Solutions+Problem+Set+2 - E120 Principles of Engineering...

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E120 Principles of Engineering Economics Fall 2010 Problem Set #2 Solutions 1. a. FV 5 = $2,000 × 1.05 5 = $2,552.56 b. FV 10 = $2,000 × 1.05 10 = $3,257.79 c. FV 5 = $2,000 × 1.1 5 = $3,221.02 d. Because in the last 5 years you get interest on the interest earned in the first 5 years as well as interest on the original $2,000. 2. PV of $10,000 in 10 years = $10,000/1.07 10 = $5, 083.49 > $5,000 So the 10,000 in 10 years is preferable because it is worth more. 3. a. PV = $350,000/1.0 5 = $350,000. So you should take the $350,000. b. PV = $350,000/1.08 5 = $238,204. You should take the $250,000. c. PV = $350,000/1.2 5 = $140,657. You should take the $250,000. 4. a. Amount of money in the account at age 25 = $3,996 × 1.08 7 = $6,848.44 b. Amount of money in the account at age 65 = $3,996 × 1.08 47 = $148,779 c. Amount of money originally put in the account = $3,996/1.08 18 = $1,000 5. First, calculate the present value of the cash flows: PV = $1,000/1.05 + $1,000/1.05 2 + $1,000/1.05
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This note was uploaded on 11/22/2010 for the course ENGIN 120 taught by Professor Ilan during the Fall '08 term at University of California, Berkeley.

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Solutions+Problem+Set+2 - E120 Principles of Engineering...

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