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# University of Illinois at Urbana-Champaign Department of Industrial and Enterprise Systems Engineering IE 430 Engineering Economy (Fall 2016)...

1. Compare the interest earned by \$1,000 for five years at 8% simple interest with that earned by the same amount for five years at 8% compounded annually.
2. You are about to borrow \$10,000 from a bank at an interest rate of 9% compounded annually. You are required to make five equal annual repayments in the amount of \$2,571 per year, with the first repayment occurring at the end of year 1. Show the interest payment and principal payment in each year.
3. Suppose you have the alternative of receiving either \$12,000 at the end of five years or P dollars today. Currently you have no need for money, so you would deposit the P dollars in a bank that pays 5% interest. What value of P would make you indifferent in your choice between P dollars today and the promise of \$12,000 at the end of five years?
4. You bought 5,000 shares of Company As stock at \$28 a share. Your intention is to hold the stock until your investment doubles in value. If you project 12% annual growth for the value of Company As stock, how many years do you expect to hold it to reach your goal? How long for it to triple in value?
5. What annual deposit is required for 5 years to accumulate an amount of money with the same purchasing power as \$680.58 today, if the market interest rate is 10% per year and inflation is 8% per year?
6. Four annual deposits of \$2,000, \$1,600, \$1,200, and \$800 are made into a fund that pays in- terest at a rate of 11% compounded annually. Determine the amount in the fund immediately following the 4th deposit.
7. What is the equal payment series for 12 years that is equivalent to a payment series of \$15,000 at the end of the first year, decreasing by \$1,000 each year over 12 years? Interest is 8% compounded annually.
8. A city engineer has estimated the annual toll revenues from a newly proposed highway con- struction over 20 years as follows: An = (\$2, 000, 000)(n)(1.06)n−1 n = 1,2,...,20 To validate the bond, the engineer was asked to present the estimated total present value of toll revenue at an interest rate of 6%. Assuming annual compounding, find the present value of the estimated toll revenue.

University of Illinois at Urbana-Champaign Department of Industrial and Enterprise Systems Engineering IE 430 Engineering Economy (Fall 2016) Homework 3 1. Compare the interest earned by \$1,000 for ﬁve years at 8% simple interest with that earned by the same amount for ﬁve years at 8% compounded annually. 2. You are about to borrow \$10,000 from a bank at an interest rate of 9% compounded annually. You are required to make ﬁve equal annual repayments in the amount of \$2,571 per year, with the ﬁrst repayment occurring at the end of year 1. Show the interest payment and principal payment in each year. 3. Suppose you have the alternative of receiving either \$12,000 at the end of ﬁve years or P dollars today. Currently you have no need for money, so you would deposit the P dollars in a bank that pays 5% interest. What value of P would make you indiﬀerent in your choice between P dollars today and the promise of \$12,000 at the end of ﬁve years? 4. You bought 5,000 shares of Company As stock at \$28 a share. Your intention is to hold the stock until your investment doubles in value. If you project 12% annual growth for the value of Company As stock, how many years do you expect to hold it to reach your goal? How long for it to triple in value? 5. What annual deposit is required for 5 years to accumulate an amount of money with the same purchasing power as \$680.58 today, if the market interest rate is 10% per year and inﬂation is 8% per year? 6. Four annual deposits of \$2,000, \$1,600, \$1,200, and \$800 are made into a fund that pays in- terest at a rate of 11% compounded annually. Determine the amount in the fund immediately following the 4th deposit. 7. What is the equal payment series for 12 years that is equivalent to a payment series of \$15,000 at the end of the ﬁrst year, decreasing by \$1,000 each year over 12 years? Interest is 8% compounded annually. 8. A city engineer has estimated the annual toll revenues from a newly proposed highway con- struction over 20 years as follows: A n = (\$2 , 000 , 000)( n )(1 . 06) n - 1 n = 1 , 2 ,..., 20 To validate the bond, the engineer was asked to present the estimated total present value of toll revenue at an interest rate of 6%. Assuming annual compounding, ﬁnd the present value of the estimated toll revenue. 1

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University of Illinois at Urbana-Champaign
Department of Industrial and Enterprise Systems Engineering
IE 430 Engineering Economy (Fall 2016)
Homework 3
1. Compare the interest earned by \$1,000 for...

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