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Part I - Chapter 2 - TD

This document contains examples of time value of money calculations involving compound interest, present and future value, equivalent cash flows, and sinking funds. It asks the reader to calculate interest and principal for a loan, time to triple an investment, amounts needed for a series of future payments, loan repayment schedules, future and present worth of deposits and cash flows, money needed for a sinking fund, and interest rates that make cash flows equivalent.

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Charbel Younes
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49 views22 pages

Part I - Chapter 2 - TD

This document contains examples of time value of money calculations involving compound interest, present and future value, equivalent cash flows, and sinking funds. It asks the reader to calculate interest and principal for a loan, time to triple an investment, amounts needed for a series of future payments, loan repayment schedules, future and present worth of deposits and cash flows, money needed for a sinking fund, and interest rates that make cash flows equivalent.

Uploaded by

Charbel Younes
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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TD- Time Value of Money

Fundamentals of Engineering Economics


1. You are considering investing $1,000 at an interest rate of 6%
compounded annually for five years or investing the $1,000
at 7% per year simple interest for five years. Which option is
better?
1. You are considering investing $1,000 at an interest rate of 6% compounded
annually for five years or investing the $1,000 at 7% per year simple interest for
five years. Which option is better?
2. You are about to borrow $3,000 from a bank at an interest
rate of 9% compounded annually. You are required to make
three equal annual repayments in the amount of $1,185.16 per
year, with the first repayment occurring at the end of year one.
For each year, show the interest payment and principal
payment.
2. You are about to borrow $3,000 from a bank at an interest rate of 9% compounded
annually. You are required to make three equal annual repayments in the amount of
$1,185.16 per year, with the first repayment occurring at the end of year one. For
each year, show the interest payment and principal payment.
3. How many years will it take an investment to triple itself if the
interest rate is 9% compounded annually?
3. How many years will it take an investment to triple itself if the interest rate is 9% compounded annually?
4. How much invested now at an interest rate of 6%
compounded annually would be just sufficient to provide three
payments as follows: the first payment in the amount of $3,000
occurring two years from now, the second payment in the
amount of $4,000 five years thereafter, and the third payment in
the amount of $5.000 seven years thereafter?
4. How much invested now at an interest rate of 6% compounded annually would be just
sufficient to provide three payments as follows: the first payment in the amount of
$3,000 occurring two years from now, the second payment in the amount of $4,000 five
years thereafter, and the third payment in the amount of $5.000 seven years thereafter?
5. A company borrowed $120,000 at an interest rate of 9%
compounded annually over six years. The loan will be repaid in
installments at the end of each year according to the
accompanying repayment schedule. What will be the size of the
last payment (X) that will pay off the loan?
5. A company borrowed $120,000 at an interest rate of 9% compounded annually over six
years. The loan will be repaid in installments at the end of each year according to the
accompanying repayment schedule. What will be the size of the last payment (X) that will
pay off the loan?
6. What is the future worth of a series of equal year-end
deposits of $5,000 for 10 years in a savings account that earns
8% annual compound interest if
(a) all deposits are made at the end of each year?
(b) all deposits are made at the beginning of each year?
6. What is the future worth of a series of equal year-end deposits of $5,000 for 10 years
in a savings account that earns 8% annual compound interest if
(a) all deposits are made at the end of each year?
(b) all deposits are made at the beginning of each year?
7. Part of the income that a machine generates is put into a
sinking fund to pay for replacement of the machine when it
wears out. If $2.000 is deposited annually at 7% interest
compounded annually, how many years must the machine be
kept before a new machine costing $30,000 can be purchased?
7. Part of the income that a machine generates is put into a sinking fund to pay for
replacement of the machine when it wears out. If $2.000 is deposited annually at 7%
interest compounded annually, how many years must the machine be kept before a new
machine costing $30,000 can be purchased?
8. Compute the value of P for the accompanying cash flow
diagram. Assume i = 8%.
9. The maintenance expense on a machine is expected to be
$800 during the first year and to increase $150 each year for the
following seven years. What present sum of money should be set
aside now to pay for the required maintenance expenses over
the eight-year period? (Assume 9% compound interest per year.)
9. The maintenance expense on a machine is
expected to be $800 during the first year
and to increase $150 each year for the
following seven years. What present sum of
money should be set aside now to pay for
the required maintenance expenses over
the eight-year period? (Assume 9%
compound interest per year.)
10. Find the present worth of the cash receipts in the
accompanying diagram if i = 10% compounded annually, with
only four interest factors.
10. Find the present worth of the cash receipts in the accompanying diagram if i = 10%
compounded annually, with only four interest factors.
11. Determine the interest rate i that makes the pairs of cash
flows shown in the following diagrams economically equivalent.
11. Determine the interest rate i that makes the pairs of cash flows shown in the
following diagrams economically equivalent.

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