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E120 Principles of Engineering Economics
Fall 2010
Problem Set #2
1.
Calculate the future value of $2000 in
a.
5 years at an interest rate of 5% per year.
b.
10 years at an interest rate of 5% per year.
c.
5 years at an interest rate of 10% per year.
d.
Why is the amount of interest earned in part (a) less than half the amount of
interest earned in part (b)?
2.
Your brother has offered to give you either $5000 today or $10,000 in ten years. If the
interest rate is 7% per year, which option is preferable?
3.
You are thinking of retiring. Your retirement plan will pay you either $250,000
immediately on retirement or $350,000 five years after the date of your retirement.
Which alternative should you choose if the interest rate is
a.
0% per year?
b.
8% per year?
c.
20% per year?
4.
Your grandfather put some money in an account for you on the day you were born. You
are now 18 years old and are allowed to withdraw the money for the first time. The
account currently has $3996 in it and pays an 8% interest rate.
a.
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 Fall '08
 ILAN

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