UNIVERSITY OF THE EAST -CALOOCAN

Civil Engineering Department

Understanding Money Management

SUBMITTED BY

Julie Ann Zafra

20191179836

SUBMITTED TO:

Engr. Reyman Solas

September 26, 2022

NCE 4103 - Engineering Economics 2022
SELF-TEST QUESTIONS
1. You arc making $5.000 monthly deposits into a fund that pays interest at a rate of 6%
compounded monthly. What would be the balance at the end of 15 years?
(a) $1,063,879 (b) $1.358.169 ( c) $ 1,452,053 (d) $1.459,423
SOLUTION:

Given:

A=$5

Interest compounded monthly =6% = 6/100=0.06

Time =15 year

We have to calculate FV of annuity for monthly payment.

So, time in month (n) =15 x 12=180

Interest will become (r) =0.06/12=0.005

Formula for FV of annuity:

𝐹𝑉 = 𝐴{(1 + 𝑟)𝑛 − 1}/𝑟

𝐹𝑉 = 5{(1 + 0.005)180 − 1}/0.005

𝐹𝑉 = 5{(1.005)180 − 1}/0.005

𝐹𝑉 = 5{2.45 − 1}/0.005

𝐹𝑉 = 5(1.45)/0.005

𝐹𝑉 = 5 𝑥 290

𝑭𝑽 = $𝟏𝟒𝟓𝟎

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NCE 4103 - Engineering Economics 2022
2. Two banks offer the following interest rates on your deposit:
• Bank A : 9% interest compounded quarterly
• Bank B: 8.5% interest compounded continuously
Which of the following statements is not true?
(a) The annual percentage yield (APY) for Bank A is 9.30%.
(b) The effective annual interest rate for Bank B is 8.87%.
(c) Bank A offers a better deal.
(d) The annual percentage rate (APR) for Bank 8 is 8.5%.
SOLUTION:
Bank A: APR=9%
0.009 4
APY=𝑖𝑎 = (1 + ) − 1 = 9.30%
4

Bank A: APR=8.5%

APY=𝑖𝑎 = 𝑒 0.0085 − 1 = 0.088717 = 8.87%

3. You are making semiannual deposits into a fund that pays interest at a rate of 9%
compounded continuously. What is the effective semiannual interest rate?
(a) 4.000% (b) 4.708% (c) 4.164% (d)4.175%

𝐸𝐴𝑅 = [1 + 𝐴𝑃𝑅/𝑛]𝑛 − 1

APR = 9%

n = no. of compounding period = 365

Thus EAR = [1 + 9%/365]365 − 1

= [1 + 0.02466%]365 − 1

= 1.0002466365 − 1

= 1.094172 − 1

= 9.4172%

9.4172%
Thus semi annual rate = 2

= 4.708 %

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NCE 4103 - Engineering Economics 2022

4. Calculate the future worth of 20 annual $4,000 deposits in a savings account that earns
8% compounded monthly. Assume all deposits are made at the beginning of each year.
(a) $196,010 (b) $188,196 ( c) $190,162 (d) $199.279
SOLUTION:
0.02 12
Effective annual interest rate=(1 + ) −1
12

=0.0829
=8.2999%
4000
Future worth of deposits=0.0829 [(1 + 0.0829)20 − 1]

=189,035.32
Answer: $190,162

5. You borrow $15,000 from a bank to be repaid in monthly installments for three years at
15% interest compounded monthly. What is the portion of interest payment for the 15th
payment?
(a) $150 (b) $188 (c) $180 (d)$124
SOLUTION:

i = 15% = 15%/12 = 1.25% per month

t = 3 yrs = 3*12 = 36 months

Loan = 15000

Monthly payment = 15000*(A/P, 1.25%,36) = 15000 * 0.035665 = 519.98

Payments left after 14 th payment = 36 - 14 = 22

Principal due after 14th payment = 519.98 * (P/A,1.25%,22) = 519.98 * 19.130563 = 9947.51

Interest in 15 payment = 0.0125 * 9947.51 = 125.34 = 124

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