1) The time it would take for money to double at a simple interest rate of 10% per year is closest to:
A) 5 Years
B) 7 Years
C) 10 Years
D) 12 Years
2) At a compound interest rate of 10% per year, $10,000 one year ago is equivalent to how much 1 year from now?
3) In most engineering economy studies, the best alternative is the one which:
A) Will last the longest time
B) Is easiest to implement
C) Costs the least
D) Is most politically attractive
4) The present worth of an investment of $20,000 in year 10 at an interest rate of 12% per year is closest to:
5) The amount of money that could be spent now in lieu of spending $50,000 seven years from now at an interest rate of 18% per year is closest to:
6) Income from a precious metals mining operation has been decreasing uniformly for 5 years. If income in year 1 was $100,000 and it decreased by $10,000 per year through year 5, the present worth of the income at 10% per year is closest to:
7) Income from sales of a certain oil additive has been averaging $100,000 per year. At an interest rate of 18% per year, the present worth of the income for 5 years is closest to:
8) A manufacturing company wants to have $100,000 available in 5 years to replace a production line. The amount of money that would have to be deposited each year at an interest rate of 10 % per year would be closest to:
9) The present worth of $5000 in year 3, $10,000 in year 5, and $10,000 in year 8 at an interest rate of 12% per year is closest to:
10) If $10,000 is borrowed now at 10% per year interest, the balance after a $4000 payment is made 5 years from now will be closest to:
A) Less than $13,500
D) More than $17,000
11) The present sum needed to provide for an annual withdrawal of $1000 for 25 years beginning 5 years from now at an interest rate of 10% per year is closest to:
A) Less than $6500
D) More than $9000
12) If a company wants to have $100,000 in a contingency fund 10 years from now, the amount the company must deposit each year in years 1 through 5, at an interest rate of 10% per year, is closest to:
A) Less than $8000
D) More than $10,000
13) An interest rate of 1% per month is:
A) A nominal rate
B) A simple rate
C) A effective rate with an unknown compounding period
D) An effective rate with a known compounding period
14) An interest rate of effective 14% per year, compounded weekly, is:
A) An effective rate per year
B) An effective rate per month
C) A nominal rate per year
D) A nominal rate per month
15) An interest rate of 2% per month is the same as:
A) 24% per year
B) A nominal 24% per year, compounded monthly
C) An effective 24% per year, compounded monthly
D) Both (a) and (b)
16) An interest rate of 15% per year, compounded monthly, is nearest to:
A) 1% per month
B) 15.12% per year
C) 16.08% per year
D) 16.92% per year
17) An environmental testing company needs to purchase $40,000 worth of equipment 2 years from now. At an interest rate of 20% per year, compounded quarterly, the present worth of the equipment is closest to:
18) A steel fabrication company invested $800,000 in a new shearing unit. At an interest rate of 12% per year, compounded monthly, the monthly income required to recover the investment in 3 years is closest to:
19) Consider the following estimates. The cost of money is 10% per year. The present worth of machine X is closest to?
20) Given the following estimates with the cost of money being 10% per year, the capitalized cost of machine Y is closest to:
21) The present worth of an alternative that provides infinite service is called its:
A) Net present value
B) Discounted total cost
C) Capitalized cost
D) Perpetual annual cost
22) In comparing alternatives with different lives by the present worth method, it is necessary to:
A) Compare them over a period equal to the life of the longer-lived alternative.
B) Compare them over a time period of equal service.
C) Compare them over a period equal to the life of the shorter-lived alternative.
D) Find the present worth over one life cycle of each alternative.
23) The upgraded version of a machine has a first cost of $20,000, an annual operating cost of $6000, and a salvage value of $5000 after its 8-year life. At an interest rate of 10% per year, the capitalized cost is closest to:
24) Find the capitalized cost of a present cost of $30,000, monthly costs of $1000, and periodic costs every 5 years of $5000. Use an interest rate of 12% per year, compounded monthly.
25) Consider the following estimates, and use an interest rate of 10% per year. The equivalent annual worth of alternative A is closest to:
Here are your answers.
Question 1 - Answer is C
Since we're using simple (not compounded) interest rate, this can be easily calculated. We want to know how many years it will take to get a 100% return (double the money). Since the interest rate is 10% per year, then it will take 10 years.
There appears to be a typo in the choices for this question, as none of them is correct. Time between "one year ago" and "one year from now" is 2 years. Therefore, at a 10% compound rate, $10,000 one year ago should be equal to 10000*(1+0.10)^2 = $12,100 one year from now; that is, we should compound the $10,000 for 2 years at an yearly 10% rate. The correct answer should then be $12,000.
Question 3 - Answer is C
Question 4 - Answer is A
Here we're asked the present value of $20,000 10 years from now, at an interest rate of 12% per year. The formula for the present value would be:
PV = 20000/(1 + 0.12)^10 = $6,439.46
Question 5 - Answer is A
The idea is the same as in question 4, so the formula would be:
PV = 50000/(1 + 0.18)^7 = 15,696.25
Question 6 - Answer is A
Here we must find the present value of the following cashflow:
Year 1 $100,000
Year 2 $90,000
Year 5 $60,000
The interest rate is 10% per year. So the formula is:
PV = 100000/1.1 + 90000/1.1^2 + 80000/1.1^3 + 70000/1.1^4 + 60000/1.1^5
The result is $310,460
Question 7 - Answer is B
The idea is the same as in the previous question, but now the cash flow is always the same: $100,000, and the interest rate is 18%. So we get:
PV = 100000/1.18 + 100000/1.18^2 + ... + 100000/1.18^5 = $312,717
Question 8 - Answer is C
One way to solve this is to find the value of an annual deposit of $1 for the next 5 years. Since the ...
Engineering Economics Questions
See the attached file.
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
Month Interest Withdraw Balance
0 0 0 $750,000
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)
Monthly Rate 0.3542%
Presently Owe $225,000
Amount Paid $120,000
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?
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.
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?
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.View Full Posting Details