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4.3)
1/10
185.1
(a ) f = - 1 = 1.16%
164.5
( )
8
= 164.5 ( 1 + 0.0116 ) = 180.39
8
CPI 2009 = CPI 2001 1 + f
4.5)
1
638, 400
f1 = - 1 = 2.3%
624, 000
1
677, 000
f2 = - 1 = 6.04%
638, 400
1
729,500
f3 = - 1 = 7.75%
677, 000
1/3
729,500
f = - 1 = 5.34%
624, 000
4.6)
log 3
n= = 14.27 Years Ans.
log1.08
Fundamentals of Engineering Economics, 3rd ed. 2012
1/8
75, 000
f = - 1 = 8.17% Ans.
4.7) 40, 000
4.8)
1/27
205.43
f = - 1 = 6.56%
36.87
Re al salary = 48, 000(1 + 0.0656) -27 = $8633.71Ans.
4.9)
i = i
+ f + i
f
i - f 0.09 - 0.05
=
i = = 3.8%
1+ f 1 + 0.05
Investment is not suggested .
4.10)
12
0.04
ia = 1+ - 1 = 4.074%
12
i - f 0.0407 - 0.05
i = = = -0.00857
1+ f 1 + 0.05
Loss = $12000 -0.00857 = -$106.28 Ans.
4.11)
i = i ' + f + i ' f = 0.07 + 0.04 + 0.07 0.04 = 0.1128 = 11.28%
4.12)
i - f 0.16 - 0.1
=
i = = 5.45%
1+ f 1 + 0.1
P = 20, 000 + 26, 000 + 34, 000 + 38, 000 + 42, 000 = A( P / A,5.45%,5)
0.0545 (1 + 0.0545)5
A = 160, 000 = $37, 416.87 Ans.
(1 + 0.0545) - 1
5
Given: i = 16%, f = 4%
4.13)
Page | 2
Fundamentals of Engineering Economics, 3rd ed. 2012
0.1/12 - 0.06 / 12
monthly =
i = 0.00331
1 + 0.06 /12
( 1 + 0.0033) - 1
48
15, 000 = A 48
= $338.41( ActualValue)Ans.
0.0033 ( 1 + 0.0033)
15
1
P = 338.41 = $322.09 (Cons tan tValue) Ans.
1 + 0.0033
i - f 0.16 - 0.1
=
i = = 5.45%
4.15) 1+ f 1 + 0.1
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Fundamentals of Engineering Economics, 3rd ed. 2012
4.16)
4.17)
14th int erest payment = $2000 0.04 = $80.0
The14th int erest payment (7th year ) in cons tan t dollar :
I14= $80( P / F ,5%, 7) = 80 0.6651 = $53.20 Ans.
4.18)
31.90(1 + f )6 = 41
f = 4.27%
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Fundamentals of Engineering Economics, 3rd ed. 2012
4.19)
( 1 + 0.045 ) - 1
10 5
1
PW = A( P / A, 4.5%,10) + F ( P / F ,9%,5) = 150 10
+ 2000
0.045 ( 1 + 0.045 )
1 + 0.09
= $2487.51Ans.
i - f 0.09 - 0.04
(b) =
i = = 0.048 = 4.8%
1+ f 1 + 0.04
( 1 + 0.024 ) - 1
10 5
1
PW = A( P / A, 2.4%,10) + F ( P / F , 4.8%,5) = 150 10
+ 2000
0.024 ( 1 + 0.024 ) 1 + 0.048
= $2902.35Ans.
4.20)
i = i ' + f + i ' f = 0.03 + 0.05 + 0.03 0.05 = 0.0815 = 8.15%
5
1
PW of fifth payment = 80000 = $54070.12 Ans.
1 + 0.0815
4.21)
i - f 0.0075 - 0.0025
=
i = = 0.00498 = 6.86%
1+ f 1.0025
60, 000 0.00498 1.0049860
A= = $1159.29 Ans.
1.0049860 - 1
4.22)
( 1 + 0.1128 ) - 1
5
PW of Fuel cos t = A( P / A,11.28%, 5) = 1.8 5
= $6.606 Million Ans.
0.1128 ( 1 + 0.1128 )
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Fundamentals of Engineering Economics, 3rd ed. 2012
4.23)
i - f 0.08 - 0.01
(a ) =
i = = 0.0693 = 6.93% Ans.
1+ f 1.01
12000 0.00577 1.00577 24
(b) A= = $393.526 Ans.
1.00577 24 - 1
4.24)
12
0.08
ia =
1+ - 1 = 0.0829
12
( 1 + 0.0829 ) - 1
15 20
1
PW = 20000 15 = $34, 203.17
0.0829 ( 1 + 0.0829 ) 1 + 0.0829
i - f 0.08 - 0.03
=
i = = 0.0485
1+ f 1 + 0.03
0.0485
Monthly inf lation - free int erest rate = = 0.004
12
$34, 203.17 0.004 1.004240
A= = $221.95 Ans
1.004240 - 1
4.25)
4
0.09
ia =
1+ - 1 = 0.093
4
Equivalent Value of $800, 000 in actual dollar at the end of 63rd birthday
800, 000( F / P,5%, 40) = $5631991
(a) A( F / A, 2.25%,160) = 5631991
0.0225
A = 5, 631,991 = $3708.87 Ans.
(1 + 0.0225)160
- )
1
(b) A = G ( A / G ,9.3%, 40) = 1000 9.578 = $9578.28
( A1 + 9578.28) ( F / A,9.3%, 40 ) = 5, 631,991
( A1 + 9578.28)
(
1 + 0.093) - 1
40
)
= 5, 631,991
0.093
A1 = $5799.93 Ans.
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Fundamentals of Engineering Economics, 3rd ed. 2012
4.26)
(a) i = i
+ f + i
f = 0.07 + 0.06 + 0.07 0.06 = 0.1342 = 13.42% Ans
0.07
(b) A = { 50, 000 + 51, 000 1.07 + 52, 000 1.07 2 + 53, 000 1.073 } 8 = $22,323.2 Ans.
1.07 - 1
Given: i = 8% f = 6%
4.27) per year, per year
4.28)
(a) The average annual general inflation rate:
(1 + 0.065)(1+ 0.077)(1+ 0.081) = 1.2399
(1+ f )3 = 1.2399
f = 7.4308%
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Fundamentals of Engineering Economics, 3rd ed. 2012
(c)
Retirement income $10,000 per month (today dollar), i=0.5% per month, 20
years = 240 months, inflation rate: 4% per year = 0.3333% per month
$10, 000( P / A1 , 0.3333%, 0.5%, 240)( P / F ,10%,15) = $471,919.80
A vacation home in Sedona
$500, 000(1 + 0.04)10 = $740,122.14
Buying at year 10: in actual dollars
Page | 8
Fundamentals of Engineering Economics, 3rd ed. 2012
(1 + i)12 - 1 = 0.0677
(1 + i )12 = 1 + 0.0677
i = ( 1 + 0.0677 )
1/12
-1
= 0.5474%
4.31)
(a) Real after-tax yield on bond investment:
Nontaxable municipal bond:
0.09 - 0.03
i 'municipal = = 5.825%
1 + 0.03
(b)
Given : i = 6%, f = 3%
and ,
i 'savings = 2.91%
i 'municipal i 'corporate
Since >2.91% and >2.91%, both bond
investments are better than the savings account. Now tocompare two mutually
exclusive bond investment alternatives, we need to perform an incremental
analysis.
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Fundamentals of Engineering Economics, 3rd ed. 2012
4.32)
Two common approaches may be used: either (1) constant dollar analysis or (2)
actual dollar analysis. In this case, it may be easier to use the constant dollar
analysis, as we dont need to project the future price increase of the
subscription, assuming that the price of magazine will follow the general
inflation rate. Then, we need to determine which interest rate to use in
evaluating the three different subscription options. Assuming that the decision-
i'
makers desired inflation-free interest rate ( ) or real earnings from his or her
personal investment is around 2%, we can determine the total subscription cost
for life-time (say, more than 50 years) as follows:
$39
P1-year subscription = $39 + = $1,989
0.02
$72
P2-year subscription = $72 + = $1,854
0.0404
$103
P3-year subscription = $103 + = $1, 786
0.06121
In this case, the 3-year subscription option appears to be a better choice. Note
that 4.04% represents the effective interest rate for 2 years and 6.121% does for
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Fundamentals of Engineering Economics, 3rd ed. 2012
3 years. The view taken in this calculation is that if the general inflation rate
were running at 3%, the decision-maker would earn around 5% (=3%+2%)
market interest rate. Certainly the choice will change depending upon the
individual decision-makers true earrings requirement.
If we take a finite planning horizon, say 6-year, the subscription cost for each
option would be as follows:
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