Exam1 - Solutions

ENGR390: Engineering Economy Section #1: TR 1100-1220 TOTAL POINTS: 250

First and Last Name: TEST KEY Exam #1: February 1, 2007 Last 4 digits of your Student ID #: _______4321__________________

There are four questions. Interest rates are for one year. The exam is closed book with one notecard. Unless specified otherwise, all answers must have the following: 1) Given quantities and objective 2) Cash flow diagram with values, interest, and periods. 3) Equation used to solve the problem. For example, (F/P, 6%, 4) 4) The value of the equation (e.g. F = 1.2625P) and how it was obtained (eg. Formula F = P(1 + 0.06)4) or interest table (Appendix D) and interpolation or approximation (if any). 5) Answer highlighted.

1. Given the equation below, reconstruct the original cash flow diagram (50 points): F = $1200(F/A, 10%, 5) + [$500 - $200(P/G, 10%, 5)](F/P, 10%, 5) + $500(F/P, 10%, 10)

5 points 5 points

10 points 30 points

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2. 20 months ago, Brian Paul borrowed $200,000 from First American to start a microlamination business. The loan had an interest rate of 12% compounded monthly and was to be repaid in 36 equal monthly installments over 3 years. Now, Brian’s business is doing well and he wants to repay the entire loan in a single payment. How much must he pay? (50 points) (There is an alternative solution using B20 = P – (A – Pi) (F/A, i, n))

5 points

10 points

5 points

10 points

20 points

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3. Rick Billo is purchasing a $24,000 wire electrical discharge machine to fabricate microchannel-based kidney dialyzers. The loan is to be repaid in 48 monthly installments of $583.66. What is the effective annual interest rate that is being paid for this financing arrangement (50 points)?

5 points

5 points 10 points

15 points

15 points

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4. Skip Rung deposits $5,000 in a savings account with OSU Federal Credit Union. The account pays 6% interest compounded monthly. Three years later he deposits $4,000. Two years after the $4,000 deposit, he makes another deposit in the amount of $2,500. Four years after the $2,500 deposit, half the amount is transferred to a fund that pays 8% interest, compounded quarterly. How much money will be in each account 6 years after the transfer (100 points)? 10 points 10 points

10 points

10 points

20 points

20 points

20 points

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