Engineering Economic Analysis
13th Edition
ISBN: 9780190296902
Author: Donald G. Newnan, Ted G. Eschenbach, Jerome P. Lavelle
Publisher: Oxford University Press
expand_more
expand_more
format_list_bulleted
Question
Chapter 3, Problem 53P
To determine
(a)
The effective interest rate.
Expert Solution
Answer to Problem 53P
The Effective Interest rate in this case is 4.06%.
Explanation of Solution
Given information:
- The nominal annual interest rate = 4%
- Compounded every three months
- Effective Interest Rate per year is the annual interest rate taking into account the effect of any compounding during the year. It is calculated as
- Nominal Interest Rate per year is the annual interest rate without taking into account the effect of any compounding during the year. It is calculated as:
where: r = nominal interest rate
m = number of compounding subperiods per year
im = interest rate during the compounding subperiod
where: ia = effective interest rate
r = nominal interest rate
m = number of compounding subperiods per year
Calculation:
Using the information given in the question, one knows m = 4 since the interest rate is compounding the subperiods on a quarterly basis. We need to find the effective annual interest rate to using the value of the nominal annual interest rate given in the question:
Therefore, effective annual interest rate is 4.06%.
To determine
(b)
The effective interest rate.
Expert Solution
Answer to Problem 53P
The effective Interest rate in this case is 4.040584%.
Explanation of Solution
Given information:
- The nominal annual interest rate = 4%
- Compounded every daily
- Effective Interest Rate per year is the annual interest rate taking into account the effect of any compounding during the year. It is calculated as
- Nominal Interest Rate per year is the annual interest rate without taking into account the effect of any compounding during the year. It is calculated as:
where: r = nominal interest rate
m = number of compounding subperiods per year
im = interest rate during the compounding subperiod
where: ia = effective interest rate
r = nominal interest rate
m = number of compounding subperiods per year
Calculation:
Using the information given in the question, one knows m = 4 since the interest rate is compounding the subperiods on a daily basis. We need to find the effective annual interest rate to using the value of the nominal annual interest rate given in the question:
Therefore, effective annual interest rate is 4.040584%.
To determine
(c)
The effective interest rate.
Expert Solution
Answer to Problem 53P
Effective Interest rate in this case is 4.08%.
Explanation of Solution
Given information:
- The nominal interest per month = 4%
- Compounded continuously
- Effective Interest Rate per year is the annual interest rate taking into account the effect of any compounding during the year. It is calculated as
where: ia = effective interest rate
r = nominal interest rate
m = number of compounding subperiods per year
When the interest rate is compounded continuously:
Calculation:
After inserting the value of nominal interest rate as calculated above in the effective interest rate formula:
Therefore, effective interest rate is 4.08%.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
MC
The diagram shows a pharmaceutical firm's demand
curve and marginal cost curve for a new heart medication
for which the firm holds a 20-year patent on its
production.
Assume this pharmaceutical firm charges a single price
for its drug. At its profit-maximizing level of output, it will
generate a total profit represented by
OA. areas J+K.
B. areas F+I+H+G+J+K
OC. areas E+F+I+H+G.
D. - it is not possible to determine with the informatio
OE. the sum of areas A through K.
(...)
Po
P1
Price
F
P2
E
H
0
G B
Q
MR
D
ō
Price
Quantity
$26
0
The marketing department of
$24 20,000
Johnny Rockabilly's record company
$22
40,000
has determined that the demand for his
$20
60,000
latest CD is given in the table at right.
$18
80,000
$16
100,000
$14
120,000
The record company's costs consist of a $240,000 fixed cost of recording the CD, an $8 per CD variable cost of
producing and distributing the CD, plus the cost of paying Johnny for his creative talent. The company is
considering two plans for paying Johnny.
Plan 1: Johnny receives a zero fixed recording fee and a $4 per CD royalty for each CD that is sold.
Plan 2: Johnny receives a $400,000 fixed recording fee and zero royalty per CD sold.
Under either plan, the record company will choose the price of Johnny's CD so as to maximize its (the
record company's) profit. The record company's profit is the revenues minus costs, where the costs include the
costs of production, distribution, and the payment made to Johnny.
Johnny's payment will be
be
under plan 2 as…
Which of the following is the best example of perfect price discrimination?
A. Universities give entry scholarships to poorer students.
B. Students pay lower prices at the local theatre.
○ C. A hotel charges for its rooms according to the number of days left before the check-in date.
○ D. People who collect the mail coupons get discounts at the local food store.
○ E. An airline offers a discount to students.
Chapter 3 Solutions
Engineering Economic Analysis
Ch. 3 - Prob. 1QTCCh. 3 - Prob. 2QTCCh. 3 - Prob. 3QTCCh. 3 - Prob. 4QTCCh. 3 - Prob. 5QTCCh. 3 - Prob. 1PCh. 3 - Prob. 2PCh. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - Prob. 5P
Ch. 3 - Prob. 6PCh. 3 - Prob. 7PCh. 3 - Prob. 8PCh. 3 - Prob. 9PCh. 3 - Prob. 10PCh. 3 - Prob. 11PCh. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - Prob. 14PCh. 3 - Prob. 15PCh. 3 - Prob. 16PCh. 3 - Prob. 17PCh. 3 - Prob. 18PCh. 3 - Prob. 19PCh. 3 - Prob. 20PCh. 3 - Prob. 21PCh. 3 - Prob. 22PCh. 3 - Prob. 23PCh. 3 - Prob. 24PCh. 3 - Prob. 25PCh. 3 - Prob. 26PCh. 3 - Prob. 27PCh. 3 - Prob. 28PCh. 3 - Prob. 29PCh. 3 - Prob. 30PCh. 3 - Prob. 31PCh. 3 - Prob. 32PCh. 3 - Prob. 33PCh. 3 - Prob. 34PCh. 3 - Prob. 35PCh. 3 - Prob. 36PCh. 3 - Prob. 37PCh. 3 - Prob. 38PCh. 3 - Prob. 39PCh. 3 - Prob. 40PCh. 3 - Prob. 41PCh. 3 - Prob. 42PCh. 3 - Prob. 43PCh. 3 - Prob. 44PCh. 3 - Prob. 45PCh. 3 - Prob. 46PCh. 3 - Prob. 47PCh. 3 - Prob. 48PCh. 3 - Prob. 49PCh. 3 - Prob. 50PCh. 3 - Prob. 51PCh. 3 - Prob. 52PCh. 3 - Prob. 53PCh. 3 - Prob. 54PCh. 3 - Prob. 55PCh. 3 - Prob. 56PCh. 3 - Prob. 57PCh. 3 - Prob. 58P
Knowledge Booster
Similar questions
- Consider the figure at the right. The profit of the single-price monopolist OA. is shown by area D+H+I+F+A. B. is shown by area A+I+F. OC. is shown by area D + H. ○ D. is zero. ○ E. cannot be calculated or shown with just the information given in the graph. (C) Price ($) B C D H FIG шо E MC ATC A MR D = AR Quantityarrow_forwardConsider the figure. A perfectly price-discriminating monopolist will produce ○ A. 162 units and charge a price equal to $69. ○ B. 356 units and charge a price equal to $52 for the last unit sold only. OC. 162 units and charge a price equal to $52. OD. 356 units and charge a price equal to the perfectly competitive price. Dollars per Unit $69 $52 MR 162 356 Output MC Darrow_forwardThe figure at right shows the demand line, marginal revenue line, and cost curves for a single-price monopolist. Now suppose the monopolist is able to charge a different price on each different unit sold. The profit-maximizing quantity for the monopolist is (Round your response to the nearest whole number.) The price charged for the last unit sold by this monopolist is $ (Round your response to the nearest dollar.) Price ($) 250 225- 200- The monopolist's profit is $ the nearest dollar.) (Round your response to MC 175- 150 ATC 125- 100- 75- 50- 25- 0- °- 0 20 40 60 MR 80 100 120 140 160 180 200 Quantityarrow_forward
- The diagram shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. At its profit-maximizing level of output, it will generate a deadweight loss to society represented by what? A. There is no deadweight loss generated. B. Area H+I+J+K OC. Area H+I D. Area D + E ◇ E. It is not possible to determine with the information provided. (...) 0 Price 0 m H B GI A MR MC D Outparrow_forwardConsider the figure on the right. A single-price monopolist will produce ○ A. 135 units and charge a price equal to $32. B. 135 units and generate a deadweight loss. OC. 189 units and charge a price equal to the perfectly competitive price. ○ D. 189 units and charge a price equal to $45. () Dollars per Unit $45 $32 MR D 135 189 Output MC NGarrow_forwardSuppose a drug company cannot prevent resale between rich and poor countries and increases output from 3 million (serving only the rich country with a price of $80 per treatment) to 9 million (serving both the rich and the poor countries with a price of $30 per treatment). Marginal cost is constant and equal to $10 per treatment in both countries. The marginal revenue per treatment of increasing output from 3 million to 9 million is equal to ○ A. $20 per treatment, which is greater than the marginal cost of $10 per treatment and thus implies that profits will rise. ○ B. $20 per treatment, which is greater than zero and thus implies that profits will rise. ○ C. $30 per treatment, which is greater than the marginal cost of $10 per treatment and thus implies that profits will rise. ○ D. $5 per treatment, which is less than the marginal cost of $10 per treatment and thus implies that profits will fall. ○ E. $30 per treatment, which is less than the marginal revenue of $80 per treatment…arrow_forward
- Consider the figure. A single-price monopolist will have a total revenue of Single-Price Monopolist OA. 84×$13. O B. 92x $13. OC. 84×$33. OD. 92 x $33. C Price ($) $33 $13 MC MR D 84 92 Output The figure is not drawn to scale.arrow_forward10.As COVID-19 came about, consumers' relationship with toilet paper changed and they found themselves desiring more than usual. Eventually, toilet paper producers saw an opportunity to make more money and meet the growing demand. Which best describes this scenario as depicted in Snell's 2020 article? A. The demand curve shifted left and the supply curve shifted left B. The demand curve shifted left and the supply curve shifted right C. The demand curve shifted right and the supply curve shifted left D. The demand curve shifted right and the supply curve shifted rightarrow_forward5. Supply and Demand. The graph below shows supply and demand curves for annual medical office visits. Using this graph, answer the questions below. P↑ $180 $150 $120 $90 $60 $30 4 8 12 16 20 24 28 32 36 a. If the market were free from government regulation, what would be the equilibrium price and quantity? b. Calculate total expenditures on office visits with this equilibrium price and quantity. c. If the government subsidized office visits and required that all consumers were to pay $30 per visit no matter what the actual cost, how many visits would consumers demand? d. What payment per visit would doctors require in order to supply that quantity of visits? e. Calculate total expenditures on office visits under the condition of this $30 co- payment. f. How do total expenditures with a co-payment of $30 compare to total expenditures without government involvement? Provide a numerical answer. Show your work.arrow_forward
- 4. The table below shows the labor requirements for Mr. and Mrs. Howell for pineapples and coconuts. Which is the most accurate statement? A. Mrs. Howell has a comparative advantage in coconuts and the opportunity cost of 1 coconut for Mrs. Howell is 4 pineapples B. Mrs. Howell has a comparative advantage in pineapples and the opportunity cost of 1 pineapple for Mrs. Howell is .25 coconuts. C. Mr. Howell has a comparative advantage in pineapples and the opportunity cost of 1 pineapple is 1 coconut. D. Mr. Howell has a comparative advantage in both pineapples and coconuts and should specialize in pineapples. Labor Requirements for Pineapples and Coconuts 1 Pineapple 1 Coconut Mr. Howell 1 hour 1 hour Mrs. Howell 1/2 hour 2 hoursarrow_forward4. Supply and Demand. The table gives hypothetical data for the quantity of electric scooters demanded and supplied per month. Price per Electric Scooter Quantity Quantity Demanded Supplied $150 500 250 $175 475 350 $200 450 450 $225 425 550 $250 400 650 $275 375 750 a. Graph the demand and supply curves. Note if you prefer to hand draw separately, you may and insert the picture separately. Price per Scooter 300 275 250 225 200 175 150 250 400 375425475 350 450 550 650 750 500 850 Quantity b. Find the equilibrium price and quantity using the graph above. c. Illustrate on your graph how an increase in the wage rate paid to scooter assemblers would affect the market for electric scooters. Label any new lines in the same graph above to distinguish changes. d. What would happen if there was an increase in the wage rate paid to scooter assemblers at the same time that tastes for electric scooters increased? 1ངarrow_forward3. Production Costs Clean 'n' Shine is a competitor to Spotless Car Wash. Like Spotless, it must pay $150 per day for each automated line it uses. But Clean 'n' Shine has been able to tap into a lower-cost pool of labor, paying its workers only $100 per day. Clean 'n' Shine's production technology is given in the following table. To determine its short-run cost structure, fill in the blanks in the table. Fill in the columns below. Outpu Capita Labor TFC TVC TC MC AFC AVC ATC 1 0 30 1 1 70 1 2 120 1 3 160 1 4 190 1 5 210 1 6 a. Over what range of output does Clean 'n' Shine experience increasing marginal returns to labor? Over what range does it experience diminishing marginal returns to labor? (*answer both questions) b. As output increases, do average fixed costs behave as described in the text? Explain. C. As output increases, do marginal cost, average variable cost, and average total cost behave as described in the text? Explain. d. Looking at the numbers in the table, but without…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education