18. (FIG, 2%, 12)-. 19. For a 10% nominal interest rate per year, compute the ef
ID: 2566162 • Letter: 1
Question
18. (FIG, 2%, 12)-. 19. For a 10% nominal interest rate per year, compute the effective annual interest rate in each of these situations: b. Compounded daily e. Compounded continuously - Multiple Choice Questions (2 points each) 20. Engineering economic analysis would be useful in all of the following situations except a. Determining how much we should pay for a device that will provide savings b. Determining the priority of investing your family's retained camings c. Showing the economic benefits of one alternative over another feasible choice d. Convincing management that one person should be hired over another e. All of the above 21. "Neither input nor output fixed' is associated with which economic criterion: a. Maximize profit b. Maximize benefits c. Minimize costs d. Maximize costs e. None of the aboveExplanation / Answer
a) Compounded quarterly
Effective Rate = (1 + Nominal Rate / n)n - 1
= (1+.1/4)^4-1
= (1+0.25)^4-1
= 1.025^4-1
= .10381 or 10.381%
b) Compounded daily
Daily Compound Interest = (1 + Nominal Rate / n)n - 1
= (1+.1/365)^365-1
= (1.0002)^365-1
= 1.075 or 10.75%
c) Compounded Continuously
= (1 + (i / n)) ^ (n x t)
= (1+0.1/1)^1*1
= (1.1)^1*1
= 1.105 or 11.10%
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