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Unformatted text preview: ISyE 3025 Engineering Economy Spring 2011 Professor Nagi Gebraeel Solution to Exam 1A 1. $2000 are deposited into an account that earns 5% interest per year. How much would have been accumulated in the account after 20 years? (a) $5 , 306 X (b) $754 (c) $66 , 132 (d) $61 (e) $161 Solution: We use the equation for F/P to solve for F as follows: F = P (1 + i ) N = 2000 × (1 + . 05) 20 = $5306 . 60 . 2. $200 are deposited every year into an account that earns 5% interest per year. How much would have been accumulated in the account after 20 years? (a) $531 (b) $75 (c) $6613 X (d) $6 (e) $16 Solution: We use the equation for F/A to solve for F as follows: F = A [(1 + i ) N 1] i = 200 × [(1 + . 05) 20 1] . 05 = $6613 . 19 . 3. A graduating high school student decides to take a year off and works to save money for college. The student plans to invest all the money earned in a savings account earning 6% interest, compounded quarterly. The student hopes to have $5000 by the time school starts in 12 months. How much money will the student have to save each month? (a) $396 (b) $405 (c) $407 X (d) $411 (e) $540 1 Solution: Since interest is compounded quarterly (at a rate of 6% / 12) we will solve this problem by calculating how much the student has to save each quarter and then dividing that number by three to get the monthly amount necessary. Although the student is making deposits every month, he only earns interest at the end of every third month. Thus if he were to depositearns interest at the end of every third month....
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 Spring '09
 Lee
 Time Value Of Money, Deposit account, cash flow stream

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