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Exam_1_S07_Solutions

# Exam_1_S07_Solutions - IEE 300 Spring 2007 Exam#1 Name...

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IEE 300 Spring 2007 Exam #1 Name: _______________________________________ Questions 1 through 5 are worth 10 points each. They are short answer and partial credit may be given. Question 1 (10 points) Explain what minimum attractive rate of return is: The rate of return that must be equaled or exceeded to render an investment attractive. Question 2 (10 points) What is meant by Capitalized Cost? The present worth of a cash flow that is assumed to last forever. Question 3 (10 points) What is the length of time required for money to quadruple in value at an interest rate of 6% per year? 4P = P(F|P, 6%, n) 4 = (1.06) n ln(4) = n ln(1.06) 1.38629 = n(.05827), n = 24 years Question 4 (10 points) Show the equation(s) that will find the future worth in year 3 of the following cash flow. Do not compute a numerical answer . In your equation, use numerical values for the cash flow (e.g., use “\$100” not “P”) and for the interest rate (e.g., use “10%” not “i%”). For full credit, draw a cash flow diagram. F = 100(F|P,10%, 1)(F|P, 12%, 2) + 120(F|P, 12%,2) Year Cash Flow Interest Rate/year 0 \$100 n/a 1 \$120 10% 2 \$0 12% 3 \$0 12%

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Exam_1_S07_Solutions - IEE 300 Spring 2007 Exam#1 Name...

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