Engg 100: Engineering Economics

Homework #6
Due: October 22, 2020

1. Approximately what is the rate of return for a $10,000 investment that will pay
$1,000/year for 20 years? (Answer: using interpolation, i = 7.77%)

2. Given the following cash flow, calculate the approximate rate of return.
Year Cash Flow
0 -3,100
1 +1,000
2 +1,000
3 +1,000
4 +1,000
(Answer: using interpolation, i = 11.05%)

3. An investment that cost $1,000 is sold five years later for $1,261. What is the
approximate rate of return of return, given annual compounding? (Answer: using
interpolation, i = 4.75%)

4. Consider the following cash flow:

Year Cash Flow
0 -500
1 +200
2 +150
3 +100
4 +50
Compute the rate of return represented by the cash flow. (Answer: i = 0%)

5. A man buys a corporate bond from a bond brokerage house for $925. The bond has a
face value of $1000 and pays 4% of its face value each year. If the bond will be paid off
at the end of ten years, approximately what rate of return will the man receive?

6. A used car dealer advertises financing at 0% interest over 3 years with monthly
payments. You must pay a fee of $500 at signing. The car you like costs $9000. What is
your effective interest rate for financing the purchase of the vehicle?