Chapter 3

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Jun 18, 2024

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Page 1 of 2 University of Manitoba Centre for Engineering Professional Practice and Engineering Education ENG 3000 - Chapter 3: Interest Practice Problems and Solutions Reference: Newnan, D., Whittaker, J., Eschenbach, T., and Lavelle, J. (2018). Engineering Economic Analysis (4th Canadian edition). Oxford University Press. 1. The local bank offers to pay 5% interest on savings deposits. In a nearby town, the bank pays 1.25% per 3-month period (quarterly). A man who has $3000 to put in a savings account wonders where to deposit his money. Assuming he will leave the money in the account for 2 years, how much additional interest would he obtain from the out-of-town bank over the local bank? 2. A $150 bicycle was purchased on December 1 with a $15 down payment. The balance is to be paid at the rate of $10 at the end of each month, with the first payment due on December 31. The last monthly payment may be some amount less than $10. If interest on the unpaid balance is computed at 1.5% per month, how many payments will there be, and what is the amount of the final monthly payment? 3. You are taking a $2000 loan. You will pay it back in four equal amounts, paid every 6 months starting 3 years from now. The interest rate is 6% compounded semi-annually. Calculate: (a) The effective annual interest rate (b) The amount of each semi-annual payment (c) The total interest paid
Page 2 of 2 4. Jerry bought a house for $500,000 and made a $100,000 down payment. He obtained a 30-year loan for the remaining amount. Payments were made monthly. The nominal annual interest rate was 9%. After 10 years (120 payments) he decided to pay the remaining balance on the loan. (a) What was his monthly loan payment? (b) What is the remaining balance on his loan that he paid in addition to his 120 th monthly payment? 5. Pete borrowed $10,000 to purchase a car. He must repay the loan in 48 equal end-of-period monthly payments. Interest is calculated at 1¼% per month. Determine the following: (a) The nominal annual interest rate (b) The effective annual interest rate (c) The amount of the monthly payment
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