Engineering Economics

MS-324
Assignment 01
Shuja Irfan
11-EE-149
Section A

Submitted to: Mr. Zaheer

ate !f Submission : "0
th
#ebruar$% "014.


1. Annie buys a television set from a merchant who offers P25,000 at the end of 60 days. Annie
wishes to pay immediately and the merchant offers to compute the required amount on the
assumption that money is worth 14% simple interest. What is the required amount?

SOLUTION

Assuming the interest is annual

N = 2
i =
14%
12
=
u.14
12

F. I. = 2S,uuu
P. I. =
F. I.
(1 + i N)
=
2S,uuu
[1 +
u.14
12
2
= P24,4Su
The amount required by Annie is P24,430

2. What is the principal amount if the amount of interest at the end of 2 year is P4,500 for a
simple interest of 6% per annum?

SOLUTION

N = 2.S 2 = S
i = 6% =
u.u6
2
= u.uS
I = P4,Suu
P. I. =
I
i N
=
4,Suu
u.uS S
= PSu,uuu


3. Eric lends P6000 at 6% simple interest for 4 years. At the end of this time he invests the
entire amount (principal plus interest) at 5% compounded annually for 12 years. How much
will he have at the end of the 16 year period?

SOLUTION

N
1
= 4 N
2
= 12
i
1
= 6% = u.u6 i
2
= S% = u.uS
P. I.
1
= P6,uuu
P. I.
2
= F. I.
1
= P. I.
1
(1 + i
1
N
1
) = 6,uuu(1 + 4 u.u6) = P7,44u
F. I.
2
= P. I.
2
(1 + i)
N
2
= 7,44u(1 + u.uS)
12
= P1S,S61
So Eric will have an amount of P13,361 at the end of period of 16 years.


4. The tag price of a certain commodity is for 100 days. If paid in 31 days, there is a 3%
discount. What is the simple interest paid?

SOLUTION

N = 100
i =
S
S1
% =
u.uS
S1

I = P. I. i N =
u.uS
S1
1uu P. I.

5. How long will it take for an investment to double its amount if invested at an interest rate of
6% compounded bi-monthly?

SOLUTION

i = 6% = u.u6
no. o montbs = 2 N
F. I. = 2 P. I. = P. I. (1 + i)
N

ln(2) = N ln(1 + u.u6) => N = 11.89 = 12
No o montbs = 12 2 = 24
Hence it will take 24 months to double the investment.

6. On his 6th birthday a boy is left an inheritance. The inheritance will be a lump sum of P10,000
on his 21st birthday. What is the present value of the inheritance as of the boys 6th birthday,
if the interest is 4% compounded annually?


SOLUTION

N = 21 - 6 = 1S
i = 4% = u.u4
F. I. = P1u,uuu
F. I. = 1u,uuu = P. I. (1 + u.u4)
15
=> PS,SS2.64 = PS,SSS
Which means that the boy was left an inheritance of P5,553 on his 6
th
birthday.


7. Alexander owes 25,000.00 due in 1 year and 75,000.00 due in 4 years. He agrees to pay
50,000.00 today and the balance in 2 years. How much must he pay at the end of two years if
money is worth 5% compounded semi-annually?

SOLUTION

i = S% 2 = u.uS 2 = u.1
Boloncc = B = 2S,uuu + 7S,uuu - Su,uuu = Su,uuu
Amount poyoblc otcr 4 ycors = Su,uuu (1 + u.1)
2
= P6u,Suu


8. If 5000,000.00 is deposited at a rate of 11.25% compounded monthly, determine the
compounded interest after 7 years and 9 months.

SOLUTION

N = 7 12 + 9 = 9S
i = 11.2S = u.112S
P. I. = Su,uu,uuu
F. I. = P. I. (1 + i)
N
= Su,uu,uuu (1 + u.112S)
93
= 1u,11,28,u9,6S,uuu
I = F. I. -P. I. = 1u,11,27,S9,6S,uuu

9. A sum of 1000.00 is invested now and left for another eight years, at which time the principal
is withdrawn. The interest has accrued is left for another eight years. If the effective annual
interest rate is 5%, what will be the withdrawal amount at the end of the 16th year?

SOLUTION

Considering the interest is compounded annually,

N
1
= N
2
= N = 8
i = S% = u.uS
P. I.
1
= 1,uuu
F. I.
1
= P. I.
1
(1 + i)
N
= 1,uuu(1 + u.uS)
8
= 1,478
P. I.
2
= F. I.
1
-1,uuu = 478
F. I.
2
= P. I.
2
(1 + i)
N
= 478(1 + u.uS)
8
= 7u6
Hence the withdrawal amount at the end of 16 years is 706


10. 15,000.00 were deposited in a bank account 20 years ago. Today it is worth P 3,0000.00.
Interest is paid semi-annually. Determine the nominal rate of interest paid on this account.


SOLUTION

N = 2 2u = 4u
P. I. = 1S,uuu
F. I. = Su,uuu
F. I. = P. I. (1 + i)
N
=> Su,uuu = 1S,uuu(1 + i)
40

i = 1.7S scmi - onnuolly