ISE 460
Fall 2006
GEZA BOTTLIK
MIDTERM No. 1 Solution
09/21/06
Problem No. 1 Short answer questions, but you must show your work or explain how you
got the answer. (5 points each)
a)
Write two conclusions that you reached as a result of reading (or just listening to in class)
one of the articles posted on the links page of the web site. This does not include the one
that was in the homework.
Typical answers would be:
If I were an Ford employee I would be concerned for my job.
If I owned Yahoo stock I would buy more, figuring it would bounce back up.
I think that digital video is going to be a complete bust (or be a huge success, or its time has not
yet come)
b)
You want to withdraw the following amounts per year, starting a year from now: $4,000,
$3,500, and $6,000. How much do you have to deposit today if you can earn 4%,
compounded annually?
Present value of $4000 =$ 3846, of the $3500 = $3236 and the $6000=$5334 for a total of
$12,416
c)
What is the effective rate of a 7% annual interest rate when it is compounded daily?
Using equation 5.1 ,
(
29
0725
.
0
1
360
/
07
.
0
1
360
=

+
=
e
i
The answer is
7.25%
d)
A monthly deposit of $100 in a bank account for 2 years at 5% per year, compounded
monthly, will result in a balance of _____________ at the end of those two years. The first
deposit is made at the end of the first month
Using the tables for an approximate result (n = 24, i approx. ½%, A = 100) = $2543.20. State that
it would be somewhat less. You could also have interpolated between ¼ and ½ % (24.0728 and
25.4320):
(
29
4126
.
24
)
025
.
0
05
.
0
/(
)
0250
.
0
03125
.
0
(
*
0728
.
24
4320
.
25
0728
.
24
=



+
For an exact answer, use the F/A equation on page 151:
(
29
59
.
2518
1200
/
5
1
)
1200
/(
5
1
100
24
=
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 Spring '06
 Bottlik
 web site

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