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AssignmentFourIndM5240EngineeringEconomy22456Sp16

Identifythecompoundperiodforthefollowingintereststatements:a)Nominal7%peryearcompoundedquarterly:b)
effective6.8%peryearcompoundedmonthlyc)effective3.4%peryearcompoundedweekly.
A.Weekly,quarterly,monthly
B.Quarterly,monthly,weekly
C.Daily,weekly,quarterly
D.Weekly,daily,quarterly
2.Determinethenumberoftimesinterestwouldbecompoundedin1yearforthefollowingintereststatements:a)
1%permonthb)2%perquarterandc)8%peryearcompoundedsemiannually.
A.6,4,12
B.12,4,2
C.4,12,6
D.2,4,12
3.Fortheinterestrateof0.50%perquarter,determinethenominalinterestratepera)semiannualperiod,b)year,
andc)2years.
A.1%,2%,4%
B.2%,4%,8%
C.1%,3%,6%
D.2%,3%,6%
4.Aninterestrateof16%peryear,compoundedquarterly,isequivalenttowhateffectiveinterestrateperyear?
A.4.99%
B.10.99%
C.16.99%
D.19.99%
5.Whatnominalinterestrateperyearisequivalenttoaneffective16%peryear,compoundedsemiannually?
A.14%
B.15.41%
C.14.15%
D.16%
6.Aninterestrateof12%peryear,compoundedmonthly,isequivalenttowhatnominalandeffectiveinterestrates
per6months.
A.1%
B.12%
C.6.15%
D.4.15%
7.DeterminetheF/Pfactorfor3yearsataninterestrateof8%peryear,compoundedannually.
A.1.6282
B.1.2682
C.1.3682
D.1.4262
8.DeterminetheP/Gfactorfor5yearsataneffectiveinterestrateof6%peryear,compoundedsemiannually.
A.7.9345
B.7.5632
C.7.3456
D.7.2468
9.Acompanythatspecializesinonlinesecuritysoftwaredevelopmentwantstohave$85millionavailablein3years
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AssignmentFourIndM5240EngineeringEconomy22456Sp16

topaystockdividends.Howmuchmoneymustthecompanysetasidenowinanaccountthatearnsinterestata
rateof8%peryear,compoundedquarterly?
A.$68.04million
B.$76.23million
C.$56.1million
D.$67.02million
10.Becausetestingofnuclearbombswashatedin1992,theU.S.DepartmentofEnergyhasbeendevelopinga
laserprojectthatwillallowengineerstosimulate(inalaboratory)conditionsinathermonuclearreaction.Dueto
soaringcostoverruns,acongressionalcommitteeundertookaninvestigationanddiscoveredthattheestimated
developmentcostoftheprojectincreasedatanaveragerateof3%permonthovera5yearperiod.Iftheoriginal
costwasestimatedtobe$2.7billion5yearsago,whatistheexpectedcosttoday?
A.15.91billion
B.12.04billion
C.13.54billion
D.15.40billion
11.Apresentsumof$5000ataninterestrateof8%peryear,compoundedsemiannually,isequivalenttohow
muchmoney8yearsago?
A.$2,006.95
B.$2,600.95
C.$2,669.50
D.$2,660.05
12.VideocardsbasedonNvidiashighlypraisedGeForce2GTSprocessortypicallycost$250.Nvidiareleaseda
lightversionofthechipthatcosts$150.Ifacertainvideogamemakerwaspurchasing3000chipsperquarter,what
wasthepresentworthofthesavingsassociatedwiththecheaperchipovera2yearperiodataninterestrateof16%
peryear,compoundedquarterly?
A.$3,018,910
B.$2,019,810
C.$2,510,981
D.$2,810,910
13.Aninterestrateof1%permonthisthesameas:
A)Nominal3%perquartercompoundedmonthly.
B)Effective12.683%peryearcompoundedmonthly.
C)Nominal12%peryearcompoundedmonthly.
D)Alloftheabove.
14.Aninterestrateofeffective12%peryearcompoundedmonthlyisnearestto:
A)1%permonth.
B)3.04%perquarter.
C)6.15%persemiannualperiod.
D)Nominal11.39%peryearcompoundedmonthly.
15.Anominalinterestissimilartoa(n):
A)effectiveinterestrate.
B)simpleinterestrate.
C)compoundinterestrate.
D)inflatedinterestrate.
16.Whennocompoundingperiodisgivenwithaninterestrate,thecompoundingperiod:
A)Isequaltotheinterestperiod.
B)Isassumedtobemonthly.
C)Cannotbedeterminedfromthestatement.
D)Mustbelessthaninterestperiod.
17.Wheninterestiscompoundedcontinuously:
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AssignmentFourIndM5240EngineeringEconomy22456Sp16

A)Thecashflowmustalsooccurcontinuously.
B)Thecashflowmustbeconvertedintocontinuouscashflow.
C)Theinterestratemustbeconvertedintoanannualrate.
D)Noneoftheabove.
18.Aninterestratestatedasnominal12%peryearcompoundedquarterlyisthesameas:
A)effective1%permonth.
B)nominal1%permonth.
C)3%perquarter.
D)12.68%peryear.
19.Aninterestrateof12%peryearcompoundedcontinuouslyisthesameas:
A)Nominal1%permonthcompoundedcontinuously.
B)Effective1.08%permonthcompoundedcontinuously.
C)Effective12.683%peryearcompoundedcontinuously.
D)Noneoftheabove.
20.Ifyoudeposit$1000permonthintoanaccountwhichpaysinterestatarateof12%peryearcompounded
monthly,theamountofmoneyyouwouldhaveattheendoffiveyearsisnearestto:
A)$6,353B)$68,321
C)$76,234D)$81,670
21.Theownerofasmallbusinessborrowed$70,000withanagreementtorepaytheloanwithquarterlypayments
overafiveyeartimeperiod.Iftheinterestrateis12%peryearcompoundedquarterly,hisloanpaymenteach
quarterisnearestto:
A)$2,605B)$4,705
C)$9,372D)$19,419
22.Ametalplatingcompanywantstosetasidemoneynowtoprepareforalawsuititexpectstofaceinfouryears.
Ifthecompanywantstohave$1,000,000availableatthattime,howmuchmustitsetasidenowinonelumpsumif
theaccountwillearn1%permonth?
A)$620,300B)$711,800
C)$836,400D)$961,000
23.Problems23through25arebasedonthefollowingstatement:
Asmallmanufacturingcompanyexpectstohavetoreplaceitsagingproductionlineinfiveyearswithnew
equipment.Thecurrentequipmenthasoperatingcostswhichareexpectedtobe$5,000thisyear,$6,000nextyear,
withcostsincreasingby$1,000peryearthroughyearfive.Theequipmentwillhaveasalvagevalueof$30,000at
theendofyearfive.Thenewequipmentisexpectedtocost$150,000andthecompanyusesaninterestrateof16%
peryearcompoundedquarterlyonitsinvestments.
Theoperatingcostinyearfourwillbe:
A)$7,000B)$8,000
C)$9,000D)$10,000
24.Thepresentworthofonlythepurchasepriceofthenewequipmentisnearestto:
A)$7,710B)$54,768
C)$68,460D)$71,415
25.Ifthe$30,000receivedfromthesalvagevalueoftheoldequipmentwillbeusedtohelppurchasethenew
equipment,howmuchmoneymustthecompanysetasideeachquarterinordertohavethetotalamountneededfor
thenewequipmentinyearfive?
A)$4,030B)$5,037
C)$17,449D)$21,812

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