Information Systems And Engineering Economics Set 23

Q1 | Suppose that you invest $1 for 1 year at 18% compounded monthly. How much interest would you earn?

Q2 | Nominal Interest Rate is Interest rate quoted based on an annual period

Q3 | The annual equivalent worth (AE) criterion provides a basis for measuring investment worth by determining equal payments on an annual basis.

Q4 | When only costs are involved, the AE method is sometimes called the annual equivalent cost method.

Q5 | In AE analysis revenues must cover two kinds of costs:– Operating costs and Capital recovery costs

Q6 | Operating costs are incurred by the operation of physical plants or equipment needed to provide service

Q7 | Consider a machine that costs $20,000 and has a ?ve-year useful life.At the end of the ?ve years, it can be sold for $4,000 after all tax adjustments have been factored in. If the ?rm could earn an after-tax revenue of $4,400 per year with this machine, should it be purchased at an interest rate of 10%? (All bene?ts and costs associated with the machine are accounted for in these ?gures.)

Q8 |   is a loss in the purchasing power of money over time.

Q9 | The same dollar amount buys less of an item over time is  

Q10 | Consumer Price Index (CPI) Measures prices of typical purchases made by consumers, based on a typical market basket of goods and services required by average consumers

Q11 | CPI does not take into the account the price of raw material, ?nished product and operating cost

Q12 | PPI measures average change over a time in selling prices by domestic producers of goods and services.

Q13 |   rate is de?ned as the rate at which the cost general level of goods and services increases resulting in decreases of purchasing

Q14 | Actual (current) dollars (An)is the dollar value that is “in?uenced” by in?ation.

Q15 | Actual (current) dollars (An)is the dollar value that is “in?uenced” by.

Q16 |   dollars is the dollar value that is “in?uenced” by in?ation.

Q17 | Constant (real) dollars re?ect constant purchasing power independent of the passage of time

Q18 | The current gasoline price is $4.15, and it is projected to increase next year by 5%, and 8% the following year, and -3% the third year. What is the average in?ation rate for the projected gasoline price for the next 3 years?

Q19 | If the in?ation rate is 6% per year and the market interest rate is known to be 15% per year. What is the implied real interest rate in this in?ationary economy?

Q20 | If you experience a 6 % annual in?ation, how long does it take to see the purchasing power being reduced in half?

Q21 | The CPI for 2000 was 171.2 and the projected CPI for 2008 is 220. What is the general in?ation rate over the last 8 years?

Q22 | The average starting salary for engineers for 2008 is $53,000. What is the equivalent salary in terms of purchasing power of 2000? Assume that the general in?ation rate over the last 8 years is known to be 4%.

Q23 | You are considering purchasing a $1,000 bond with a coupon rate of 9.5%, interest payable annually. If the current in?ation rate is 4% per year, which will continue in the foreseeable future, what would be the real rate of return if you sold the bond at $1,080 after 2 years?

Q24 | You are purchasing an automobile priced at $20,000 by borrowing at 12% interest compounded monthly. The loan will be repaid in monthly installments for ?ve years. What is the constant dollar value (value at the time of ?nancing) of the 36th payment of this loan, if the general in?ation rate is 5% compounded monthly?

Q25 | A couple wants to save for their daughter’s college expense. The daughter will enter college 8 years from now and she will need$40,000, $41,000, $42,000 and $43,000 in actual dollars for 4 school years. Assume that these college payments will be made at the beginning of the school year. The future general in?ation rate is estimated to be 6% per year and the annual in?ation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college (for 8 years)?