University of Diyala

College of Engineering
Mechanical Engineering Department
Class: Forth Year
First Semester 2020-2021
Engineering Economy

Week-2
Interest Rate
By
Assistant Professor
Layth Abed Hassnawe
TEXTBOOK/S :
 Leland T. Blank, Anthony J. Tarquin “Engineering Economy” 7th
edition, McGraw-Hill International Edition, 2012.
 Appendix C: Compound interest tables :from pp:595 -625
http://www.oup.com/us/companion.websites/9780199778126/student/tables

References:
 William G.Sullivan, Elin M. Wicks and James T. Luxhoj “Engineering
Economy” 14th edn, Prentice Hall, 2009
 Chan S. Park, “Fundamentals of Engineering Economy” 2nd edn, Prentice Hall,
2009
 Joseph C. Hartman, “Engineering Economy and the Decision Making Process”
Prentice Hall, 2007
2
 Topic for this week
1-Introduction to Interest.
2-The principles of Interest rate.
3- Example From 1 to 7

3
 The Interest rate or ( Rate Of Return) [ROR] ‫ سعر الفائدة‬، ‫معدل الفائدة‬

The interest is the difference between ending amount and the

beginning amount of money.
(I) Interest paid = amount owed now-original amount ‫المبلغ االصلي‬
‫المبلغ المستحق االن‬
(+) F
Ending amount Future time
n= interest period amount Owed now
0 Time : ‫من هم للمستفيدون‬
‫ مصرف‬-
‫ شركة تقرض االموال‬-
(-) P beginning amount / Present time ‫ شخص يحصل على قرض‬-
Principal amount – Original amount
4
 ‫الفائدة المستحقة ( المتراكمة ) لكل وحدة زمنية واحدة فقط‬

n=1 time

Example (1) :
An employee borrows 2,500,000 IQD from Rafidain Bank on 1May
and must repay a total of 3,00,000 IQD exactly after 1 year .Determine
the interest amount and the interest rate paid.

Solution :

1- Interest =? n =1 form 1 May and repay after 1 year [interest period ]

2- i% =? P= 2,500,000 IQD beginning amount Present time
F= 3,00,000 IQD Ending amount Future time
‫‪(+) 2,500,000 IQD‬‬ ‫من وجهة نظر الموظف المقترض‬
‫‪n= 1‬‬
‫‪0‬‬ ‫?= ‪i%‬‬
‫‪(-) 3,00,000 IQD‬‬

‫‪(I) Interest = amount Owed now- Original amount‬‬ ‫اشارة (‪ )-‬تدل على‬
‫الخسارة بالنسبة للجهة‬
‫‪= -3000000 + 2500000 = -500000 IQD‬‬ ‫المستفيدة‬
n =1 form 1 May and repay after 1 year [interest period ] ‫من وجهة نظر المصرف‬
P= 2,500,000 IQD beginning amount Present time
F= 3,00,000 IQD Ending amount Future time

‫مخطط التدفق النقدي‬

Cash Flow Diagram C-F-D
(+) 3,00,000 IQD
n= 1
0 i% =?
(-) 2,500,000 IQD

(I) Interest = amount Owed now- Original amount ‫) تدل على‬+( ‫اشارة‬
‫الربحية بالنسبة للجهة‬
= 3000000-2500000= +500000 IQD ‫المستفيدة‬
 Interest
Interest paid ‫الفائدة المدفوعة‬
When a person or
organization borrowed
money ( obtained a loan)
and repays a large amount
‫عندما يقترض شخص أو منظمة ماالا‬
‫(حصل على قرض) ويتم تسدد مبلغ القرض‬
.‫بفائدة كبيرة‬
‫ الفوائد المكتسبة‬Interest Earned
When a person or organization
saved, invested or lent money
and obtains a return of large
amount money ( obtained a loan)
and repays a large amount.
‫عندما يقوم شخص أو منظمة بادخار األموال في المصارف‬
‫أو استثمارها أو عملية إقراضها وبالمقابل الحصول على‬
‫عائد كبير من المال (حصل على قرض) و العائد يكون بفائدة‬
.‫كبير‬
‫من الفائدة‬ ‫كم تكسب ؟؟؟‬ ‫او‬ ‫كم تدفع ؟؟؟‬
Example (2) :
How much interest is earned in 5 years on $ 3000 invested at an
interest rate of 9% per year?
‫ دوالر و استثمارها بمعدل فائدة‬3000 ‫ سنوات اذا تم اقراض‬5 ‫ما مقدار الفائدة المكتسبة بعد‬
‫ ؟‬%9 ‫سنوية تصل الى‬
Solution :
n =5 years
1- F =? P= $ 3000 beginning amount Present time
2- i% =9% F= $ ? Ending amount Future time

F=? +

n= 5 i% =9%

0 1 2 3 4 5

(-) $ 3000 F= Original Amount + ( I × time[n])

F= P + ( I × t)
(I) Interest = $ ?

F= $ 3000 + $ 1350 = $ 4350 Total amount due after 5 years

I interest i% interest rate

H.W
 I = Interest
I = P i% t P= Present time ( Present Worth)
I%= Interest rate
Financial Mathematics
t= Time , Stated in periods
( year , month , day)
(annual-semi annual)

Simple Interest = [ (principal)× ( interest rate)× ( number of periods)]

I = $3000 ×0.09× 5 = $ 1350

Example (3) :
Ali got a $1200.00 loan for 2 years and paid $90 in interest .What was
the interest rate?
‫ دوالر كفائدة عن‬90 ‫ دوالر لمدة سنتان وقام بدفع مبلغ‬1200 ‫حصل علي على قرض مقداره‬
. ‫ احسب مقدار معدل الفائدة لهذا القرض‬. ‫هذا القرض‬
Solution :
n =2 years
1- I =$90 P= $ 1200 beginning amount Present time
2- i% =? F= $ ? Ending amount Future time

F=? +

n= 2 i% =? ‫هذا المخطط من وجهة نظر ؟؟؟؟‬

0 $90[1 time] $90[1 time] 2

1

(-) $ 1200 F= Original Amount + ( I × time[n])

F= P + ( I × t) = $ 1200+( 90 ×2)=$ 1380
I = P i% t I = $90
P= $1200
I%= Interest rate
t= 2 years

i%

(I) Interest [1 time] = amount Owed now- Original amount

I [1 time] = F –P F= P+(I×t)
F= ($ 90×2 time) + $ 1200 = 1380 $ for time period
Example (4) : H.W
You made a 3-year investment with an interest rate of 4.5%. After 3
years you earned $ 675 interest. How much was your original
investment?
Key = $ 5000
Example (5) : H.W
Salma got a loan for $4700 to buy a used car. The interest rate was
7.5% and she paid $ 1057.50 as interest. How many years did take to
pay off her loan?
Key = 3 years

H.W : ‫ما المقصود بمصطلح‬

Starting payment number
Ending payment number
‫ومن ثم جد القيمة المجهولة ؟‬
Example (6) :
(a) Calculate the amount deposited 1 year ago to have $1000 now at
an interest rate of 5% per year. (b) Calculate the amount of interest
earned during this time period. P ‫ احسب المبلغ المودع‬-1

F=1000 + ‫ احسب مقدار الفائدة المكتسبة خالل هذه الفترة‬-2

Total accurate ‫الزمنية‬
n= 1 i% = 5%

0 (deposit× I%) I=F-P P = F- ( I × t)

1
Original Amount = 1000- ( I × time[n])
(-) P = ?
Deposit

Total accurate
‫المستحقات الكلية‬
 ‫‪P = $ 1000 - ( 952.38 ×1)= $ 47.62‬‬

‫‪Example (7) :‬‬

‫‪Assume an engineering company borrows $ 100,000 at 10% per year‬‬
‫‪compound interest and will pay the principle and all the interest after‬‬
‫‪3 year. Compute the annual interest and total amount due after 3‬‬
‫‪years.‬‬
‫الفائدة المركبة‬
‫‪compound interest‬‬

‫وهييي الفائييدة التييي نشييت عنييدما تجمييع الفائييدة مييع‬

‫المبلييغ األصييلي‪ ،‬وميين تل ي اللحظيية يحييق للفائييدة‬
‫باإلضافة إليى المبليغ األصيلي ‪ ،principal‬وفيي‬
‫هييذه الحاليية يصييبح حصيييلة مبلييغ ادخييار مقييداره‬
‫‪ $ 100‬وتصل معيدل فائدتي ‪ %1‬شيهريا يصيبح‬
‫‪ $ 101‬بعيييييد مضيييييي الشيييييهر األول‪ ،‬وتصيييييبح‬
‫حصيييلتهما بعييد انتهييار الشييهر الثيياني ‪$ 102,01‬‬
‫وهكذا‪.‬‬
Solution : n =3 years P= $ 100000 F= $ ?
i% = 10% per year and compound
F=? +

n= 2 i% =10% /year

0 1 2 3
Compound interest Compound interest Compound interest

(-) P= $ 100000
F2=? + F3=? +
F1=? +
n= 1 i% =10%
n= 1 i% = 10% n= 1 i% =10%

1 second year 2 third year

3
0 first year
1 2

F1=P2 (-) (-) F2 = P3

(-) P1 = $100000
1- Compute the annual interest
I total = I third year

I1 = P1 i%/year t = 100000× (0.1×1) = $ 10000

I2 = P2 i%/year t P2= ? = F1 F1= P1 + ( I1 × t)

F1 = 100000+ (10000×1) = $ 110000
I2 = 110000× (0.1×1) = $ 11000

P3= ? = F2
I3 = 121000× (0.1×1) = $ 12100
F2= P2 + ( I2 × t)
F2 = 110000 +(11000×1) = $ 121000
F3= P3 + ( I3 × t)
F2 = 121000 +(12100×1) = $ 133100
F= P(1+i%)^n
Financial Mathematics
 Series of Amount of money A
A (Uniform Series) to P (Present Worth)

‫مجهول‬ ‫معلوم‬

Find A / giving P P/A

Series of Amount of money A
A Uniform Series – F Future Worth

Find A/ Given F Find F/ Given A

Example:
How much money should you be willing to pay now for a guaranteed
$600 per yea for 9 years starting next year , at a rate of return of 15%
per year?
Solution : n =9 years P= ? F= $ ? A= $ 600 P=?
F=? +
n= 9 i% =15%

$600 $600 $600 $600 $600 $600 $600 $600 $600

1 2 3 4 5 6 7 8 9
0
(-) $ p=?

starting next year Find P / giving A