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Questions and Answers of Economics

The football coach at a Midwestern university was given a 5-year employment contract that paid $225,000 the first year, and increased at an 8% uniform rate in each subsequent year. At the end of the
Traffic at a certain intersection is currently 2000 cars per day. A consultant has told the city that traffic is expected to grow at a continuous rate of 5%per year for the next 4 years.
A local bank will lend a customer $1000 on a 2-year car loan as follows:Money to pay for car$1000Two years' interest at 7%: 2 x 0.07 x 100014024 monthly payments = 1140/24 = $47.50$1140The first
A local lending institution advertises the "51-50 Club." A person may borrow $2000 and repay $51 for the next 50 months, beginning 30 days after receiving the money. Compute the nominal annual
A loan company has been advertising on television a plan that allows people to borrow $1000 and make a payment of $10.87 per month. This payment is for interest only and includes no payment on the
What effective interest rate per annum corresponds to a nominal rate of 12% compounded monthly?
A woman opened an account in a local store. In the charge account agreement, the store indicated it charges 11/2% each month on the unpaid balance. What nominal annual interest rate is being charged?
The Bawl Street Journal costs $206, payable now, for a 2-year subscription. The newspaper is published 252 days per year (5 days per week, except holidays). If a 10% nominal annual interest rate,
Pete Sampras borrows $10,000 to purchase a car. He must repay the loan in 48 equal end-of-period monthly payments. Interest is calculated at 1.25% per month. Determine the following:(a) The nominal
Picabo Street borrows $1000. Torepay the amount she makes 12 equal monthly payments of $90.30. Determine the following:(a) The effective monthly interest rate(b) The nominal annual interest rate(c)
At the Central Furniture Company, customers purchase on credit pay an effective annual interest rate of 16.1%, based on monthly compounding. What is the nominal annual interest rate that they pay?
What monthly interest rate is equivalent to an effective annual interest rate of 18%?
A bank advertises it pays 7% annual interest, compounded daily, on savings accounts, provided the money is left in the account for 4 years. What effective annual interest rate do they pay?
To repay a $1000 loan, a man paid $91.70 at the end of each month for 12 months. Compute the nominal interest rate he paid.
A student bought a $75 used guitar and agreed to pa for it with a single $85 payment at the end of 6 months Assuming semiannual (every 6 months) compounding, what is the nominal annual interest rate?
A firm charges its credit customers 13/4%interest pe month. What is the effective interest rate?
A thousand dollars is invested for 7 months at interest rate of 1% per month. What is the nominal interest rate? What is the effective interest rate?
What interest rate, compounded quarterly, is equivalent to a 9.31% effective interest rate?
If the nominal annual interest rate is 12% com pounded quarterly, what is the effective annual interest rate?
A contractor wishes to set up a special fund by making uniform semiannual end-of-period deposits for 20 years. The fund is to provide $10,000 at the end of each of the last 5 years of the 20-year
What amount will be required to purchase, on a man's 40th birthday, an annuity to provide him with 30 equal semiannual payments of $1000 each, the first to be received on his 50th birthday, if
A man decides to deposit $50 in the bank today and to make 10 additional deposits every 6 months beginning 6 months from now, the first of which will be $50 and increasing $10 per deposit after that.
A man makes an investment every 3 months at a nominal annual interest rate of 28%, compounded quarterly. His first investment was $100, followed by investments increasing $20 each 3 months. Thus, the
A 25-year old engineer is opening an individual retirement account (IRA) at a bank. Her goal is to accumulate $1 million in the account by the time she retires from work in 40 years. The bank manager
What single amount on April 1, 1998, is equivalent to a series of equal, semiannual cash flows of $1000 that starts with a cash flow on January 1, 1996, and ends with a cash flow on January 1, 2005?
Paco's saving account earns 13% compounded weekly and receives quarterly deposits of $38,000.His first deposit occurred on October 1, 1996, and the last deposit is scheduled for April 1, 2012.
The first of a series of equal, monthly cash flows of $2000 occurred on April 1, 1998, and the last of the monthly cash flows occurred on February 1, 2000. This series of monthly cash flows is
A series of monthly cash flows is deposited into an account that earns 12% nominal interest compounded monthly. Each monthly deposit is equal to $2100. The first monthly deposit occurred on June 1,
Ann deposits $100 at the end of each month into her bank savings account. The bank paid 6% nominal interest, compounded and paid quarterly. No interest was paid on money not in the account for the
What is the present worth of a series of equal quarterly payments of $3000 that extends over a period of 8 years if the interest rate is 10% compounded monthly?
The first of a series of equal semiannual cash flows occurs on July 1, 1997, and the last occurs on January 1, 2010. Each cash flow is equal to $128,000. The nominal interest rate is 12% compounded
A man buys a car for $3000 with no money down. He pays for the car in 30 equal monthly payments with interest at 12% per annum, compounded monthly. What is his monthly loan payment?
On January 1, Frank Jenson bought a used car for $4200 and agreed to pay for it as follows: 1/3down payment; the balance to be paid in 36 equal monthly payments; the first payment due February loan
On January 1, Laura Brown borrowed $1000 from the Friendly Finance Company. The loan is to be repaid by four equal payments, which are due at the end of March, June, September, and December. If the
The Rule of 78's is a commonly used method of computing the amount of interest when the balance of a loan is repaid in advance. Adding the numbers representing 12 months gives 1+ 2 + 3+ 4 + 5 +... .
A bank is offering loan of $25,000 with a nominal interest rate of 18% compounded monthly, payable in 60 months. (Hint: The loan origination fee of 2% will be taken out from the loan amount.)(a) What
Our cat, Fred, wants to purchase a new litter box. The cost is $100 and he'll finance it over 2 years at an annual rate of 18% compounded monthly and to be repaid in 24 monthly payments.(a) What is
Our cat, Fred, has convinced me that I should set up an account that will assure him of his Meow Mix for the next 4 years. I will deposit an amount P today that will permit Fred to make
When Jerry Garcia was alive he bought a house for $500,000 and made a $100,000 down payment. He obtained a 30-year loan for the remaining amount. Payments were made monthly. The nominal annual
A man has $5000 on deposit in a bank that pays 5% interest compounded annually. He wonders how much more advantageous it would be to transfer his funds to another bank whose dividend policy is 5%
A friend was left $50,000 by his uncle. He has decided to put it into a savings account for the next year or so. He finds there are varying interest rates at savings institutions: 43/8% compounded
A college professor won $85,000 in the state lottery; income taxes will take about half the amount. She plans to spend her sabbatical year on leave from the university on an around-the-world trip
Michael Jacks deposited $500,000 into a bank for 6 months. At the end of that time, he withdrew the money and received $520,000. If the bank paid interest based on continuous compounding:(a) What was
How long will it take for $10,000, invested at 5% per year, compounded continuously, to triple in value?
A bank pays 10% nominal annual interest on special three-year certificates. What is the effective annual interest rate if interest is compounded?(a) Every three months?(b) Daily?(c) Continuously?
Bart Simpson wishes to tour the country with his friends. To do this, he is saving money for a bus.(a) How much money must Bart deposit in a savings account paying 8% nominal annual interest,
Select the best alternative among the following five alternatives. Assume the investment is for a period of 4 years and P = $10,000.(a) 11.98% interest rate compounded continuously(b) 12.00% interest
What single amount on October 1, 1997, is equal to a series of $1000 quarterly deposits made into an account? The first deposit occurs on October 1, 1997 and the last deposit occurs on January 1,
You are taking a $2000 loan. You will pay it back in four equal amounts, paid every 6 months starting 3 years from now. The interest rate is 6% compounded semiannually. Calculate:(a) The effective
If you want a 12% rate of return, continuously compounded, on a project that will yield $6000 at the end of 21/2years, how much must you be willing to invest now?
A department store charges 13/4%interest per month, compounded continuously, on its customer's charge accounts. What is the nominal annual interest rate? What is the effective interest rate?
A bank is offering to sell 6-month certificates of deposit for $9500. At the end of 6 months, the b~ will pay $10,000 to the certificate owner. Based on a 6-month interest period, compute the nominal
Two savings banks are located across the street from each other. The West Bank put a sign in the window saying, "We pay 6.50%, compounded daily." The East Bank put up a sign saying, "We pay 6.50%,
Sally Struthers wants to have $10,000 in a savings account at the end of 6 months. The bank pays 8%, - compounded continuously. How much should Sally deposit now?
The I've Been Moved Corporation receives a constant flow of funds from its worldwide operations. This money (in the form of checks) is continuously deposited in many banks with the goal of earning as
A group of 10 public-spirited citizens has agreed that they will support the local school hot lunch program. Each year one of the group is to pay the $15,000 cost that occurs continuously and
A forklift truck costs $29,000. A company agrees to purchase such a truck with the understanding that it will make a single payment for the balance due in 3 years. The vendor agrees to the deal and
PARC Company has money to invest in an employee benefit plan, and you have been chosen as the plan's trustee. As an employee yourself, you want to maximize the interest earned on this investment and
Barry, a recent engineering graduate, never took engineering economics. When he graduated, he was hired by a prominent architectural firm. The earnings from this job allowed him to deposit $750 each
A local finance company will loan $10,000 to a homeowner. It is to be repaid in 24 monthly payments of $499 each. The first payment is due 30 days after the $10,000 is received. What interest rate
Mr. San some withdrew $1000 from a savings account and invested it in common stock. At the end of 5 years, he sold the stock and received a check for $1307. If Mr. Sansome had left his $1000 in the
The treasurer of a firm noted that many invoices were received with the following terms of payment: "20/0- 10 days, net 30 days". Thus, if he were to pay the bill within 10 days of its date, he could
In 1555, King Henry borrowed money from his bankers on the condition that he pay 5% of the loan at each fair (there were four fairs per year) until he had made 40 payments. At that time the loan
One of the largest automobile dealers in the city advertises a 3-year-old car for sale as follows: Cash price $3575, or a down payment of $375 with 45 monthly payments of $93.41. Susan DeVaux bought
For some interest rate i and some number of interest periods n, the uniform series capital recovery factor is 0.1728 and the sinking fund factor is 0.0378. What is the interest rate?
A woman made 10 annual end-of-year purchases of $1000 worth of common stock. The stock paid no dividends. Then for 4 years she held the stock. At the end of the 4 years she sold all the stock for
For some interest rate i and some number of interest periods n, the uniform series capital recovery factor is 0.1728 and the sinking fund factor is 0.0378. What is the interest rate? Discuss.
The following beginning-of-month (BOM) and end of month (EOM) amounts are to be deposited in a savings account that pays interest at 9% compounded monthly:Today (BOM 1)
Net revenues at an older manufacturing plant will be $2 million for this year. The net revenue will decrease 15% per year for 5 years, when the assembly plant will be closed (at the end of Year 6).
What is the present worth of cash flows that begin at $10,000 and increase at 8% per year for 4 years? The interest rate is 6%
What is the present worth of cash flows that begin at $30,000 and decrease at 15%per year for 6 years? The interest rate is 10%.
Calculate and print out the balance due, principal payment, and interest payment for each period of a used-car loan. The nominal interest is 12% per year compounded monthly. Payments are made monthly
Calculate and print out the balance due, principal payment, and interest payment for each period of a new car loan. The nominal interest is 9% per year, compounded monthly. Payments are made monthly
For the new car loan of Problem 4-128, graph the monthly payment.(a) As a function of the interest rate (4-14%).(b) As a function of the number of payments (36-84).
Your beginning salary is $50,000. You deposit 10% at the end of each year in a savings account that earns 6% interest. Your salary increases by 5% per year. What value does your savings book show
The market volume for widgets is increasing by 15% per year from current profits of $200,000. Investing in a design change will allow the profit per widget to stay steady; otherwise they will drop 3%
A 30-year mortgage for $120,000 has been issued. The interest rate is 10% and payments are made monthly. Print out the balance due, principal payment and interest payment for each period.
A homeowner may upgrade a furnace that runs on fuel oil to a natural gas unit. The investment win be $2500 installed. The cost of the natural gas will average $60 per month over the year, instead of
Develop a general-purpose spreadsheet to calculate A out the balance due, principal payment, ~d interest payment for each period of a loan. The user inputs to the spreadsheet will be the loan amount,
Use the spreadsheet developed for Problem 4-135 to analyze 180-month and 360-month house loan payments Analyze a $100,000mortgageloan at a nominal interest rate of 7.5% and submit a graph of the
Compute P for the following diagram.
Compute the value of P that is equivalent to the four cash flows in the following diagram.
What is the value of P for the situation diagrammed?
Compute the value of Q in the following diagram.
Compute the value of P for the following diagram.
Compute the value of P for the following diagram.
Use a geometric gradient factor to solve the following diagram for P.
If i = 10%, what is the value of P?
A stonecutter, assigned to carve the headstone for a well-known engineering economist, began with the following design.
Using 5% nominal interest, compounded continuously, solve for,
Find P for the following cash flow diagram.
The annual income from a rented house is $12,000. The annual expenses are $3000. If the house can be sold for $145,000 at the end of 10 years, how much could you afford to pay for it now, if you
Consider the following cash flow. At a 6% interest rate, what is the value of P, at the end of Year 1 that is equivalent to the benefits at the end of Years2 through 7?Year Cash
How much the owner of a building would be justified in paying for a sprinkler system that will save $750 a year in insurance premiums if the system has to be Replace every 20 years and has a salvage
A manufacturer is considering purchasing equipment which will have the following financial effects If money is worth 6%, should he invest in the equipment?
Jerry Stands, a young industrial engineer, prepared an economic analysis for some equipment to replace one production worker. The analysis showed that the present worth of benefits (of employing one
In a present worth analysis of certain equipment, one alternative has a net present worth of +420, based on a 6-year analysis period that equals the useful life of the alternative. A 10% interest
A project has a net present worth of -140 as of January 1, 2000. If a 10% interest rate is used, what is the project NPW as of December 31, 1997?
On February 1, the Miro Company needs to purchase some office equipment. The company is presently short of cash and expects to be short for several months. The company treasurer has indicated that he
By installing some elaborate inspection equipment on its assembly line, the Robot Corp. can avoid hiring an extra worker who would have earned $26,000 a year in wages and an additional $7500 a year

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