ENGR 211P: Engineering Economics
Instructions
- (10 points) Unlike other parameters units such as the inch or the pound, the unit for cost or money (dollar) changes with time. Why is that so?
- (10 points) Define “interest” and explain the difference between simple and compound interest types. Which type of interest is more realistic to consider?
- (10 points) What are the two types of “capital”? And what is the difference between themin terms of the risk being undertaken by the provider and the company?
- (10 points) Economic considerations may lead to a design or structure that is less perfect than could be achieved if costs were not considered. Give an example for such cases.
- (10 points) Assume you will get $1000 one year from now. How much would you take today, instead, if the interest is 6%?
- (10 points) Two banks offer different interest rates on your deposit of $10,000 over 3 years. Bank A offers an 8% interest compounded annually and Bank B offers an 8.5% simple annual interest. Which bank will give you more money at the end of year 3, and how much is the difference?
- (15 points) Which of the following different interest charging plans has the lowest annual interest rate?
- 9% per year, compounded quarterly
- 3% per quarter, compounded quarterly
- 8.8% per year, compounded monthly
- (10 points) An investor requires an effective return rate of 15% per year. What is the equivalent nominal rate that is acceptable (generates the same annual rate) if interest on his investment would be compounded continuously?
- (15 points) What is the future value of a single $10,000 lump sum invested at a rate of 10% compounded monthly for 5 years?