EGN3613 Module 6 Example Calculations

Engineering Economics
Calculating effective interest rate, compounding, continuous compounding, variable APR
(Assignment Set 5)
Q1. If you have a credit card with 14.4% APR
a. What is your monthly interest rate and what is your annual effective interest rate?
b. If you have an outstanding balance of $1,800 on that card what would be the balance if you skipped 4 months payments (ignore credit card fees and penalties)
Q2. What is the future worth of a series of equal monthly payments of $5,000 if the series extends over a period of six years at 9% interest compounded?
a. Quarterly
b. Monthly
c. Continuously
Q3. You borrowed $150,000 with a 30-years payback term and a variable APR that starts at 9% and can be changed every five years
a. What is the initial monthly payment
b. If, at the end of the five years, the lender’s interest rate changes to 9.75% APR, what will the new monthly payment be?
Q4. Ryan expects to deposit $1,000 now, $3,000 four years from now, and $1,500 six years from now in an account that is earning 12% per year compounded semiannually through a company-sponsored saving plan. What amount can he withdraw ten years from now?
Q5. Atlas Transportation is considering installing temperature logger in all its refrigerated trucks for monitoring temperatures during transit. If the systems will reduce insurance claims by $40,000 per year for 5 years how much should the company be willing to spend now if it uses an interest rate of 12% compounded quarterly.