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Engineering%20Economics_CH4_PartIII

# Engineering%20Economics_CH4_PartIII - Engineering Economics...

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Engineering Economics Ch. 4 Money-Time Relationship and Equivalence - Part III -

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Nominal and Effective Interest Rates It is customary to quote interest rate on an annual basis, followed by the compounding period if different from one year in length. “12% compounded semiannually” Interest rate is 6% per 6 months 12% is nominal interest rate compounded semiannually The annual rate of interest is known as the nominal interest rate (which means the actual interest rate called effective interest rate is different - generally higher).
Nominal and Effective Interest Rates Exercise 18 (p.163) : Consider a principal amount of \$1,000 to be invested for three years at a nominal rate of 12% compounded semiannually . What is the amount of money you can get at the end of three years? Considering one period is 6months, P = 1000, effective interest i = ? N =? F = P x (F/P, i, N)

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Nominal and Effective Interest Rates Exercise 19 : Consider a principal amount of \$1,000 to be invested for three years at a nominal rate of 12% compounded monthly . What
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