CIVL 2812—Project Appraisal (Semester 2, 2019)
CIVL 2812—Project Appraisal (Semester 2, 2021)
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Tutorial 1 Questions
Objectives A
• Understand the concepts of simple & compound interest, equivalence, cash-flow, time value of
money.
• Be able to draw correct cash flow diagrams for given problems
• Be able to calculate equivalent values using interest tables for single payment and uniform annuities.
Objectives B:
• Be able to calculate equivalent values using interest tables for deferred annuities, Arithmetic
sequences of cash flows and those involving multiple interest formulas.
ESSENTIAL QUESTIONS
Problem 4-4
Which investment yields the higher interest income: investing P dollars at 3% annual simple interest for 2
years or at 2% annual compound interest for 2 years? (4.2)
Problem 4-9
Suppose you contribute $12 per week ($624 a year) into an interest bearing account that earns 7% a year
(compounding once a year). That’s probably one less pizza per week! But if you contribute faithfully into this
account, how much money would you have saved by the compounding of interest by the end of 10 years?
Problem 4-11
You have just invested a one-time amount of $6,000 in a stock-based mutual fund. This fund should earn (on
average) 8% per year over a long period of time. How much will your investment be worth in 23 years? (4.6)
Problem 4-17
The monthly average cable TV bill in 2017 is $74.50. If cable cost are climbing at an annual rate of 7% per year,
how much will the typical cable subscriber pay in 2024? (4.6)
Problem 4-25
Your parents make 25 equal annual deposits of $1,000 each into a bank account earning 4% interest per year.
The first deposit will be made one year from today. How much money can be withdrawn from this account
immediately after the 25th deposit? (4.7)
CIVL 2812—Project Appraisal (Semester 2, 2021)
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EXTENSION QUESTIONS
Problem 4-5
How much interest is payable each year on a loan of $1,000 if the interest rate is 9% per year SIMPLE INTEREST
when half of the loan principal will be repaid as a lump sum at the end of 3 years and the other half will be
repaid in one lump sum amount at the end of 6-years? How much interest will be paid over the 6-year period?
(4.4)
Problem 4-6
An amount of $15,000 is borrowed from the bank at an annual interest rate of 12%. (4.4)
a) Calculate the equal end-of-year payments required to completely pay off the loan in four years.
b) Calculate the repayment amounts if the loan ($15,000) will be repaid in two equal instalments of
$7,500 each, paid at the end of second and fourth years respectively. Interest will be paid each year.
Develop the table similar to those in Table 4-1.
Problem 4-12
A new oven will save $100 per year in electricity expense. How much can we afford to pay for this oven if it is
expected to last 15 years? The interest rate is 12% per year. (4.7.2)
Problem 4-21
A good stock-based mutual fund should earn at least 10% per year over a long period of time. Consider the
case of Barney and Lynn, who were overheard gloating (for all to hear) about how well they had done with
their mutual fund investment. “We turned a $10,000 investment of money in 1985 into $100,000 in 2012.”
(4.6)
a. What return (interest rate) did they really earn on their investment? Should they have been
bragging about how investment-savvy they were?
b. Instead, if $800 has been invested each year for 27 years to accumulate $100,000, what
return would Barney and Lynn earn?
Problem 4-49
Consider the accompanying cash-flow diagram. (See Figure P4-49.) (4.7)
a. If P = $1,000, A = $200, and i% = 12% per year, then N =?
b. If P = $1,000, A = $200, and N = 10 years, then i =?
c. If A = $200, i% = 12% per year, and N = 5 years, then P=?
d. If P = $1,000, i% = 12% per year, and N = 5 years, then A=?