Engineering Economic Analysis
Engineering Economic Analysis
13th Edition
ISBN: 9780190296902
Author: Donald G. Newnan, Ted G. Eschenbach, Jerome P. Lavelle
Publisher: Oxford University Press
Question
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Chapter 4, Problem 89P

(a)

To determine

Monthly interest rate.

(a)

Expert Solution
Check Mark

Answer to Problem 89P

Monthly Interest rate is 0.98%.

Explanation of Solution

Given information:

Loan amount: $1,000

Duration: 12 Months

Amount of monthly payment is $ 93.12.

Loan amount is $1,000, Amount of monthly payment is $93.12 and Duration is12 Months.

Total Amount Repaid = Amount of monthly payment of $ 93.12 x Duration of 12 MonthsTotal Amount Repaid = $1,117.44Less: Loan Amount = $1,000Interest Paid for 1 Year = $117.44Rate of interest per month = Interest Paid for 1 Year / Loan Amount / 12 Rate of interest per month = 0.9787%.

Conclusion:

Hence the monthly interest rate is calculated.

(b)

To determine

Nominal annual interest rate.

(b)

Expert Solution
Check Mark

Answer to Problem 89P

Nominal annual interest rate is 11.744%.

Explanation of Solution

Given information:

Loan amount : $1,000

Duration: 12 Months

Amount of monthly payment is $ 93.12.

Loan amount is $1,000, Amount of monthly payment is $ 93.12 and Duration is12 Months.

Nominal annual interest rate is calculated as periodic interest rate expressed in terms of a year. For instance, a periodic monthly interest rate is expressed in terms of a year by multiplying the same by 12.

Interest rate per month is calculated at 0.98% per month. Hence the annual interest rate is calculated as Monthly interest rate multiplied by 12.

Total Amount Repaid = Amount of monthly payment of $ 93.12 x Duration of 12 MonthsTotal Amount Repaid = $1,117.44Less: Loan Amount = $1,000Interest Paid for 1 Year = $117.44Rate of interest per month = Interest Paid for 1 Year / Loan Amount / 12 Rate of interest per month = 0.9787%Annual Interest Rate = Rate of Interest per month x 12 = 0.9787% x 12 = 11.744%.

Conclusion:

Hence the nominal annual interest rate is calculated.

(c)

To determine

Effective annual interest rate.

(c)

Expert Solution
Check Mark

Answer to Problem 89P

Effective annual interest rate is 12.3972%.

Explanation of Solution

Given information:

Loan amount : $1,000

Duration: 12 Months

Amount of monthly payment is $ 93.12.

Loan amount is $1,000, Amount of monthly payment is $ 93.12 and Duration is12 Months.

Nominal annual interest rate is calculated as periodic interest rate expressed in terms of a year. For instance, a periodic monthly interest rate is expressed in terms of a year by multiplying the same by 12.

Interest rate per month is calculated at 0.9787% per month. Hence the annual interest rate is calculated as Monthly interest rate multiplied by 12.

Total Amount Repaid = Amount of monthly payment of $ 93.12 x Duration of 12 MonthsTotal Amount Repaid = $1,117.44Less: Loan Amount = $1,000Interest Paid for 1 Year = $117.44Rate of interest per month = Interest Paid for 1 Year / Loan Amount / 12 Rate of interest per month = 0.9787%Annual Interest Rate = Rate of Interest per month x 12 = 0.9787% x 12 = 11.744%

Effective Interest rate is calculated using the following formula:

E=(1+i/n)n-1Where;i=Annual interest raten=Number of periodsSubstituting the above values in the equation we get,E = ( 1+ 0.11744/12 )12- 1E = 12.3972%

Thus, effective interest rate is 12.3972%

Conclusion:

Hence the Effective annual interest rate is calculated.

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Chapter 4 Solutions

Engineering Economic Analysis

Ch. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Prob. 8PCh. 4 - Prob. 9PCh. 4 - Prob. 10PCh. 4 - Prob. 11PCh. 4 - Prob. 12PCh. 4 - Prob. 13PCh. 4 - Prob. 14PCh. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - Prob. 19PCh. 4 - Prob. 20PCh. 4 - Prob. 21PCh. 4 - Prob. 22PCh. 4 - Prob. 23PCh. 4 - Prob. 24PCh. 4 - Prob. 25PCh. 4 - Prob. 26PCh. 4 - Prob. 27PCh. 4 - Prob. 28PCh. 4 - Prob. 29PCh. 4 - Prob. 30PCh. 4 - Prob. 31PCh. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - Prob. 34PCh. 4 - Prob. 35PCh. 4 - Prob. 36PCh. 4 - Prob. 37PCh. 4 - Prob. 38PCh. 4 - Prob. 39PCh. 4 - Prob. 40PCh. 4 - Prob. 41PCh. 4 - Prob. 42PCh. 4 - Prob. 43PCh. 4 - Prob. 44PCh. 4 - Prob. 45PCh. 4 - Prob. 46PCh. 4 - Prob. 47PCh. 4 - Prob. 48PCh. 4 - Prob. 49PCh. 4 - Prob. 50PCh. 4 - Prob. 51PCh. 4 - Prob. 52PCh. 4 - Prob. 53PCh. 4 - Prob. 54PCh. 4 - Prob. 55PCh. 4 - Prob. 56PCh. 4 - Prob. 57PCh. 4 - Prob. 58PCh. 4 - Prob. 59PCh. 4 - Prob. 60PCh. 4 - Prob. 61PCh. 4 - Prob. 62PCh. 4 - Prob. 63PCh. 4 - Prob. 64PCh. 4 - Prob. 65PCh. 4 - Prob. 66PCh. 4 - Prob. 67PCh. 4 - Prob. 68PCh. 4 - Prob. 69PCh. 4 - Prob. 70PCh. 4 - Prob. 71PCh. 4 - Prob. 72PCh. 4 - Prob. 73PCh. 4 - Prob. 74PCh. 4 - Prob. 75PCh. 4 - Prob. 76PCh. 4 - Prob. 77PCh. 4 - Prob. 78PCh. 4 - Prob. 79PCh. 4 - Prob. 80PCh. 4 - Prob. 81PCh. 4 - Prob. 82PCh. 4 - Prob. 83PCh. 4 - Prob. 84PCh. 4 - Prob. 85PCh. 4 - Prob. 86PCh. 4 - Prob. 87PCh. 4 - Prob. 88PCh. 4 - Prob. 89PCh. 4 - Prob. 90PCh. 4 - Prob. 91PCh. 4 - Prob. 92PCh. 4 - Prob. 93PCh. 4 - Prob. 94PCh. 4 - Prob. 95PCh. 4 - Prob. 96PCh. 4 - Prob. 97PCh. 4 - Prob. 98PCh. 4 - Prob. 99PCh. 4 - Prob. 100PCh. 4 - Prob. 101PCh. 4 - Prob. 102PCh. 4 - Prob. 103PCh. 4 - Prob. 104PCh. 4 - Prob. 105PCh. 4 - Prob. 106PCh. 4 - Prob. 107PCh. 4 - Prob. 108PCh. 4 - Prob. 109PCh. 4 - Prob. 110PCh. 4 - Prob. 111PCh. 4 - Prob. 112PCh. 4 - Prob. 113PCh. 4 - Prob. 114PCh. 4 - Prob. 115PCh. 4 - Prob. 116PCh. 4 - Prob. 117PCh. 4 - Prob. 118PCh. 4 - Prob. 119PCh. 4 - Prob. 120PCh. 4 - Prob. 121PCh. 4 - Prob. 122PCh. 4 - Prob. 123PCh. 4 - Prob. 124PCh. 4 - Prob. 125PCh. 4 - Prob. 126P
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