Beirut Arab University

Faculty of Engineering
Department of Industrial Engineering and Management

Engineering Economy-INEM221
Assignment#1-Compound Interest
Deadline Wednesday 24/09/2014

1. If $1000 is borrowed at an effective interest rate of 11.5% per year, calculate the
compound amount at the end of:
a- 7 years
b- 11 years and 5 months.

2. a- Calculate the compound amount at the end of 10 years of a capital of $10,000 at an

effective interest rate of 10% per year.

b- The compound amount of a principal invested at 8% compounded quarterly at the

end of 10 years is $10,000. Find the principal.

c- If $15,000 is due five years from now and money is worth 6.5% compounded
annually, find its present value and the compound discount.

d- A debt of $ 20,000 is due in 4 years from now. If the corresponding compound

discount is $4742.1. Find the discount rate.

e- $10,000 is deposit in a bank. After one year, $10,000 is drawn. After one year of
this withdrawal, the amount in the bank was $806.25. Determine the corresponding
compound interest rate.

f- A man owes $2,000 due in four years and $1,700 due in six years. His creditor
has agreed to pay the debts with a payment of $1,500 in three years and the remainder
in eight years. If money is worth 7% compounded quarterly, what size must the second
payment be?

g- A man owes $400 due in four years, $500 due in five years, and $800 due in
seven years. If money is worth 6% compounded semiannually, at which date can the
man discharge the three debts by a single payment of $1,700?

h- If a principal P, invested at 6% compounded quarterly for three years, will accumulate

to the compound amount F, at what nominal rate compounded semiannually will the
principal accumulate to the same amount in the same period?

3. A capital is invested for 8 years. If the ratio of the total compound interest during the
first 3 years to the total compound interest during the last 3 years is 0.635228, determine
the annual interest rate.

4. Two principals x and y with a total of $80,000 are invested the same day, for a period of 6
years, at a compound interest. The principal x is invested at 8% compounded annually;
the principal y is invested at 7.5% compounded semiannually. At the end of six years the
total interest was $46007.32. Calculate x and y.
5. Three equal principals are invested for 3 years as follows:
First principal: 10% compounded annually
Second principal: 10% compounded semiannually.
Third principal: 10% compounded quarterly.
1- At the end of 3 years, the difference in the interest of the first two principals is
$272.88. Find the value of the invested principals.
2- Determine the difference in the interest of the second and third principal.

6. A person invested $20,000 at an interest rate i (effective yearly interest rate), and $50,000
at an interest i’ ( effective yearly interest rate ). At the end of 4 years, his total amount
(principals plus interests) was $ 109,199.13.
If the $20,000 were invested at i’ and the $50,000 at i, his total amount at the end of year
4 will be $112,159.56. Calculate i and i’.

7. Two principals $ 40,000 and $70,000 due on 20/11/2005 and 20/11/2008 respectively were
discounted on 20/11/2002. Their total present value at the date of discount was
$75,037.96. Find the compound discount rate.

8. A buyer of a product can choose between the following:

a- pay $165,000 at the end of 1 year
b- pay $100,000 at the end of 3 years
$ 100,000 at the end of 4 years
Which method is more favorable? Interest rate: 8% (effective yearly interest rate).

9. On January 15, 2020, a person should repay a credit of $ 1,000,000. On January15, 2004,
he sells his credit and receives a sum equal to the present value of the credit at an
effective interest rate of 9% per year. He invested the received money in a bank at an
effective interest rate of 10% per year till January 15, 2020.
a- Which amount will the person obtain at the end of January 15, 2020.
b- At which date would he receive an amount of $1,000,000 from the money
invested on January 15, 2004.
c- How much should he withdraw from the sum obtained in January 15, 2004, to get
a balance of $1,000,000 at the end of January 15, 2020.
d- Discuss the results obtained.