Formula i 1 rm m 1 Considering previous example i 1 84 4 1 1 0084 4 1 00824 At

Formula i 1 rm m 1 considering previous example i 1

This preview shows page 9 - 10 out of 10 pages.

Formula: i = (1 + r/m) m - 1 Considering previous example: i = (1 + 8%/4) 4 1 = (1 + 0.08/4) 4 1 = 0.0824 At this point we can apply F/A equation from Chapter 2 to determine the value of F. F = $1,000 * (F/A,8.24%,5) = $1,000 * [(1+0.0824) 5 1]/0.0824 = $5,894.74 The answer is slightly different from the Approach A, possibly due to accuracy levels. But usually is close within error limits. 9 IE 492 Engineering Economics Karnik
Image of page 9

Subscribe to view the full document.

INTEREST PERIODS LARGER THAN PAYMENT PERIODS In case interest periods are larger than payment periods, some payments may not earn interest as they are not deposited for the entire interest periods. Think about your bank account, where the account itself earns interest, but not all deposits are in the account for the same duration, and you also withdraw money at some intervals. It is likely that some deposits in the bank have not earned interest as the amounts were withdrawn before the interest period could be completed. Following approach can be taken to address such situations: Consider all deposits made in the interest periods to be made at the end of the interest period. Consider all withdrawals made in the interest periods at the beginning of the interest period. Proceed through interest periods and payment periods coincided. Work through example 4.6 in the textbook. 10 IE 492 Engineering Economics Karnik
Image of page 10
  • Summer '16

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes