Engineering Economy Assignment 3

255330
Chapter 4 Nominal and Effective Interest Rate
Due Date:
4.5 For an interest rate of 0.50% per quarter, determine the nominal interest rate
per (a) semiannual period, (b) year, and (c) 2 years.
((a) = 1% (b) 2% (c) 4%)
4.11 What nominal interest rate per year is equivalent to an effective 16% per
year, compounded semiannually? (r = 15.41%)
4.13 What compounding period is associated with nominal and effective rates of
18% and 18.81% per year, respectively? (m = 2)
4.24 In an effort to ensure the safety of cell phone users, the Federal
Communications Commission (FCC) requires cell phones to have a specific
absorbed radiation (SAR) number of 1.6 watts per kilogram (W/kg) of tissue
or less. A new cell phone company estimates that by advertising its
favorable 1.2 SAR number, it will increase sales by $1.2 million 3 months
from now when its phones go on sale. At an interest rate of 20% per year,
compounded quarterly, what is the maximum amount the company can
afford to spend now for advertising in order to break even? (P =
$1,142,880)
4.31 Lotus development has a software rental plan called SmartSuite that is avail-
able on the World Wide Web. A number of programs are available at $2.99
for 48 hours. If a construction company uses the service an average of 48
hours per week, what is the present worth of the rental costs for 10 months
at an interest rate of 1% per month, compounded weekly? (Assume 4
weeks per month.) (P= $113.68)
4.40 An engineer deposits $300 per month into a savings account that pays
interest at a rate of 6% per year, compounded semiannually. How much will
be in the account at the end of 15 years? Assume no interperiod
compounding. (F = $85,636)
4.41 At time t = 0, and engineer deposited $10,000 into an account that pays
interest at 8% per year, compounded semiannually. If she withdrew $1000
in months 2, 11, and 23, what was the total value of the account at the end
of 3 years? Assume no interperiod compounding. (F = $9046)

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4.45 What effective interest rate per 6 months is equal to a nominal 2% per month,
compounded continuously? (i = 12.75%)
4.47 Corrosion problems and manufacturing defects rendered a gasoline pipeline
between El Paso and Phoenix subject to longitudinal weld seam failures.
Therefore, pressure was reduced to 80% of the design value. If the reduced
pressure results in delivery of $100,000 per month less product, what will be
the value of the lost revenue after a 2 – year period at an interest rate of 15%
per year, compounded continuously? (F = $2,782,130)