057:014 Engineering Economy



057:014 Engineering Economy NAME ___________________

Quiz #1 Date: September 7, 2001

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1) Michael Owen decides to invest $9,000 in a 401(k). If this is invested for 40 years, how much will there be in the account at the end? Assume that he invests in a broad stock market no-load index fund that has historically returned 12% per year.

Why won’t he end up with this amount?

F = 9000*(1.12)^40 = $837,459

He won’t end up with this amount for two reasons. One, is the taxes that will be taken out when he withdrawals the money. The other is the fact that the stock market is volatile and won’t yield exactly 12% each year.

2)

a) What is the Euro?

The Euro (€) is the currency that several European nations have adopted to replace their individual countries currencies.

b) Express in SHORTHAND ECONOMIC FORM the relationship between the present value P and the future value F at interest rate i and number of periods n

P= F (P/F, i, n) or F= P (F/P, i, n)

3) Calculate the final amount in a bank account after 2 years if $1000 is deposited at 6% per year interest compounded quarterly.

F = 1000 * (1 + 0.06/4)^8 or F = 1000 * 1.126

F = $1126

4) A music event has the following charges:

|Charge per attendee |$25 |

|Costs of hiring performers |$2,750 |

|Costs of hiring venue |$950 |

|Variable cost per attendee |$5 |

a. What is the total fixed cost? T.F.C. = $2750 + $950 = $3700

b. Develop the mathematical relationships for total cost and total revenue.

T.C. = $3700 + $5 (x)

T.R. = $25 (x)

c. What is the total number of attendees that will allow the event to just break even?

set TC = TR; 25x = 3700 + 5x x = 185 attendees

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