ENGR 211P (Engineering Economics) Spring 2020 Homework # 1

1. (10 points) Unlike other parameters units such as the inch or the pound, the unit for cost or money (dollar) changes with time. Why is that so?

2. (10 points) Define “interest” and explain the difference between simple and compound

interest types. Which type of interest is more realistic to consider?

3. (10 points) What are the two types of “capital”? And what is the difference between them in terms of the risk being undertaken by the provider and the company?

4. (10 points) Economic considerations may lead to a design or structure that is less perfect

than could be achieved if costs were not considered. Give an example for such cases.

5. (10 points) Assume you will get $1000 one year from now. How much would you take today, instead, if the interest is 6%?

6. (10 points) Two banks offer different interest rates on your deposit of $10,000 over 3

years. Bank A offers an 8% interest compounded annually and Bank B offers an 8.5% simple annual interest. Which bank will give you more money at the end of year 3, and how much is the difference?

7. (15 points) Which of the following different interest charging plans has the lowest annual interest rate? 1) 9% per year, compounded quarterly 2) 3% per quarter, compounded quarterly 3) 8.8% per year, compounded monthly

8. (10 points) An investor requires an effective return rate of 15% per year. What is the

equivalent nominal rate that is acceptable (generates the same annual rate) if interest on his investment would be compounded continuously?

9. (15 points) What is the future value of a single $10,000 lump sum invested at a rate of

10% compounded monthly for 5 years?

ENGR 211P (Engineering Economics) Spring 2020