Problem 1

It is desired to have $9,000 available 12 yr from now. If $5,000 is available for investment at the present time, what discrete
annual rate of compound interest on the investment would be necessary to yield the desired amount?

Problem 2

An original loan of $2,000 was made at 6% simple interest per year for 4 yr. At the end of this time, no interest had been
paid and the loan was extended for 6 yr more at a new effective compound interest rate of 8%/yr. What is the total amount
owed at the end of the 10thyr if no intermediate payments are made?

Problem 3

A concern borrows $50,000 at an annual effective compound interest rate of 10%. The concern wishes to pay off the debt in
5 yr by making equal payments at the end of each year. How much will each payment have to be?

Problem 4

A heat exchanger has been designed for use in a chemical process. A standard type of heat exchanger with a negligible scrap
value costs $4,000 and will have a useful life of 6 yr. Another proposed heat exchanger of equivalent design capacity costs
$6,800 but will have a useful life of 10 yr and a scrap value of $800. Assuming an effective compound interest rate of 8%/yr,
determine which heat exchanger is cheaper by comparing the capitalized costs.

Problem 5

Two machines, each with a service life of 5 yr, have the following cost comparison. If the effective interest rate is 10%/yr,
which machine is more economical?

A B
First cost $25,000 $15,000
Uniform end of-year maintenance 2,000 4,000
Overhaul, end of third year 3,500
Salvage value 3,000
Benefit from quality as a uniform end-of-year amount 500