ENGINEERING ECONOMY 2023-2024

Homework/Assignment 1
Full Name of submitter: Nguyễn Ngọc Vân Ly

Student ID: IELSIU22267

Your Group number is: 2
Title of your Group project is: HOMEWORK 1

4-2 What is the future equivalent of $1,000 invested at 6% simple interest per
year for 3½ years?
N = 3½ years = 3,5 years
The total interest earned is
I = P*N*i = $1,000 x 3,5 x 0,06 = $210
The total amount repaid at the end of 3,5 years is
P + I = $1,000 + $210 = $1,210

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
𝑁
𝑖(1+𝑖)
A=P[ 𝑁 ] = 𝑃(𝐴/𝑃, 𝑖%, 𝑁)
(1+𝑖) −1
A=$10000*(A/P, 6%, 5)
=$10000*(0,2374)
=$2374

Year Amount Interest Total Principal Total End

Owed at Accrued Money Payment of Year
Beginning for Year Owed at Payment
of Year End of (Cash
Year Flow)
1 $10000 $600 $10600 $1774 $2374
 ENGINEERING ECONOMY 2023-2024

2 $8226 $493.56 $8719.56 $1880.44 $2374

3 $6345.56 $380.73 $6726.29 $1993.27 $2374
4 $4352.29 $261.14 $4613.43 $2112.86 $2374
5 $2239.43 $134.37 $2373.80 $2239.63 $2374
Total $31163.28 $1869.80

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?
𝑖 = 6%
𝑛 = 15 𝑦𝑒𝑎𝑟𝑠
𝐴 = $520
The amount of money would have been saved through the compounding of
interest by the end of 15 years:
𝑁 15
(1+𝑖) −1 (1+6%) −1
𝐹 = 𝐴(𝐹/𝐴, 6%, 15) = $520 𝑖
= $520 6%
= $12103. 50

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 12% interest per year
Amount borrowed in the beginning = $5,000 (F/P, 12%, 5) = $5,000 x
(1+12%)^5 =$8,811.71
=> Interest = $8.811.71 - $5.000 = $3.811.71
- With 8.5% interest per year
 ENGINEERING ECONOMY 2023-2024

Amount borrowed in the beginning= $5.000 (F/P, 8.5%, 5)

=$5.000*(1+0.085)^5 = $7.518.28
=> Interest = $7.518.28 - $5.000 = $2.518.28
=> Difference between the interest amount accumulated under 2 loans = $3.811.71
- $2.518.28 = $1.293.43

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?

F = $1000
N = 5 years
i = 9%
Applying the formula of single payment present worth,
The equivalent worth for this engine today is:
1
P = 1000(F/P,i%,N) = 1000 x 5 = $649.93
(1+9%)

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?

F=$10,000

i=5%

N= 10 years

F=P (1+i)N

10000= P (1+ 0.05)10

10000
⇒ P= 10 = $6139.132535
(1+0.05)
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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 (outflow) 50,000 $
A 7,500 $
i 7 %
N 10 years

PW = PW of cash inflows- PW of cash outflows

PW cash inflow:
⎡ (1+𝑖) 𝑁−1 ⎤ ⎡
10
(1+0.07) −1 ⎤
P=A ⎢ ⎥ = A (P/A, i%, N) = 7,500 ⎢ 10 ⎥ = $ 52,677
⎢ 𝑖(1+𝑖) 𝑁 ⎥ ⎣ 0.07(1+0.07) ⎦
⎣ ⎦
Because PW (7%) > 0, so the investment is worthwhile

PW = PW (inflows) − PW (outflows) = 52,677 − 50,000 = $ 2,677

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?

F 2,000,000 $
A 10,000 $
i 10% (%)

The number of years:

𝑁 𝑁
(1+𝑖) −1 ⎤ ⇔ 20,000 = 10,000 ⎡ (1+0.1) −1
F= A ⎡⎢ 𝑖 ⎥ ⎢ 0.1
⎤ ⇒ N = 31.94 ~ 32 (years)
⎥
⎣ ⎦ ⎣ ⎦
 ENGINEERING ECONOMY 2023-2024

So, after 32 years Luis can retire as a multimillionaire.