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Unformatted text preview: IElVI 3503 Engineering Economic Analysis (crosslisted as) IEM 3513 Economic Decision Analysis
Spring 2009 Exam 1 I You have 75 minutes to complete this exam. 0 This exam is worth 100 points and has 10 numbered pages, excluding the 10%
and 15% mmpoundinterest factor tables 0 Exam consists of two parts. Part I will not receive partial scores. a This is an open book exam. You are allowed to use your course textbook, one
8.5 X 11 sheet of notes (both sides). In addition, you are allowed to use the
formula sheet and tables provided with the exam, and a calculator. 0 Assume compound interest scheme unless speciﬁed otherwise. All interest rates
are expressed over respective compounding periods unless speciﬁed otherwise.
Make other reasonable assumptions only if necessary. 0 Be speciﬁc and show your work— No credit will be given to unjustiﬁed answers
(Does not apply to Part I). o For problems in Part II draw cash—ﬂow diagrams to illustrate and write down
the factors you use in the standard factor notation first. * You must print and Sign your name below for your exam to be considered for
grading. “I am aware of, and abide by the Academic Integrity Policy of the University. I
have neither given nor received unauthorized aid on this academic work. ” Name: Signature: Z Course Number: Best of luck I Part (20 points) Pb 1. (4 points) How long will it take a $1200 deposit to accumulate up to $1992 at a simple interest rate of 11% per year?
B190 0+ n“. n) 2' WW
n a b Answer: 6 W (3 points) How long does it take a $1200 deposit to double at a simple interest
rate of 10% per year? Pb 2. _. 1.
“Answer: '7'} ' /L Pb 3. (3 points) How long does it take a $1900 deposit to double at a simple interest rate of 10% per year? Answer: VB i Mi,
Aw Pb 4. (3 points) (P/F,i,n)(P/F,t,m) = (P/F,z',n + m) TRUE 0r FALSE?
86%)“ DR m c} n) i") m)
' W
Answer: 0 viii—h mm) Pb 5. (3 points) (JP/Rt, 1)+(P/F,7L,2)+(P/F,i,3)+  +(P/F,i,n—1)+(P/F:i,n) is equal to which single compound interest factor? Answer: (‘1 ) Pb 6. (4 points) If your credit card offers 18% APR on the balances compounded Answer: $7.27. ‘: ——/ :50“? gm 09,360+ in): ,9 743,60 9‘3
gin» 8355 Part II. (80 points) Pb 1. (20 points) Find A, so that the two following payment plans are equivalent at an interest
{_____.
rate of 10% per year. —nnnn
nmmmn
cash Flow (in $) . I ‘ 5
my among, = A0 whoa—+42 % 33) 94
9.37 A : $2g7'010 Pb 2. (25 points) Prof. Benjamin Breeg is planning to make a contribution to his alma mater. The
donation is to be made over a 5~year period beginning now, a total of six equal
payments. It is intended to support a scholarship program which supports
one student per year for 25 years, with the ﬁrst scholarship to be awarded
immediately (a total of 26 scholarships). The cost of tuition per student is
$5000 per year and is expected to stay that amount for 5 more years. From
year 61 it is expected to increase by $50 per year for 10 more years (until year
15). From year 161 a year—to»year cost increase of 1% is expected for the student
tuition. If the college can invest the donations in a fund that earns interest at
the rate of 10% per year, what size must the donations be? What must the donations be if it were to support three students instead of just
one? Hints: Identify the size of the cashﬁow (tuition cost) at t = 15; Deal with
cash—ﬂows in years 15—25 separately. 93°F.
‘8; H7 Pb 3. (20 points) Find the equal yearly payment A in years 075 that is equivalent to the given
costs. Assume 3‘ = 10% per year with quarterlx compounding. Pb 4. (15 points) Rossi recently purchased an YZF—Rﬁ for $10,190. His dealer allows him to pay
it back in 6 equal yearly amounts at interest rates set by the parent company. If the interest rate is expected to be 10% per year for three years from now, and
15% per year after that, calculate the yearly payment he needs to make at the end of each year. lojmo a; [EMU : 4(2437 + 912334 0793) :7 A= $242+.a/ ...
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