18. (FIG, 2%, 12)-. 19. For a 10% nominal interest rate per year, compute the ef

Question

18. (FIG, 2%, 12)-. 19. For a 10% nominal interest rate per year, compute the effective annual interest rate in each of these situations: b. Compounded daily e. Compounded continuously - Multiple Choice Questions (2 points each) 20. Engineering economic analysis would be useful in all of the following situations except a. Determining how much we should pay for a device that will provide savings b. Determining the priority of investing your family's retained camings c. Showing the economic benefits of one alternative over another feasible choice d. Convincing management that one person should be hired over another e. All of the above 21. "Neither input nor output fixed' is associated with which economic criterion: a. Maximize profit b. Maximize benefits c. Minimize costs d. Maximize costs e. None of the above

Explanation / Answer

18) Given F=2%= 2/100=0.02

G= 12, then F/G= 0.02/12= 0.01/6=.00106

19) a

here Effective rate of interest = i = (1+r/m)m -1 where r= nominal interest rate/100 & m= number of compounding period here r= 10/100= 0.1

so if rate is compounded quarterly then

i = (1+0.1/4)4 -1 = 0.103813

Thus effective annual interest rate = i *100= 0.103813 *100=10.3813%

b) if rate is compounded daily then m= 365 then

i = (1+0.1/365)365 - 1= 0.105156

Thus effective annual interest rate = 0.105156 *100= 10.5156%

c) If rate is compounded continuously then

i = er- 1 here e= 2.71828 is a constant

thus i= 2.718280.1 -1 = 0.105171

Thus effective annual interest rate = 10.5171%

20. d

21. e. None of the above

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