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fundamentals engineering economics
Questions and Answers of
Fundamentals Engineering Economics
Robert Carré financed his office furniture through the furniture dealer from which he bought it. The dealer’s terms allowed him to defer payments (with interest being charged) for six months and
Suppose you are in the market for a new car worth $18,000. You are offered a deal to make a $1,800 down payment now and to pay the balance in equal end‐of‐month payments of $421.85 over a
Find the present worth of the cash receipts in the accompanying diagram if i = 10% compounded annually with only four interest factors. $200 $200 $200 $200 $150 $150 $100 $100 1 2 4 5 7 8 Years P 3.
Find the equivalent present worth of the cash receipts in the accompanying diagram, where i = 10% compounded annually. In other words, how much do you have to deposit now (with the second deposit in
What value of A makes the two annual cash flows shown in the following diagram equivalent at 10% interest compounded annually? $200 $200 $200 $200 $200 1 2 3 4 Years A A A 1 2 3 5 Years 4,
The two cash flow transactions shown in the accompanying cash flow diagram are said to be equivalent at 10% interest compounded annually. Find the unknown X value that satisfies the equivalence.
State the value of C that makes the following two cash flow transactions economically equivalent at an interest rate of 10%: $85 $85 20 20 $50 $50 C C 0 1 2 3 4 0 1 2 3 4
From the following cash flow diagram, find the value of C that will establish economic equivalence between the deposit series and the withdrawal series at an interest rate of 9% compounded annually.
Consider the following cash flow diagram. What value of C makes the inflow series equivalent to the outflow series at an interest rate of 12% compounded annually? $1,200 $1,200 $1,200 $1,200 $800
Four years ago, you opened a mutual fund account and made three deposits ($200 four years ago, $X three years ago, and $300 a year ago) where you earned varying interest rates according to the
A father decides to establish a savings account for his child’s college education on the day his baby is born. Any money put into the account will earn an interest rate of 8% compounded annually.
Find the value of X such that the following two cash flow transactions are economically equivalent at 10% compounded annually. $500 $500 $500 $500 $500 $500 3 4 х х 3 4 2. 2.
What single payment at the end of year 5 is equivalent to an equal annual series of payments of $800 beginning at the end of year 3 and ending at the end of year 12? The interest rate is 8%
You borrowed $4,000 to finance your educational expenses at the beginning of your junior year of college at an interest rate of 9% compounded annually. You are required to pay off the loan with five
Consider the following cash flow series at varying interest rates. What is the equivalent present worth of the cash flow series? $1,500 $1,000 $1,000 $1,000 5% 10% 6% 8% 3 VP = ? 4.
It is said that a lump-sum amount of $50,000 at the end of five years is equivalent to an equal‐payment series of $5,000 per year for 10 years, where the first payment occurs at the end of year 1.
At what rate of interest compounded annually will an investment double in five years? Find the answers by using (1) the exact formula and (2) the Rule of 72.
Determine the interest rate i that makes the pairs of cash flows shown in the following diagrams economically equivalent. $150 $150 $150 $150 $100 2 3 4 5 Years $200 $200 $150 $50 $50 1 2 3 5 Years
Recently, a suburban Chicago couple won Power ball, a multi state lottery game. The game had rolled over for several weeks, so a huge jackpot was at stake. Ticket buyers had the choice between a
The state of Florida sold a total of $36.1 million worth of lottery tickets at $1 each during the first week of January 2011. As prize money, a total of $41 million will be distributed over the next
A newspaper headline reads, “Millionaire Babies: How to Save Our Social Security System.” It sounds a little wild, but the concept expressed in the title of this newspaper headline probably
A loan company offers money at 1.25% per month compounded monthly.(a) What is the nominal interest rate?(b) What is the effective annual interest rate?
A department store has offered you a credit card that charges interest at 1.65% per month compounded monthly. What is the nominal interest (annual percentage) rate for this credit card? What is the
A discount interest loan is a loan arrangement where the interest and any other related charges are calculated at the time the loan is closed. Suppose a one‐year loan is stated as $10,000 and the
A California bank, Berkeley Savings and Loan, advertised the following information: 7.55% APR and effective annual yield 7.842%. No mention is made of the interest period in the advertisement. Can
American Eagle Financial Sources, which makes small loans to college students,offers to lend a student $500. The borrower is required to pay $38 at the end of each week for 16 weeks. Find the
A financial institution is willing to lend you $1,000. However, you must repay $1,080 at the end of one week.(a) What is the nominal interest rate?(b) What is the effective annual interest rate?
A loan of $20,000 is to be financed to assist a person’s college education. Based upon monthly compounding for 48 months, the end‐of‐the‐month equal payment is quoted as $520. What nominal
You are purchasing a $16,000 used automobile, which is to be paid for in 36 monthly installments of $517.78. What nominal interest rate are you paying on this financing arrangement?
To finance your car, you have decided to take a car loan in the amount of $15,000 from your credit union. You will pay off this loan over 60 months. If the required monthly payment is $322.41, what
You obtained a loan of $20,000 to finance your home improvement project. Based on monthly compounding over 24 months, the end‐of‐the‐month equalpayment was figured to be $922.90. What is the
Bank A charges 11.5% compounded monthly on its business loan. Bank B charges 11.2% compounded daily. If you want to borrow money, which bankwould you choose?
Bank A charges 11.5% compounded monthly on its business loan. Bank B charges 11.2% compounded daily. If you want to borrow money, which bank would you choose?(a) Monthly(b) Quarterly(c)
What is the effective interest rate per quarter if the interest rate is 9% compounded monthly?
What is the effective interest rate per month if the interest rate is 12% compounded continuously?
What is the effective interest rate per quarter if the interest rate is 6% compounded continuously?
James Hogan is purchasing a $25,000 automobile, which is to be paid for in 48 monthly installments of $563.44. What is the effective interest rate per month for this financing arrangement?
Find the APY in each of the following cases:(a) 11% compounded annually(b) 8% compounded semiannually(c) 9.5% compounded quarterly(d) 7.5% compounded daily
What will be the amount accumulated by each of the given present investments?(a) $5,500 in 10 years at 9% compounded semiannually.(b) $12,500 in 15 years at 8% compounded quarterly.(c) $13,600 in
What is the future worth of each of the given series of payments?(a) $10,000 at the end of each six‐month period for 10 years at 8% compounded semiannually.(b) $9,000 at the end of each quarter for
What equal series of payments must be paid into a sinking fund in order to accumulate each given amount?(a) $11,000 in 10 years at 8% compounded semiannually when payments are semiannual.(b) $3,000
What is the present worth of each of the given series of payments?(a) $1,700 at the end of each six‐month period for 10 years at 9% compounded semiannually.(b) $9,000 at the end of each quarter for
Suppose you deposit $1,000 at the end of each quarter for five years at an interest rate of 9% compounded monthly. Which of the following formulas will determine the equal annual end‐of‐year
Suppose a newlywed couple is planning to buy a home two years from now. To save the down payment required at the time of purchasing a home worth $350,000 (let’s assume this required down payment is
Georgi Rostov deposits $3,000 in a savings account that pays 6% interest compounded monthly. Three years later, he deposits $4,000. Two years after the $4,000 deposit, he makes another deposit in the
A man is planning to retire in 30 years. He wishes to deposit a regular amount every three months until he retires so that, beginning one year following his retirement, he will receive annual
Consider the following cash flow series. Determine the required annual deposits (end of year) that will generate the cash flows from years 4 to 7. Assume the interest rate is 6%, compounded monthly.
You are in financial trouble and are delinquent on your mortgage payment. Your bank has agreed to a repayment schedule of $1,600 per month, and it will charge 0.5% per month interest on the
A building is priced at $255,000. If a buyer makes a down payment of $55,000 and a payment of $2,000 every month thereafter, how many months will it take for the buyer to completely pay for the
By reading any business publication give examples that illustrate one of the four fundamental principles of engineering economics.
What value of C makes the two cash flows equal? Assume i = 10%. 20 20 $72 $50 $50 C 1 2 3 1 2 3
You are planning to save $1 million for retirement over the next 30 years.(a) If you are earning interest at the rate of 6% and you live 20 years after retirement, what annual level of living
What is the amount of 10 equal annual deposits that can provide five annual withdrawals, when a first withdrawal of $3,000 is made at the end of year 11 and subsequent withdrawals increase at the
Suppose that an oil well is expected to produce 100,000 barrels of oil during its first production year. However, its subsequent production (yield) is expected to decrease by 10% over the previous
Matt Christopher is a 25‐year‐old mechanical engineer, and his salary next year will be $60,000. Matt expects that his salary will increase at a steady rate of 5% per year until his retirement at
Consider the cash flow series given in the accompanying table. What value of C makes the deposit series equivalent to the withdrawal series at an interest rate of 9% compounded annually? 5C 4C 3C 20
The maintenance expense on a machine is expected to be $3,000 during the first year and to increase $600 each year for the following eight years. What present sum of money should be set aside now to
What is the equal‐payment series for 10 years that is equivalent to a payment series starting with $30,000 at the end of the first year and decreasing by $3,000 each year over 10 years? Interest is
Compute the value of P for the accompanying cash flow diagram. Assume i = 8% per year. $350 $300 $250 $200 $150 $100 1 2 3 4 5 6 7 8 9 9 10 11 Years
Five annual deposits in the amounts of $5,000, $4,500, $4,000, $3,500, and $3,000 are made into a fund that pays interest at a rate of 10% compounded annually. Determine the amount in the fund
Kim deposits her annual bonus into a savings account that pays 8% interest compounded annually. The size of her bonus increases by $2,000 each year, and the initial bonus amount is $5,000. Determine
At an interest rate of 10%, what is the present value of an asset that produces $1,000 a year in perpetuity?
An investment costs $3,460 and pays $250 in perpetuity. What is the interest earned on this investment?
A company is considering replacing an old piece of industrial equipment to reduce operating and maintenance cost. A new equipment is quoted at $195,000. After 10 years, the machine would have no
If you borrow $5,000 and agree to repay the loan in five equal annual payments at an interest rate of 11%, what will the annual payment be? What if you make the first payment on the loan at the end
If $500 is deposited in a savings account at the beginning of each year for 15 years and the account earns 7% interest compounded annually, what will be the balance on the account the end of the 15
From the interest tables in Appendix B, determine the value of the following factors by interpolation, and compare the results with those obtained from evaluating the A/P and P/A interest
What is the present worth of each of the following given series of payments?(a) $9,000 at the end of each year for eight years at 6% compounded annually.(b) $1,500 at the end of each year for 10
You have borrowed $20,000 at an interest rate of 10% compounded annually. Equal payments will be made over a three‐year period with each payment made at the end of the corresponding year. What is
What equal‐annual‐payment series is required in order to repay each of the following given present amounts?(a) $18,000 in five years at 8% interest compounded annually.(b) $4,200 in four years at
You open a bank account, making a deposit of $500 now and deposits of $1,000 every other year. What is the total balance at the end of 10 years from now if your deposits earn 4% interest compounded
A no‐load (commission‐free) mutual fund has grown at a rate of 9% compounded annually since its beginning. If it is anticipated that it will continue to grow at this rate, how much must be
Part of the income that a machine generates is put into a sinking fund to pay for its replacement when it wears out. If $3,000 is deposited every year at 6% interest compounded annually, how many
You want to save the down payment required to purchase a vacation home at the end of five years. If the required down payment is $25,000 and you can earn 5% a year on your savings account, how much
Your company wants to set aside a fixed amount every year to a sinking fund to replace a piece of industrial equipment costing $250,000 at the end of five years from now. The sinking fund is expected
What equal annual series of payments must be paid into a sinking fund in order to accumulate each of the following given amounts?(a) $18,000 in 13 years at 5% compounded annually.(b) $11,000 in eight
What is the future worth of each given series of payments?(a) $6,000 at the end of each year for six years at 6% compounded annually.(b) $8,000 at the end of each year for nine years at 7.25%
What is the future worth of a series of equal yearly deposits of $5,000 for 7 years in a savings account that earns 5% annual compound interest if(a) All deposits are made at the end of each
You are planning to contribute $5,000 a year to a mutual fund that earns an average of 6% per year. If you continue to contribute for the next 10 years, how much would you have in your account?
The accompanying diagram shows the anticipated cash dividends for Delta Electronics over the next four years. John is interested in buying some shares of this stock for a total of $100 and will hold
You are preparing to buy a vacation home five years from now. The home will cost $80,000 at that time. You plan on saving three deposits at an interest rate of 8%:Deposit 1: Deposit $10,000
A company borrowed $180,000 at an interest rate of 9% compounded annually over six years. The loan will be repaid in installments at the end of each year according to the accompanying repayment
You deposit $2,000 today, $3,000 one year from now, and $5,000 three years from now. How much money will you have at the end of year 3 if there are different annual compound??interest rates per
How much invested now at an interest rate of 9% compounded annually would be just sufficient to provide three payments as follows: the first payment in the amount of $3,000 occurring two years from
If $2,000 is invested now, $3,000 two years from now, and $4,000 four years from now at an interest rate of 8% compounded annually, what will be the total amount in 10 years?
In 1626 the Indians sold Manhattan Island to Peter Minuit of the Dutch West Company for $24. If they saved just $1 from the proceeds in a bank account that paid an 8% annual interest, how much would
You bought 100 shares of GE stock at $2,330 on December 31, 2011. Your intention is to keep the stock until it doubles in value. If you expect 8% annual growth for GE stock, how many years do you
Which of the following alternatives would you choose, assuming an interest rate of 10% compounded annually?Alternative 1: Receive $100 today.Alternative 2: Receive $120 two years from now.Alternative
If you desire to withdraw the given amounts over the next five years from a savings account that earns 5% interest compounded annually, how much do you need to deposit now?N
A project is expected to generate a cash flow of $2,000 in year 1, $800 in year 2, and $1,000 in year 3. At an interest rate of 10%, what is the maximum amount that you could invest in the project at
John and Susan just opened savings accounts at two different banks. Each deposited $1,000. John’s bank pays simple interest at an annual rate of 10%, whereas Susan’s bank pays compound interest
You are interested in buying a piece of real estate property that could be worth $450,000 in five years. If your earning interest rate is 5%, how much would you be willing to pay for this property
If you want to withdraw $10,000 at the end of two years and $35,000 at the end of four years, how much should you deposit now into an account that pays 9% interest compounded annually? See the
How many years will it take to double your investment of $2,000 if it has an interest rate of 6% compounded annually?
How many years will it take an investment to triple if the interest rate is 7% compounded annually?
Assuming an interest rate of 8% compounded annually, answer the following questions:(a) How much money can be loaned now if $8,000 is to be repaid at the end of five years?(b) How much money will be
State the present worth of the following future payments:(a) $5,500 six years from now at 10% compounded annually.(b) $7,000 three years from now at 9% compounded annually.(c) $22,000 five years from
You are considering investing $1,000 at an interest rate of 6.5% compounded annually for five years or investing the $1,000 at 6.8% per year simple interest for five years. Which option is better?
Bank A pays 6% simple interest on its savings account balances. Bank B pays 5.5% interest compounded annually. If you made a $10,000 deposit in each bank, which bank provides you more money at the
Compare the interest earned on $15,000 for 25 years at 7% simple interest with the amount of interest earned if interest were compounded annually.
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