Qatar University

Faculty of Engineering

Engineering Economics

ASSIGNMENT # 2

Issued November 8, 2015 Due Date: November 23, 2015 Lecture time

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Question 1 (10 marks)

For an interest rate of 10% per year compounded quarterly, determine the number

of times interest would be compounded (a) per quarter, (b) per year, and (c) per

3 years.

Question 2 (10 marks)

Deposits of $100 per week are made into a savings account that pays interest of 6%

per year, compounded quarterly. Identify the payment and compounding periods

Question 3 (15 marks)

Determine the payback period for an asset that has a first cost of $40,000, a salvage

value of $8000 anytime within 10 years of its purchase, and generates income of

$6000 per year. The required return is 8% per year.

Question 4 (15 marks) Compare the alternatives shown below on the basis of their capitalized costs, using

an interest rate 12% per year, compounded quarterly.

Question 5 (15 marks)

An engineer planning for his retirement thinks that the interest rates in the marketplace

will decrease before he retires. Therefore, he plans to invest in corporate

bonds. He plans to buy a $50,000 bond that has a bond interest rate of 12% per

year, payable quarterly with a maturity date 20 years from now.

(a) How much should he be able to sell the bond for in 5 years if the market

interest rate is 8% per year, compounded quarterly?

(b) If he invested the interest he received at an interest rate of 12% per year,

compounded quarterly, how much will he have (total) immediately after he sells the bond

5 years from now?