Engineering Economy, Sindeenth Edition, Global Edition By William G. Sullivan, l

Question

Engineering Economy, Sindeenth Edition, Global Edition By William G. Sullivan, lin M.Wicks, and C. Patrick Koeling PLARSON O Pearson Education Limited 2014 All rights reserved P,F,A Finding i Jill invested S1,000 each year for five years in a local company and sold her share after five years for $8,000. What annual rate of return did Jill earn? $8,000 $ 1,000(F/A, i%, 5) So, (F/A, 1%,5) -$1,000 Engineering Economy, Sbdeenth Editsion, Global Edition By William G. Sulivan, Elin M. Wicks, and C. Patrick Koelling O Pearson Edueation Limited 2014 All rights reserved. PEARSON

Explanation / Answer

((1+i)5 - 1 )/ i = 8

=> (1+i)5 - 1 = 8i

Exapnd (1+i)5 = 1+ 5i + 10i2 + 10i3 + 5i4 +i5

1+ 5i + 10i2 + 10i3 + 5i4 +i5 -1 = 8i

=>  -3i + 10i2 + 10i3 + 5i4 +i5 = 0

=> -3 + 10i + 10i2 + 5i3 +i4 = 0

To solve approximately , i3 , i4 can be neglected , since i is a fraction

Therefore ,  -3 + 10i + 10i2 = 0

i = -10+ (100 - 4*10*3)1/2 / 2*10

Solving this quadratic we get , i = 0.24

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