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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%

    Month Interest Withdraw Balance
    0 0 0 $750,000
    1 $67,500

    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)

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

    Monthly Rate 0.3542%

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

    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.

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    Solution Summary

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