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(FP, 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(FP,10%, 1)(FP, 12%, 2) + 120(FP, 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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 Fall '07
 chattin
 Time Value Of Money, Future Value, Interest, Internal rate of return

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