1. If the market interest rate is 16% per year when the inflation rate is 9% per
ID: 1116751 • Letter: 1
Question
1. If the market interest rate is 16% per year when the inflation rate is 9% per year, the real interest rate is closest to: (a) 6.4% (b) 7.3% (c) 8.3% (d) 9.4% (e) >9.5% 2. The cost of an F-150 pick-up truck was $29,350 three years ago. If the cost increased only by the inflation rate and the price today is $33,015, the inflation rate was closest to: (a) 3% (b) 4% (c) 5% (d) 6% (e) >6% 3. The number of dollars that would be accumulated now from an investment of $1000 twenty-five years ago if the market interest rate was 5% per year is closest to: (a) $1640 (b) $2360 (c) $3386 (d) $5430 (e) $5556 4. A 100,000 barrel per day (BPD) fractionation tower cost $1.2 million when the Chemical Engineering plant cost index value was 394.3. How much would a 300,000 BPD plant cost (in $millions) when the index value is 575.8, provided the exponent in the cost-capacity equation is 0.67? (a) $2.317 (b) $2.861 (c) $3.124 (d) $3.658 (e) $3.992 1. If the market interest rate is 16% per year when the inflation rate is 9% per year, the real interest rate is closest to: (a) 6.4% (b) 7.3% (c) 8.3% (d) 9.4% (e) >9.5% 2. The cost of an F-150 pick-up truck was $29,350 three years ago. If the cost increased only by the inflation rate and the price today is $33,015, the inflation rate was closest to: (a) 3% (b) 4% (c) 5% (d) 6% (e) >6% 3. The number of dollars that would be accumulated now from an investment of $1000 twenty-five years ago if the market interest rate was 5% per year is closest to: (a) $1640 (b) $2360 (c) $3386 (d) $5430 (e) $5556 4. A 100,000 barrel per day (BPD) fractionation tower cost $1.2 million when the Chemical Engineering plant cost index value was 394.3. How much would a 300,000 BPD plant cost (in $millions) when the index value is 575.8, provided the exponent in the cost-capacity equation is 0.67? (a) $2.317 (b) $2.861 (c) $3.124 (d) $3.658 (e) $3.992Explanation / Answer
Sol. 1. Market interest rate = 16%
Inflation rate = 9 %
Real interest rate = 7 % (16-9) (Real interest rate = Market interest rate - inflation rate)
Hence, Real interest rate was closest to 7.3 %
Answer is (b) 7.3%
Sol. 2. Cost of truck 3 years ago = $29,350
Current cost = $ 33,015
Increase in cost = $3,665
Increase in percentage = $3,665/$29,350 * 100 = 12.48%
If we take an average per year the percentage increase = 12.48/3 = 4.16%
Since, increase in cost = increase by inflation rate
Therefore, average annual inflation rate = 4.16%
Hence, the inflation rate was closest to 4%
Answer is (b) 4%
Sol. 3. Principal amount = $ 1000
Market interest rate = 5% per year
Time = 25 years
Total amount = Principal amount + Simple Interest
Simple interest = Principal amount * Interest Rate * Time/100 = 1000 * 5 * 25/100 = $ 1250
Total amount = $1,000 + $ 1250 = $2250
Hence, the amount accumulated after 25 years will be closest to $2360
Answer is (b)$2360
Sol. 4. Unable to provide solution
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