Engineering Economy – Individual Assignment

4-2. What is the future equivalent of $1,000 invested at 6% simple interest per year for 3½
years?
I = $1,000 x 3,5 x 0.06 = $210
So, the total amount received at the end of 3,5 years: $1,000 + $210 = $1210
4-8. Jonathan borrowed $10,000 at 6% annual compound interest. He agreed to repay the
loan with five equal annual payments at end-of-years 1–5. How much of the annual
payment is interest, and how much principal is there in each annual payment?
P = $10000, i = 6%, N = 5

A = $10000 x (A/P, 6%, 5)

= $10000 x (0,2374)
= $2374

Amount
Interest Total Money Total End-of-
Year Owed at Principal
Accrued for Owed at End Year Payment
s Beginning of Payment
Year of Year (Cash Flow)
Year
1 $10000 $600 $10600 $1774 $2374
2 $8226 $493.56 $8719.56 $1880.44 $2374
3 $6345.56 $380.7336 $6726.2936 $1993.2664 $2374
4 $4352.2936 $261.137616 $4613.431216 $2112.862384 $2374
5 $2239.431216 $134.365873 $2373.797089 $2239.634127 $2374
Total $31163.28482 $1869.797089

4-9. Suppose you contribute $10 per week ($520 per year) into an interest-bearing account
that earns 6% a year (compounded once per year). That’s probably one less pizza per
week! But if you contribute faithfully each week into this account, how much money would
you have saved through the compounding of interest by the end of 15 years?

F = $520 x (F/A, 6%, 15)

= $520 x (23.276)
= $12103.52
 Engineering Economy – Individual Assignment

4-10. A lump-sum loan of $5,000 is needed by Chandra to pay for college expenses. She has
obtained small consumer loans with 12% interest per year in the past to help pay for
college. But her father has advised Chandra to apply for a PLUS student loan charging
only 8.5% interest per year. If the loan will be repaid in full in five years, what is the
difference in total interest accumulated by these two types of student loans?

 With i = 12%:
F = $5000 x (1 + 0.12)5
= $8811.71
 I = $8811.71 - $5000 = $3811,71

 With i = 8.5%:
F = $5000 x (1 + 0.085)5
= $7518.28
 I = $7518.28 - $5000 = $2518.28
Chandra will have to pay more interest in case of cosumer loan. It will be beneficial for him to
follow his father’s advice to apply for PLUS student loan.
Money saved by Chandra if he applies for PLUS student loan is given by:
Difference in interest = $3811.71 - $2518.28
= $1293.43
Thus, the difference in total interest accumulated by the two types of student loan is $1293.43
4-12. A 12-cylinder heavy-duty diesel engine will have a guaranteed residual value of
$1,000 in 5 years. Today (year 0) the equivalent worth of this engine is how much if the
interest rate is 9% per year?

$1000 = P x (1 + 0.09)5
 P = $650
4-13. You just inherited $10,000. While you plan to squander some of it away, how much
should you deposit in an account earning 5% interest per year if you’d like to have $10,000
in the account in 10 years?
 Engineering Economy – Individual Assignment

$10000 = P x (1 + 0.05)10
 P = $6139.132535
4-24. The Dominion Freight Company has invested $50,000 in a new sorting machine that
is expected to produce a return of $7,500 per year for the next 10 years. At a 7% annual
interest rate, is this investment worthwhile?

P = $7500 x (P/A, 0.07, 10)

= $7500 x (7.024)
= $52680
 This investment is worthwhile
4-30. Luis wants to have $2,000,000 in net worth when he retires. To achieve this goal, he
plans to invest $10,000 each year (starting one year from now) into an account that earns
10% interest compounded annually. The amount of time before Luis can retire as a
multimillionaire is how many years?

$2000000 = $10000 x (F/A, 0.1, N)

(F/A, 0.1, N) = 200

 N  32 (years)

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