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    Assignment #4 (Sep2019) - GDB3023-Solution

    Uploaded by

    Danish Zabidi
    The document contains sample problems and solutions from an engineering economics and entrepreneurship assignment. The problems involve calculating future and present values of loans, savings accounts, and other financial instruments using compound interest formulas. The solutions walk through applying the compound interest calculation to determine amounts like monthly loan payments, interest earned over time, and totals that can be withdrawn from an account after a series of deposits.

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    Assignment #4 (Sep2019) - GDB3023-Solution

    Uploaded by

    Danish Zabidi
    198 views3 pages
    The document contains sample problems and solutions from an engineering economics and entrepreneurship assignment. The problems involve calculating future and present values of loans, savings accounts, and other financial instruments using compound interest formulas. The solutions walk through applying the compound interest calculation to determine amounts like monthly loan payments, interest earned over time, and totals that can be withdrawn from an account after a series of deposits.

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    Assignment #4 (Sep2019)-GDB3023-Solution

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    The document contains sample problems and solutions from an engineering economics and entrepreneurship assignment. The problems involve calculating future and present values of loans, savings accounts, and other financial instruments using compound interest formulas. The solutions walk through applying the compound interest calculation to determine amounts like monthly loan payments, interest earned over time, and totals that can be withdrawn from an account after a series of deposits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    198 views3 pages

    Assignment #4 (Sep2019) - GDB3023-Solution

    Uploaded by

    Danish Zabidi
    The document contains sample problems and solutions from an engineering economics and entrepreneurship assignment. The problems involve calculating future and present values of loans, savings accounts, and other financial instruments using compound interest formulas. The solutions walk through applying the compound interest calculation to determine amounts like monthly loan payments, interest earned over time, and totals that can be withdrawn from an account after a series of deposits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    GDB3023

    ENGINEERING ECONOMICS & ENTREPRENEURSHIP


    SEPTEMBER 2019
    ASSIGNMENT #4 [CLO1]

    4-7 Refer to Plan 2 in Table 4-1. This is the customary way to pay off loans on
    automobiles, house mortgages, etc. A friend of yours has financed
    $24,000 on the purchase of a new automobile, and the annual interest rate
    is 12% (1% per month).

    (a) Monthly payments over a 60-month loan period will be how much?

    (b) How much interest and principal will be paid in the third month of
    this loan?
    Solution

    (a) The monthly payment = $24,000(A/P, 1%, 60) = $24,000(0.0222) = $532.80.

    (b)
    Payment Interest Principal Remaining
    Number Payment Payment Loan Balance
    1 $240.00 $292.80 $23,707.20
    2 $237.07 $295.73 $23,411.47
    3 $234.11 $298.69 $23,112.78

    Interest in the third month is $234.11 and principal repayment is $298.69

    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?

    Solution

    Consumer Loan: F = $5,000(F/P, 12%, 5) = $5,000(1.7623) = $8,811.50


    Interest = $8,811.50 − $5,000 = $3,811.50

    PLUS Loan: F = $5,000 (F/P, 8.5%, 5) = $5,000 (1.085)5 = $7,518.28


    Interest = $2,518.28

    Difference = $3,811.50 − $2,518.28 = $1,293.22

    Chandra will save money by following the advice of her father.


    4-18 Calculate the compounded future value of 20 annual payments of $5,000
    each into a savings account that earns 6% per year. All 20 payments are
    made at the beginning of each year

    Solution

    The simplest way to determine the future value of the 20 payments is:

    F = $5,000(F/A, 6%, 20)(F/P, 6%, 1) = $5,000(36.7856)(1.06) = $194,963.68

    4-20 In 1885, first-class postage for a one-ounce letter cost $0.02. The same
    postage in 2015 costs $0.49. What compounded annual increase in the cost
    of first class postage has been experienced over this period of time?

    Solution

    N = 2015 – 1885 = 130 years

    0.49 = 0.02 (1 + i)130

    130
    𝑖= √0.49/0.02 − 1 = 0.0249 𝑜𝑟 2.49% 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟

    4-25 Your parents make 20 equal annual deposits of $2,000 each into a bank
    account earning 3% interest per year. The first deposit will be made one
    year from today. How much money can be withdrawn from this account
    immediately after the 20th deposit?

    Solution

    The F-equivalent amount of this series of deposits can be determined as follows:

    F = $2,000(F/A, 3%, 20) = $2,000(26.8704) = $53,740.80

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