ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
Question
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Chapter 4, Problem 93P
To determine

(a)

Effective annual interest rate.

Expert Solution
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Answer to Problem 93P

Effective annual interest rate is 12.36%.

Explanation of Solution

Given information:

Loan amount: $5,000

Interest rate: 12% per annum, compounded semi-annually.

Loan amount is $5,000 and Rate of Interest is 12% compounded semi-annually.

Effective annual interest rate is calculated as periodic interest rate expressed in terms of a year.

Effective Interest rate is calculated using the following formula:

E=(1+i/n)n-1Where;i=Annual interest raten=Number of periodsIn the given scenario, i = 6% since interest is compounded semi-annuallyn = 2 since interest is compounded monthlySubstituting values in the above equation, we get,E = (1+6%)21E = 12.36%

Substituting the above values in the equation we get effective interest rate as 12.36%.

Conclusion:

Hence the Effective annual interest rate is calculated.

To determine

(b)

Amount of semi-annual payment.

Expert Solution
Check Mark

Answer to Problem 93P

Amount of semi-annual payment is $ 1442.96.

Explanation of Solution

Given information:

Loan amount: $5,000

Interest rate: 12% per annum, compounded semi-annually.

Duration: 4 Periodic repayments.

The periodic payment to be made is calculated as per the following formula:

P=(R/(1(1+R)N)LWhere;P=Periodic RepaymentR=Periodic  Rate of Interest N= Duration of the LoanL=Loan AmountP = (0.0618 / (1 - ( ( 1+0.0618 ) 4)) ×5,000P = $ 1448.91

Loan amount is $5,000, Interest rate per period is 12.36% per annum, compounded semi-annually, and Duration is 4 repayments.

Substituting values in the above equation, we get the periodic payment as $1,448.91.

Conclusion:

Hence the amount of monthly payment is calculated.

To determine

(c)

Total interest paid.

Expert Solution
Check Mark

Answer to Problem 93P

Total interest paid is $795.64.

Explanation of Solution

Given information:

Loan amount: $5,000

Interest rate: 12% per annum, compounded semi-annually.

Duration: 4 Periodic repayments.

The periodic payment to be made is calculated as per the following formula:

P=(R/(1(1+R)N)LWhere;P=Periodic RepaymentR=Periodic  Rate of Interest N= Duration of the LoanL=Loan AmountP = (0.0618 / (1 - ( ( 1+0.0618 ) 4)) ×5,000P = $ 1448.91

Loan amount is $5,000, Interest rate per period is 12% per annum, compounded semi-annually, and Duration is 4 repayments.

Substituting values in the above equation, we get the periodic payment as $1,448.91.

Total interest paid is calculated using the following formula:

I = (P x N) – L Where: I = Interest paid P = Periodic repayment N = Number of repayments L = Original Loan amount Substituting values,in the above equation, we get; I = ($1,448.91 x 4) - $5,000 I = $ 795.64

Hence the total interest paid is $795.64.

Conclusion:

Hence the total interest paid is calculated.

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Chapter 4 Solutions

ENGR.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. 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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