Lec%2013_Full(1)

Lec%2013_Full(1) - IE 343 Engineering Economy Section 2...

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IE 343 Engineering Economy Section 2 Instructor: Tian Ni Quiz 3 : Wednesday Sep. 21 4:30PM – 4:45PM IE 343 Fall 2011 1
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New Plan: 5 th Week Sep 19 Sep 21 Sep 23 (Quiz 3&Chap4, 5) (Hw4 due &Chap 5) 6 th Week Sep 26 Sep 28 Sep 30 (Table&Excel&VBA (Quiz 4& (Exam 1 &Chap 4 Problems) Review 1) &HW5 out) 7 th Week Oct 3 Oct 5 Oct 7 8 th Week Oct 10 Oct 12 Oct 14 (Oct Break) (HW5 due & HW6 Out) IE 343 Fall 2011 Exam 1 Date Change! 2
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IE 343 Engineering Economics Lecture 13: Chapter 5 – Evaluating a Single Project Instructor: Tian Ni Sep.21, 2011 IE 343 Fall 2011 3
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Cash Flow Decomposition Nominal and Effective Interest Rates Continuous Compounding IE 343 Fall 2011 Last Time 4
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IE 343 Fall 2011 Example 4.16 5
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Solution: IE 343 Fall 2011 Example 4.16 – Solution 6
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IE 343 Fall 2011 Example 4.19 – Cash Flow Diagram 0 5 A A . . . . . . . . . 6 14 15 18 19 20 21 A A $2,000 $2,400 $2,800 $3,200 16 17 7
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IE 343 Fall 2011 Example 4.19 – Solution 0 5 A A . . . . . . . . . 6 14 15 A A 18 19 20 21 $2,000 18 19 20 21 $400 $800 $1,200 8
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IE 343 Fall 2011 Nominal and effective interest rates - Example You are given two 1-year fixed deposit saving plans. The interest rate of the two plans are: Plan 1: 12% per year compounded annually . Plan 2: 12% per year compounded monthly . Which plan will you choose? 9
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IE 343 Fall 2011 Nominal and effective interest rates In general, the nominal and effective interest rates are related by Where EFF) - (NOM 1 1 ) ( + = M M M r i . 1, if that obivous is It . frequency g compoundin with period per rate interest nominal : period; per rate interest effective : ) 1 ( ) ( r i M M r i M = = 10
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Plan 1: 12% per year compounded annually . Effective interest rate = 12% per year Plan 2: 12% per year compounded monthly . Nominal interest rate = 12% per year Compounding frequency = 12 times per year Effective interest rate of the nominal interest rate 12% per year compounded monthly is 12.6825% per year IE 343 Fall 2011 % 6825 . 12 1 ) 12 12 . 0 1 ( 1 ) 1 ( % 12 , 12 12 ) ( ) ( = + = + = = = M M M M r i r M Nominal and effective interest rates - Example 11
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Continuous Compounding IE 343 Fall 2011 12
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IE 343 Fall 2011 Continuous Compounding base) logarithm (natural 1 1 lim : Recall 1 lim 1 lim lim 1 1 that know We rate? interest ) (continous effective the is What . periods) g compoundin of (number M if What e p M r i .
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Lec%2013_Full(1) - IE 343 Engineering Economy Section 2...

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