Engineering Economics Chapter 3

Interest and Equivalence

CHAPTER3 INTEREST AND EQUIVALENCE Problem 3 Pam, when she turned 25, made an investment of S20,00 at an inacrest rato of 65% compounded semi- annually. Now that she is $0 years old, how much is the investment worth now A. $53,250 B. $44,491.96 C.$32,500 8.976.71 Problem 3-2 Sam, a friend of Pam, made a similar investment of $20,000 at a much later date when he tarned 35. Now that he is also 50, what is his investment worth if his investment also an earned an interest rate of 6.5% 2,207.37 B. $44,491.96 C.$32,500 D. None of these Problem 3-3 Don Krump wants to triple his rate. If the interest is compounded monthly, deternaine the nominal interest for this investment. A, 20.09% investment in 6 years. An investment firm offers him an attractive interest B. 15.76% (C)8.45% D. 16.67% Problem 3-4 For the cash flows shown table below, evaluate the unknown value, X for an interest rate of 6% Cash Flow in 20,000 15,0001-10,000 1 x A. $5,000 .-$9,054 C. $6,377 D. $8,252 Problem 3-5 Tom Watson promises to deposit a sum of $100,000 for his granddaughter's college education 18 from now. If he invests $20,000 today, what should be retun on investment he should get to be able keep up the promise? Assume interest is compounded yearly. A. 935% _R.es yearly B. 8.52% C. 10.04% D. 7.65% Problem 36 Jane and Joe made two investments of $25,000 and $40,000 with different investors that yielded combined rate of return of 10% compounded for6 years. If the rate return on the first investment was 9%. what is the rate of return the couple obtained on the second investment? A. 13.86% B. 11.18% C. 10.61% D, 10.00% Problem 3-7 A sum of SS00,000 will be invested by a firm two years fom now. If money is worth 12% what will be the worth of this investment 10 years from now? A. $1,553,000 B. $1,569,000 C.$1,463,100 D. $1,238,000