Beirut Arab University

Faculty of Engineering
Department of Industrial Engineering and Management

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

1. 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

2. 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
3. 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

4. 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
5. What value of C makes the two annual cash flows equivalent at an
annual rate of 10%?

 $99
 $150
 $220
 $160

6. 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

7. You are planning to borrow $100,000 on a 10-year, 6%, with 10

annual payments. What fraction of the payment made at the end of the
second year will represent repayment of principal?
 59.19%
  40.81%
 41.81%
 45.88%

8. 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