ISEN 3724 Engneering Econouy Quiz#l Problem li Draw the cash flow diagram and fi

Question

ISEN 3724 Engneering Econouy Quiz#l Problem li Draw the cash flow diagram and find the uniform quarterly amount over 4 years that would be generated from an investment of $1000 now at a nominal interest rate of 48 per year, compounded quarterly. In other words, use an effective interest rate of 1% quarterly over 16 quarters. Problem #2: Draw the cash flow diagram and find the uniform annual amount over 4 years that would be generated from an investment of $1000 now at an effective interest rate of 1% quarterly. In other words, use an effective annual interest rate of (1+0.01) -1 over 4 years Problem #3: How much money can be withdrawn monthly for 4 years froma college savings fund containing $28,000 that earns a nominal interest rate of 12% per year, compounded monthly? Problem #4: How much money must be available if it is desired to withdraw $1000 monthly for 5 years from a college fund that earns a nominal interest rate of 6% per year, compounded monthly?

Explanation / Answer

(4)

Using the formula:

A = P*(1 + r/n)nt

Putting values:

A = 1000*12*5 = $60,000

r = 0.06

n = 12

t = 5

Putting values we get:

60000 = P*(1 + 0.06/12)(12*5)

Solving we get:

P = $44482.33

Thus this much amount must be available.

Hope this helps !

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