0.75% per
month, actual amount loaned $260,000(0.97)= $252,200:
3.64) (a)
(b)
Page | 17
Fundamentals of Engineering Economics, 3rd ed. 2012
Beginning Ending
Period Balance Interest Payment Repayment Balance
1 $44,000.00 $3,042.05 ($6,600.00) $40,442.05
2 $40,442.05 $2,796.06 ($8,800.00) $34,438.11
3 $34,438.11 $2,380.96 ($11,000.00) $25,819.08
4 $25,819.08 $1,785.07 ($13,200.00) $14,404.14
5 $14,404.14 $995.87 ($15,400.00) $0.00
$11,000.01 ($55,000.00)
3.65) (a)
(c)
3.66)
The monthly payment to the bank: Deferring the loan paymentfor 6 months is
equivalent to borrowing
To pay off the bank loan over 36 months, the monthly payment would be
Page | 18
Fundamentals of Engineering Economics, 3rd ed. 2012
The loan company will pay off this remaining balance and will charge $208 per
month for 36 months. To find the effective interest rate for this new transaction, we
set up the following equivalence relationship and solve for i:
3.67)
$18, 000 A( P / A, 0.667%,12) A( P / A, 0.75%,12)( P / F , 0.667%,12)
A(11.4958) A(11.4349)(0.9234)
22.05479 A
A $816.15
(a) Find the monthly payment to the furniture store: first, find the loan adjustment for
deferred period
(b) Find the remaining balance after the 26th payment. Since there are 10 payments
outstanding,
Page | 19
Fundamentals of Engineering Economics, 3rd ed. 2012
3.69) Given: Purchase price = $18,000, down payment = $1,800, monthlypayment (dealer
financing) = $421.85, N = 48 end-of-month payments:
A $16,200( A / P,0.97917%,48)
$16,200(0.0262)
$424.44
3.70)
Page | 20
Fundamentals of Engineering Economics, 3rd ed. 2012
Option 1:
4.5%
A1 $68, 000( A / P, ,360) $344.55
12
Option 2:
$240.57+ $254.60= $495.17 for 120 months, then $240.57 for remaining
180 months
Page | 21
Fundamentals of Engineering Economics, 3rd ed. 2012
3.73)
No answers given, but refer to the article by Formato, Richard A., "Generalized
Formula for the Periodic Payment in a Skip Payment Loan with Arbitrary Skips," The
Engineering Economist, Vol. 37, No. 4; p. 355, Summer 1992
3.74) If you left the $15,000 in your savings account, the total balance at the end of 48 months
at 8% interest compounded monthly would be
Now if you borrowed $15,000 from the dealer at interest 11% compounded monthly
over 48 months, the monthly payment would be
You can easily find the total interest payment over 48 months under this financing by
It appears that you save about $2,011 in interest ($5,635 - $3,624). However,
reasoning this line neglects the time value ofmoney for the portion of principal
payments. Since your money is worth 8%/12 interest per month, you may calculate
the totalequivalent loan payment over the 48-month period. This is doneby
calculating the equivalent future worth of the loan paymentseries.
Now compare FI with FII . The dealer financing would cost $1,229more in future
dollars at the end of the loan period.
(b)
Page | 22
Fundamentals of Engineering Economics, 3rd ed. 2012
i 1.0028%
ia (1 0.010028)12 1 12.72%
Comments: With Excel, you may enter the loan payment series and use the
IRR(range, guess) function to find the effective interest rate. Assuming that the loan
amount (-$60,000)is entered in cell A1 and the following loan repayment series in
cells A2 through A361, the effective interest rate is found with a guessed value of
11.5/12%:
Conventional mortgage:
I $178,937.97
FHA mortgage:
I $163,583.28
(e) Compute the equivalent present worth cost for each option at i 6%/12 0.5%
per month:
Conventional mortgage:
Page | 23
Fundamentals of Engineering Economics, 3rd ed. 2012
(a)
$142.45 $4,909( A / P,i,42)
i 0.9555% per month
ia (1 0.009555)12 1 12.088% per year
(b)
42 41 40 L 35
rebate factor 1
903
1 308 / 903
0.6589
Page | 24
Fundamentals of Engineering Economics, 3rd ed. 2012
B7 $142.45(P / A,0.9555%,35)
$4,220.78
Page | 25