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# Engineering Economics Questions

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Question 2

Yakima is retiring this year with his savings in an investment fund worth \$750,000. The fund has an average annual return of 9.00% (EAR).

a How much can Yakima withdraw at the end of each month (12 months per year) to have the fund last 30 years and still have \$100,000 in the fund at the end of the 30 years (just to be safe)?

b How much can Yakima withdraw up front to invest in his home and still be able to withdraw \$5,000 monthly for 30 years, with a zero balance at the end?

Initial Investment \$750,000
EAR 9%
APR

Month Interest Withdraw Balance
0 0 0 \$750,000
1 \$67,500
2
3
4
5
6
7
8
9
10
11
12

Question 3 Score 0

The Smothers are looking at retiring and would like to be debt free when this starts. They presently owe \$225,000 on their home mortgage that has a rate of 4.25% APR with monthly compounding.

a If they make payments of \$3,000 monthly, how many years until they can retire (when the house loan is paid off).

b If in the upcoming 5 years, they make \$2,000 monthly payments, and then sell their house for \$500,000, how much will they have to buy a home in a retirement development? (All taxes and fees should be ignored)

A
Payments 3000
Rate 4.25%
Period 12
Time
PV \$35,184.77

Monthly Rate 0.3542%

B
Presently Owe \$225,000
Rate 0.3542%
Payments \$2,000
Period 60
Amount Paid \$120,000
\$0.00

Question 4

Save-Your-Day loans advertises no-interest loans of \$100 on which only a \$1 fee per week is charged. Collateral is usually a car title. The borrower will not pay anything until the loan is paid off. Then the amount to be paid back is \$1.00 for each week per \$100 of loan value. For a loan of \$200 (two loans of \$100) for 3 weeks, the pay back amount would be \$200 + \$1.00 * 2 loans * 3 weeks = \$200 + \$6= only \$206.
Louie borrows \$500 and pays it back in 4 weeks. What effective annual rate will Save-Your-Day earn on the loan to Louie?

Question 5

Joan Dale inherited \$500,000 that she invested at 12% APR compounded monthly and will not make any further payments. In 15 years when she retires, she will reinvest it in a more conservative fund that earns 5% APR with monthly compounding.

If she wants the retirement funds to last 25 years, how much will she receive monthly in her retirement years.

Question 6

Veronica borrowed \$5,000 from her Uncle and the agreed upon interest rate is 4% annually (EAR)?

a What would be the result at the end of five years If she pays her uncle \$100 a month?

b If each month she pays the interest (only) on the loan, how much would this be?

Question 7
Your client is considering two investments and has asked you to evaluate these alternatives. Provide financial and risk advice for your client regarding which to purchase.

a 500 shares of a stock that can be purchased for \$80 a share. Forecasts are that it can be sold in 5 years for \$135 a share. It also is forecasted to pay quarterly dividends of \$2.00 per share in the upcoming 5 years.

b A bond with a face value of \$50,000 that matures in 5 years. It can be purchased for \$40,000 today, and it has a coupon rate of 5.00% that is paid semi-annually.