CE167_ Fall_2011_HW3_Solutions

CE167_ Fall_2011_HW3_Solutions - CE 167: Engineering and...

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CE 167: Engineering and Project Management Professor William Ibbs Fall 2011 Homework 2: Engineering Economics and Comparing Alternatives 25 Points Due: Sept. 29, 2011 NOTE: CASH FLOWS WILL BE APPENDED IN A SEPARATE DOCUMENT 1. [5 points] Take the $5000 student loan example from HW1P4 that matures in 10 years. If you make uniform annual payments to pay off the loan, calculate how much of each payment is to interest, and how much to principle. Graph your results showing payments to interest and payments to principle (You can do this in Excel, but provide at least 1 sample calculation for each column). Calculate annual payments: A = P(A/P,6%,10) = $5000 * 0.135867958 = $679.34 Use Excel: For each time period, calculate the interest charged on the outstanding principle (i%*Outstanding Principle). Subtract this from the annuity, this is now the payment to principle for the period. In the subsequent time period, the outstanding principle is now less than in the previous, and the interest charged is therefore less. Time Period Cash Flow ($) Outstanding Principle ($) Interest Charged ($) Payment to Principle ($) New Principle ($) 0 5000 1 -679.34 5000.00 300.00 379.34 4620.66 2 -679.34 4620.66 277.24 402.10 4218.56 3 -679.34 4218.56 253.11 426.23 3792.33 4 -679.34 3792.33 227.54 451.80 3340.53 5 -679.34 3340.53 200.43 478.91 2861.63 6 -679.34 2861.63 171.70 507.64 2353.98 7 -679.34 2353.98 141.24 538.10 1815.88 8 -679.34 1815.88 108.95 570.39 1245.50 9 -679.34 1245.50 74.73 604.61 640.89 10 -679.34 640.89 38.45 640.89 0.00
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Grading: 1.5 points for correctly calculating interest as a proportion of outstanding principle (regardless of whether of not the outstanding principle is correct) 1.5 points for correctly calculating the payment to principle as the remainder of the annuity, after payment to interest has been accounted for.
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CE167_ Fall_2011_HW3_Solutions - CE 167: Engineering and...

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