FE Practice Problems
5-631
Elin purchased a car for $10,000. she wrote a check for $2,000 as a down payment for
the car and financed the $8,000 balance. The annual percentage rate (APR) is 9%
compounded monthly, and the loan is to be repaid in equal monthly installments over the
next four years. Elin’s monthly car payment is most nearly which of the following? [5.5]
(a) $167
(b) $172
(c) 188
(d) $200
(e) $218
5-64
A specialized automatic machine costs $300,000 and is expected to save $111,837.50 per
year while in operation. Using a 12% interest rate, what is the discounted payback
period? [5.8]
(a) 4
(b) 5
(c) 6
(d) 7
(e) 8
5-65
With interest at 8% compounded annually, how much money is required today to provide
a perpetual income of $14, 316 per year? [5.3]
(a) $ 178,950 (b) $ 96,061
(c) $ 175,134 (d) $ 171,887
5-66
What is the internal rate of return in the following cash flow? [5.6]
Year End
Cash Flow ($)
(a) 12.95%
0
-3,345
(b) 11.95%
1
1,100
(c) 9.05%
2
1,100
(d) 10.05%
3
1,100
4
1,100
(e) 11.05%
5-67
A bond has a face value of $1,000, is redeamable in eight years, and pays interest of $100
at the end of the eight years. If the bond can be purchased for $981, what is the rate of
return if the bond is held until maturity? [5.3]
(a) 10.65%
1
(b) 12.65%
(c) 10.35%
(d) 11.65%
Problems choosen from Engineering Economy, 13th Edition, Sullivan, W.G., et.al., Prentice-Hall, 2006
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FE Practice Problems
5-70
A new machine was bought for $9,000 with a life of six years and no salvage value. Its
annual operating costs were as follows:
$7,000, $7,350, $7,717.499, … , $8,933.968
If the MARR = 12%, what was the annual equivalent cost of the machine? [5.5]
(a) $7,809
(b) $41,106
(c) $9,998
(d) $2,190
(e) $9,895
5-71
A bank offers a loan at a nominal interest rate of 6% per year to be paid back in five
equal annual installments. The bank also charges an application fee equal to 13.67% of
the loan amount. What is the effective interest that the bank is charging? [5.6]
(a) 11.65%
(b) 11.35%
(c) 12.65%
(d) 12.35%
5-72
You want to deposit enough money in a bank account for your son’s education. You
estimate that he will need $8,000 per year for four years, starting on his 18th birthday.
Today is his first birthday. If you earn 12% interest, how much lump sum should you
deposit in the bank today to provide for his education? [5.3]
(a) $24,298
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(b) $3,538
(c) $32,000
d) $3,963
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