Example problems

Example problems - EC 309 ECONOMICS FOR ENGINEERS EXAMPLE...

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EC 309 ECONOMICS FOR ENGINEERS EXAMPLE PROBLEMS & SOLUTIONS 1) Ali and Veli just opened savings accounts at two different banks. They each deposited \$1,000. Ali’s bank pays simple interest at an annual rate of 10%, whereas Veli’s bank pays compound interest at an annual rate of 9.5%. No principal or interest will be taken out of the accounts for a period of three years. At the end of three years, whose balance will be greater? Solution: Simple interest: I = =(0.1)(\$1,000)(3)=\$300 Compound interest: I = P( (1+ i ) & -1)=\$1,000((1+.095) 3 −1)=\$312.93 • Veli’s balance will be greater by \$12.93. 2) Mark is preparing to buy a vacation home five years from now. The home will cost \$80,000 at that time. Mark plans on savings three deposits at an interest rate of 8%. Deposit 1: Deposit \$10,000 today. Deposit 2: Deposit \$12,000 two years from now. Deposit 3: Deposit \$X three years from now. How much will mark need to invest in year three to ensure that he has the necessary

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This note was uploaded on 04/03/2012 for the course ENGINEERIN 12 taught by Professor Who during the Spring '09 term at Kadir Has Üniversitesi.

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Example problems - EC 309 ECONOMICS FOR ENGINEERS EXAMPLE...

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