Engineering Economy Homework No.

4.1: rom the interest statement 18% per year, compounded monthly, determine the values for
interest period, compounding period, and compounding frequency?

M=12
T=1 year
CP= 1

4.2: From the interest statement 1% per month, determine the values for interest period,
compounding period, and compounding frequency?

M=1
T= 1 month
CP=1

4.3: Determine the number of times interest would be compounded in 6 months from the interest
statements ( a ) 18% per year, compounded monthly, ( b ) 1% per month, and ( c ) 2% per quarter?

a) M= 6 times
b) M=6 times
c) M= 2 times

4.5: Identify the compounding period for the following interest statements: ( a ) 3% per quarter; ( b )
10% per year, compounded semiannually; ( c ) nominal 7.2% per year, compounded monthly; ( d )
effective 3.4% per quarter, compounded weekly; and ( e ) 2% per month, compounded continuously?

a) CP= 3 months
b)CP=6 months
c)CP=1 month
d)CP=1 week
e)CP=continuos

4.19: Assume you deposit 25% of your monthly check of $5500 into a savings account at a credit
union that compounds interest semiannually. ( a ) What are the payment and compounding periods?
( b ) Is the payment period greater than or less than the compounding period?

a) CP= 6 month , PP= 1 month

b) CP>PP

4.29: Heyden Motion Solutions ordered $7 million worth of seamless tubes for its drill collars from
the Timken Company of Canton, Ohio. (A drill collar is the heavy tubular connection between a drill
pipe and a drill bit.) At 12% per year, compounded semiannually, what is the equivalent uniform cost
per semiannual period over a 5-year amortization period?
P=7 mollion , r = 6% semiannual , cp = 6 months

PP = 5 years pp>cp

n=10 per periods

7000000∗0.06
=
1−¿ ¿ ¿

= 951.090

4.40: For the cash fl ows shown below, determine the equivalent uniform worth in years 1 through 5
at an interest rate of 18% per year, compounded monthly. Year 1 2 3 4 5 Cash Flow, $ 200,000 0
350,000 0 400,000

F= 200.000(F/P,1.5%,48) + 350.000(F/P,1.5%,24) + 400.000

= 1.309.025

İ = (1+0.18/12¿12-1 = 19.56% per year

A = 1.309.025 (A/F , 19.56%,5)

= 177.435 per year

4.44: If you deposit $1000 per month into an investment account that pays interest at a rate of 6%
per year, compounded quarterly, how much will be in the account at the end of 5 years? There is no
interperiod compounding?

A = 3000 per quarter

F = 3000(F/A,1.5% , 20)

= 69.371

4.48: What effective interest rate per year is equal to 1.2% per month, compounded continuously?
Show hand and spreadsheet solutions.

R=0.012(12) = 0.144 per year

İ=e 0.144−1

=15.49% per year

4.55: The maintenance cost for furnaces at a copper smelting plant have been constant at $140,000
per year for the past 5 years. If the interest rate was 8% per year for the fi rst 3 years and then it
increased to 10% in years 4 and 5, what is the equivalent future worth (in year 5) of the maintenance
cost? Show hand and spreadsheet solutions?

F= 140.000(F/A,8%,3)(F/P,10%,2) + 140.000(F/A,10%,2)
= 140.000(3.2464)(1.2100) + 140.000(2.1000)

= $843.940