Midterm 1
1. (12 points) What is the effective annual interest rate in each situation?
a. A savings account with 4% annual interest rate compounded daily (assume a year
consists of 365 days)?
ANSWER: (1+0.04/365)^365 - 1= 0.0408 = 4.08%
b. A savings accou

Final Exam Study Questions (with solutions)
Fall 2009
1. Its 1999, and National Supermarkets, Inc., is considering making an investment of
$25 million to acquire 10% of BeanStalk.com, a start-up company which allows
consumers to shop online for groceries

IEMS 326
Northwestern University
Spring 2012
Steven Golbeck
Exam #1
(4 questions, 100 points total)
Friday, April, 13
Please put your name at the top of each page of your work. Show all work; no credit will
be given for answers without explanations.
Pleas

Midterm 2 Solutions
1. (12 points) What is the IRR of the following cash flows?
a) You pay $990 in year 0 and receive $1000 in year 1.
b) You pay $990 in year 1 and receive $1000 in year 2.
A: In both cases IRR = 1000/990-1 1%
2. (18 points) Consider the

IEMS 326 Spring 2015 Homework 2 Solution
Prof. Irina Dolinskaya / Prof. E. Jerey Lyons
Due April 16, beginning of class
1. (20 points) Two dierent companies are oering a punch press for sale.
Company A charges $250,000 upfront to deliver and install the

IEMS 326 Spring 2015 Homework 5 Solution
Prof. Irina Dolinskaya / Prof. E. Jerey Lyons
Due May 21, beginning of class
Read L. 2.4-2.5, 5.1
1. (Copy machines, 20 points) Two copy machines are available. Both have useful lives of 5
years. One machine can be

IEMS 326
Northwestern University
Spring 2012
Steven Golbeck
Homework #1
(4 questions, 100 points total)
Due Wednesday, April 4
Please put your name at the top of each page of your work. Show all work; no credit will
be given for answers without explanatio

Midterm 1
1. (40 points) Calculate the present value of each cashflow using a discount rate of 7%.
Which do you most prefer most? Show and explain all supporting calculations!
Cashflow A: receive $60 today and then receive $60 in four years.
Cashflow B: r

IEMS 326 Spring 2015 Homework 6
Prof. Irina Dolinskaya / Prof. E. Jerey Lyons
Due June 4, beginning of class
Read L 3.3-3.7, L 6.1-6.4, N p. 338-342
1. (Bond price, 5 points) An 8% bond with face value 100 and 18 years to maturity has a yield
of 9%. Assum

Lecture 14: Weighted Average Cost of Capital (WACC)
E. Jerey Lyons
Northwestern University, Department of Industrial Engineering & Management Sciences
April 30, 2015
Adapted from Steven Golbeck, IEMS 326, 2012
Lecture 14: Weighted Average Cost of Capital

Lecture 12 & 13: Ination
E. Jerey Lyons
Northwestern University, Department of Industrial Engineering & Management Sciences
April 28, 2015
Adapted from Steven Golbeck, IEMS 326, 2012
Lecture 12 & 13: Ination
Ination
Purchasing Power
From the Federal Reser

Lecture 9: Decision Trees
E. Jerey Lyons
Northwestern University, Department of Industrial Engineering & Management Sciences
April 21, 2015
Adapted from Steven Golbeck, IEMS 326, 2012
Lecture 9: Decision Trees
Decision Trees
Motivating Examples
Consider t

Lecture 10: Decision Trees
E. Jerey Lyons
Northwestern University, Department of Industrial Engineering & Management Sciences
April 23, 2015
Adapted from Steven Golbeck, IEMS 326, 2012
Lecture 10: Decision Trees
Decision Trees
Incorporating Options
Previo

Lecture 19-21: Mean-Variance Portfolio Theory
Steven Golbeck
Northwestern University, Department of Industrial Engineering & Management Sciences
May 16, 18, 21, 2012
Steven Golbeck
Lecture 19-21: Mean-Variance Portfolio Theory
Mean-Variance Portfolio Theo

nominal annual interest rate
interest rate per month
effective annual interest rate
6%
0.5%
6.17%
Buy the car and keep it
Purchase Price
Net Present Cost
$22,000
$22,000
Car loan
Monthly cashflow
Monthly loan payment
Present value of loan payments
5 years

Question 1
A:
face value
coupon rate
maturity
paid
yield curve/2
periods
interest
1000
0.06
5
2
0.04
10
0.04
CPN
PV
PV
30
$918.89
918.891042
Question 2
coupon rate
face value
P
time
periods
CPN
yield to maturity
CPN
0
-1140
yield to maturity
0.1
1000
1140

STOCK VALUATION
HOW STOCK WORKS
A share of stock is a share in ownership.
Original investors pay, e.g. $100 per share;
company raises initial capital.
Later, company pays dividends to
shareholders and share price changes in
trading.
HOW TO MAKE MONEY
I

IEMS 326A: Economics and Finance for Engineers
Spring 2015
Prof. E. Jerey Lyons
Midterm Exam 1
Thursday, April 16, 2015
2:00 pm - 3:20 pm
NAME:
SOLUTION
1
EXAM POLICIES:
1. The professor and TA reserve the right to collect an exam from any student suspect

ANNUALIZED STANDARD DEVIATION, AVERAGE RETURN AND CORRELATION COEFFICIENTS
from http:/finance.wharton.upenn.edu/~mrrobert/
Standard Average
Deviation Return
US
21.10
15.70
Germany
25.00
21.70
UK
23.50
18.30
Japan
26.60
17.30
Australia
27.60
14.80
Canada
2

IEMS 326 Spring 2015 Homework 4 Solution
Prof. Irina Dolinskaya / Prof. E. Jerey Lyons
Due May 7, beginning of class
Please show all your work! See the syllabus for homework policies.
You should make sure to clearly state what concepts, formulas and param

IEMS 326 Spring 2015 Homework 3 Solution
Prof. Irina Dolinskaya / Prof. E. Jerey Lyons
Due April 28, beginning of class
1. (20 points) A factory building is located in an area subject to occasional ooding by a nearby
river. You have been brought in as a c

IEMS 326 Spring 2015 Homework 1 Solution
Prof. Irina Dolinskaya / Prof. E. Jerey Lyons
Due April 9, beginning of class
1. (15 points) Answer the following questions assuming annual compounding rate.
(a) (5 points) Suppose $1 were invested 100 years ago at

ANNUALIZED STANDARD DEVIATION, AVERAGE RETURN AND CORRELATION COEFFICIENTS
Note to convert SD and expected return in % term, multiply by 100.
Standard Expected
Deviation Return
Risk Free Rate
US
0.15
0.09
0.03
Germany
0.15
0.08
UK
0.20
0.10
Japan
0.23
0.1