Beirut Arab University

Faculty of Engineering
Department of Industrial Engineering and Management

Engineering Economy-INME221
Worksheet#2- MCQ -Compound Interest

1. To withdraw the following $1,000 payment series, determine the

minimum deposit (P) you should make now if your deposits earn an
interest rate of 10%, compounded annually. Note that you are making
another deposit at the end of year 7 in the amount of $500. With the
minimum deposit P, your balance at the end of year 10 should be zero.

 P = $5,374
 P= $4,912
 P = $4,465
 P = $5,912

2. What value of C makes the two annual cash flows equivalent at an

annual rate of 10%?

 $99
 $150
 $220
 $160
3. If you borrow $20,000 at an interest rate of 10%, compounded
annually, with the repayment schedule as follows, what is the amount
A?

 $3,345
 $4,364
 $3,752
 $2,857

4. Today is your birthday and you decide to start saving for your
retirement. You will retire on your 65th birthday and will need $50,000
per year at the end of each of following 20 years. You will make a first
deposit 1 year from today in an account paying 8% interest annually
and continue to make an identical deposit each year up to and
including the year you plan to retire. If an annual deposit of $6,851
will allow you to reach your goal, what birthday are you celebrating
today?

 45
 52
 35
 40

5. Consider the cash flow series shown below. Determine the required
annual deposits (end of year) that will generate the cash flows from
years 4 to 7. Assume the interest rate is 10%, compounded annually.
  $555
 $518
 $568
 $698

6. A couple is planning to finance their 5 year old daughter’s college

education. They established a college fund that earns 10%,
compounded annually. What annual deposit must be made from the
daughter’s 5th birthday (now) to her 16th birthday to meet the future
college expenses shown in the following table? Assume that today is
her 5th birthday.

 C = $1,978
 C = $3,742
 C = $3,048
 C = $4,115

7. How much do you need to invest in equal annual amounts for the next
10 years if you want to withdraw $5,000 at the end of the eleventh
year and increase the annual withdrawal by $1,000 each year
thereafter until year 25? The interest rate is 6%, compounded
annually
 $106,117
 $20,000
 $8,054
  $5,000

8. Based on the following information, answer the following two

questions:
Loan principal =$15,000
Interest rate =10% per year
Duration of loan = 3 years

a- Fill the table below:

Year A Interest Principal Remaining

Portion Portion Balance
0 ?

1 ? $1,500 ? ?

2 ? ? $4,985.2 ?

3 ? ? ? ?

b- What percentage of the initial loan was paid by the end of year
two?

(a) 43%
(b) 63%
(c) 53%
(d) 83%

9. Four years ago, you opened a mutual fund account and made three
deposits ($200 four years ago, $X three years ago, and $300 a year
ago) where you earned varying interest rates according to the
following diagram. Today, your balance shows $1,000. Determine the
amount of deposit made three years ago ($X). See the figure below:

(a) $215
(b) $237
(c) $244
(d) $259