EIN 3354: Engineering Economy
Fall 2024
Homework # 1: Interest and Economic Equivalence
This homework is due on Wednesday, September 11, 2024 at 11:59 pm. The submitted
file should be named "lastname-firstname-HW1".
1. A special account pays 4% nominal interest compounded every 6 months. What is the
effective annual rate?
2. After graduating college, you receive $50,000 and decide to put it in a high yield saving
account. The account earns 3% every 6 months.
(a) What are the nominal and effective annual interest rate?
(b) If you leave your initial investment in the account without any withdrawals, what
would you expect the value of the account to be after 5 years?
3. A car may be purchased with a $9,000 down payment now and 36 monthly payments
of $900. If the (annual) interest rate is 8% compounded monthly, what is the price of
the car?
4. The cash flows below are equal. Both are calculated at a rate of 7% compounded
annually. What is the uniform annuity that makes these cash flows equal?
5. A debt of $8,000 on a credit card can be repaid, with ( annual) interest of 8%, by the
following payments.
The payment at the end of the fifth year is shown as X. How much is X?
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