Question 1

Engineers have to justify production of large scale projects with large amount of money
and long period of time

1) True

2) False
Question 2
Quality improvement is considered a type of strategic engineering economic decision

1) True

2) False
Ch2
Question 3
In order to have money for their son's college education, a young couple started a
savings plan into which they made intermittent deposits. They started the account with
a deposit of $2,000 (in year zero) and then added $3,000 in years two, five and six.
The amount they had in the account in year ten if they earned interest at 12% per year
was nearest to:

1) $15,170

2) $17,320

3) $20,913

4) $23,647
Question 4
In the derivation of the F/A factor, the F is located one period after the last A.

1) True

2) False
Question 5
What is the equivalent amount in year ten of an expenditure of $5,000 in year one,
$6,000 in year two, and amounts increasing by $1,000 per year through year ten?
Assume the interest rate is 10% per year.

1) $30,723

2) $53,614

3) $92,169

4) $139,060
 Question 6
The change in the amount of money over a given time period is called the time value of money

1) True

2) False
Question 7

Find the value of X so that the two cash flows below are equivalent for an interest rate
of 10%.

1) $464

2) $494

3) $523

4) $554
Question 8
A deposit of $10,000 now at 10% per year interest will accumulate to how much twenty
years from now?

1) $30,000

2) $46,275

3) $67,275

4) $83,195
 Question 9
Assume that $200 is deposited today, two years from now, four years from now, six
years from now, and eight years from now in a savings account which earns 10%
annual interest, what is the balance at the end of year 9?

1) $1,100

2) $1,517

3) $1,670

4) $708
Question 10
If you deposit $1,000 over three years at 9% annual interest (meaning that you will
make one lump sum withdrawal at the end of three years), what is the interest earned
in the 2nd year?

1) $98.10

2) $106.93

3) $90.00

4) $98.34
Question 11
Earning Power is the earnings that an asset could produce under optimal conditions

1) True

2) False
 Question 12

Consider the cash flow series shown below. Determine the required annual deposits
(end of year) that will generate the cash flows from years 4 to 7. Assume the interest
rate is 10%, compounded annually.

1) $568

2) $698

3) $555

4) $518
 Question 13

What value of C makes the two annual cash flows equivalent at an annual rate of 10%?

1) $150

2) $220

3) $160

4) $99
Question 14
A young couple wishing to save money for their child's first year in college purchases an
insurance policy that will yield $10,000 fifteen years from now. The cost of the policy is
$500 per year for 15 years, beginning one year from now. The rate of return on their
investment is nearest to:

1) 3%

2) 4%

3) 5%

4) 6%
 Question 15
Today is your birthday and you decide to start saving for your retirement. You will retire
on your 65th birthday and will need $50,000 per year at the end of each of following 20
years. You will make a first deposit 1 year from today in an account paying 8% interest
annually and continue to make an identical deposit each year up to and including the
year you plan to retire. If an annual deposit of $6,851 will allow you to reach your goal,
what birthday are you celebrating today?

1) 52

2) 45

3) 35

4) 40
Question 16
An engineer planning to purchase a new $38,000 pickup truck wants to have of the
cost of the truck as a down payment before purchasing it. She wants to buy the truck
five years from now and plans to begin saving by depositing $2000 into a savings
account one year from now, and then increasing the deposit each year by a uniform
amount. If the account earns interest at 6% per year, the amount she must increase
her deposit each year is nearest to:

1) $3,065

2) $6,130

3) $7,682

4) $14,198
Question 17
If you invest $2,000 today in a savings account at an interest rate of 12%,
compounded annually, how much principal and interest would you accumulate in 7
years?

1) $2300

2) $4,422

3) $4,242

4) $1,400
 Question 18

What is the equivalent present worth for the following cash flow series at an interest
rate of 15%?

1) $6,727

2) $5,849

3) $6,977

4) $4,850
Question 19

To withdraw the following $1,000 payment series, determine the minimum deposit (P)
you should make now if your deposits earn an interest rate of 10%, compounded
annually. Note that you are making another deposit at the end of year 7 in the amount
of $500. With the minimum deposit P, your balance at the end of year 10 should be
zero.

1) P = $4,465

2) P= $4,912

3) P = $5,912

4) P=$5,374
 Question 20
If a company wanted to make a single investment now instead of spending $20,000
five years from now, how much would the investment be at an interest rate of 10% per
year?

1) $3,276

2) $5,276

3) $12,418

4) $32,300
Question 21
Geometric Gradient is a gradient series that is been determined by a fixed rate
expressed as a percentage instead of a fixed dollar amount

1) True

2) False
Question 22
In calculating the present worth of an arithmetic gradient series, the only difference
between an increasing and a decreasing gradient calculation is the minus sign for the
base amount.

1) True

2) False
Ch3
Question 23
Susan wishes to make equal end-of-quarterly deposits to her savings account so that at
the end of 15 years she would like to have $500,000 in the account. If the account
earns 8% interest compounded quarterly, how much should she deposit at the end of
each quarter?

1) A = $4,384

2) A = $4,584

3) A = $4,784

4) A = $4,184
 Question 24
Which of the following banks offers you a better interest deal for your deposit?

1) Bank A

2) Bank B

3) Indifferent

4) Not sufficient information to decide

Question 25
You have been offered a credit card by a department store that charges interest at
1.8% per month, compounded monthly. What is the effective annual interest rate for
this credit card?

1) 21.60%

2) 18.00%

3) 22.34%

4) 23.87%
Question 26
A series of equal quarterly receipts of $1000 extends over a period of 5 years. What is
the present worth of this quarterly payment series at 8% interest, compounded
continuously?

1) $16,351

2) $18,345

3) $15,971

4) $16,320
Question 27
What is the future worth of an equal quarterly payment series of $2,500 for 10 years, if
the interest rate is 9%, compounded monthly?

1) F = $160,058

2) F = $151,930

3) F = $154,718

4) F = $158,653
 Question 28
Suppose you borrowed $10,000 at an interest rate of 12%, compounded monthly over
36 months. At the end of the first year (after 12 payments), you want to negotiate with
the bank to pay off the remainder of the loan in 8 equal quarterly payments. What is
the amount of this quarterly payment, if the interest rate and compounding frequency
remain the same?

1) $996

2) $1,006

3) $875

4) $925
Question 29
A series of equal quarterly deposits of $1000 extends over a period of 3 years. What is
the future worth of this quarterly deposit series at 9% interest, compounded monthly?

1) $13,615

2) $13,160

3) $12,590

4) $13,112
Question 30
A series of equal semi-annual payments of $1,000 for 3 years is equivalent to what
present amount at an interest rate of 12%, compounded annually? (All answers are
rounded to nearest dollars.)

1) $4,500

2) $5,401

3) $4,944

4) $4,804
Question 31
John secured a home improvement loan from a local bank in the amount of $10,000 at
an interest rate of 9%, compounded monthly. He agreed to pay back the loan in 60
equal monthly installments. Immediately after the 24th payment, John decides to pay
off the remainder of the loan in a lump sum. What will be the size of this payment?

1) P = $6,000

2) P = $7,473

3) P = $7,710

4) P = $6,528
 Question 32
Compute the lump sum amount required at the end of year 4 to repay an amount of
$20,000 borrowed today at an interest rate of 12%, compounded monthly.

1) $31,470

2) $32,244

3) $20,812

4) $27,812
Ch4
Question 33
A couple wants to save for their daughters college expense. The daughter will enter
college 8 years from now and she will need $40,000, $41,000, $42,000 and $43,000 in
actual dollars for 4 school years. Assume that these college payments will be made at
the beginning of the school year. The future general inflation rate is estimated to be 6%
per year and the annual inflation-free interest rate is 5%. What is the equal amount, in
actual dollars, the couple must save each year until their daughter goes to college (for
8 years)?

1) $11,838

2) $12,538

3) $12,142

4) $11,945
Question 34
How many years will it take for the dollars purchasing power to be one half what it is
now, if the average inflation rate is expected to continue at the rate of 9% for an
indefinite period? (Hint: You may apply the Rule of 72.)

1) About 6 years

2) About 8 years

3) About 10 years

4) About 12 years
 Question 35
The average starting salary for engineers for 2008 is $53,000. What is the equivalent
salary in terms of purchasing power of 2000? Assume that the general inflation rate
over the last 8 years is known to be 4%.

1) $34,980

2) $38,727

3) $72,534

4) $40,276
Question 36
Suppose you have experienced inflation for the past 2 years as follows: the first years
inflation rate is 5%, and the second year years rate is 8%. Calculate the average
inflation rate for a 2-year period.

1) 6.5%

2) 3%

3) 6.49%

4) 13%
Question 37
Assume that the expected inflation rate is 3%. If the current inflation-free interest rate
is 4%, what ought the market interest rate to be?

1) 1%

2) 12%

3) 7.12%

4) 7%
Question 38
$5,000 in Constant Dollar over 3 years with average inflation rate of 8% will be equal
to

1) $2,519.42 in constant dollar

2) $3,969.16 in constant dollar

3) $2,341.47 in constant dollar

4) $5,400.00

5) $6,200.00

Question 39
Which of the following statements is mostly incorrect?

Under an inflationary economy, debt financing is always a preferred option

1)
because you are paying back with cheaper dollars.
A negative inflation rate implies that you are experiencing a deflationary
2)
economy.
Bond interest rates will tend to be higher in the financial market, so that it
3)
would cost more to finance a new project.
4) A general inflation rate is calculated based on the consumer price index.

Question 40
At a market interest rate of 7% per year and an inflation rate of 5% per year, a series
of three equal annual receipts of $100 in constant dollars is equivalent to a series of
three annual receipts of $105 in actual dollars. Which of the following statements is
correct?

1) Sufficient information is not available to make a comparison.

2) The amount of actual dollars is understated.

3) The amount of actual dollars is overstated.

4) The amount of actual dollars is about right.