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Understanding Money Management

This document contains self-test questions on engineering economics. It includes 5 multiple choice questions related to topics like calculating future values of annuities, effective interest rates, and determining interest portions of loan payments. The solutions show the calculations and formulas used to arrive at the answers. Overall, the document provides a short practice test to help understand common concepts in engineering economics.

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Julie Ann Zafra
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67 views4 pages

Understanding Money Management

This document contains self-test questions on engineering economics. It includes 5 multiple choice questions related to topics like calculating future values of annuities, effective interest rates, and determining interest portions of loan payments. The solutions show the calculations and formulas used to arrive at the answers. Overall, the document provides a short practice test to help understand common concepts in engineering economics.

Uploaded by

Julie Ann Zafra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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UNIVERSITY OF THE EAST -CALOOCAN

Civil Engineering Department

Understanding Money Management

SUBMITTED BY

Julie Ann Zafra

20191179836

SUBMITTED TO:

Engr. Reyman Solas

September 26, 2022


NCE 4103 - Engineering Economics 2022
SELF-TEST QUESTIONS
1. You arc making $5.000 monthly deposits into a fund that pays interest at a rate of 6%
compounded monthly. What would be the balance at the end of 15 years?
(a) $1,063,879 (b) $1.358.169 ( c) $ 1,452,053 (d) $1.459,423
SOLUTION:

Given:

A=$5

Interest compounded monthly =6% = 6/100=0.06

Time =15 year

We have to calculate FV of annuity for monthly payment.

So, time in month (n) =15 x 12=180

Interest will become (r) =0.06/12=0.005

Formula for FV of annuity:

𝐹𝑉 = 𝐴{(1 + 𝑟)𝑛 − 1}/𝑟

𝐹𝑉 = 5{(1 + 0.005)180 − 1}/0.005

𝐹𝑉 = 5{(1.005)180 − 1}/0.005

𝐹𝑉 = 5{2.45 − 1}/0.005

𝐹𝑉 = 5(1.45)/0.005

𝐹𝑉 = 5 𝑥 290

𝑭𝑽 = $𝟏𝟒𝟓𝟎

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NCE 4103 - Engineering Economics 2022
2. Two banks offer the following interest rates on your deposit:
• Bank A : 9% interest compounded quarterly
• Bank B: 8.5% interest compounded continuously
Which of the following statements is not true?
(a) The annual percentage yield (APY) for Bank A is 9.30%.
(b) The effective annual interest rate for Bank B is 8.87%.
(c) Bank A offers a better deal.
(d) The annual percentage rate (APR) for Bank 8 is 8.5%.
SOLUTION:
Bank A: APR=9%
0.009 4
APY=𝑖𝑎 = (1 + ) − 1 = 9.30%
4

Bank A: APR=8.5%

APY=𝑖𝑎 = 𝑒 0.0085 − 1 = 0.088717 = 8.87%

3. You are making semiannual deposits into a fund that pays interest at a rate of 9%
compounded continuously. What is the effective semiannual interest rate?
(a) 4.000% (b) 4.708% (c) 4.164% (d)4.175%

𝐸𝐴𝑅 = [1 + 𝐴𝑃𝑅/𝑛]𝑛 − 1

APR = 9%

n = no. of compounding period = 365

Thus EAR = [1 + 9%/365]365 − 1

= [1 + 0.02466%]365 − 1

= 1.0002466365 − 1

= 1.094172 − 1

= 9.4172%

9.4172%
Thus semi annual rate = 2

= 4.708 %

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NCE 4103 - Engineering Economics 2022

4. Calculate the future worth of 20 annual $4,000 deposits in a savings account that earns
8% compounded monthly. Assume all deposits are made at the beginning of each year.
(a) $196,010 (b) $188,196 ( c) $190,162 (d) $199.279
SOLUTION:
0.02 12
Effective annual interest rate=(1 + ) −1
12

=0.0829
=8.2999%
4000
Future worth of deposits=0.0829 [(1 + 0.0829)20 − 1]

=189,035.32
Answer: $190,162

5. You borrow $15,000 from a bank to be repaid in monthly installments for three years at
15% interest compounded monthly. What is the portion of interest payment for the 15th
payment?
(a) $150 (b) $188 (c) $180 (d)$124
SOLUTION:

i = 15% = 15%/12 = 1.25% per month

t = 3 yrs = 3*12 = 36 months

Loan = 15000

Monthly payment = 15000*(A/P, 1.25%,36) = 15000 * 0.035665 = 519.98

Payments left after 14 th payment = 36 - 14 = 22

Principal due after 14th payment = 519.98 * (P/A,1.25%,22) = 519.98 * 19.130563 = 9947.51

Interest in 15 payment = 0.0125 * 9947.51 = 125.34 = 124

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