662 Chapter 20 Engineering Economics
Example 20.5 Determine the interest earned on $5000 deposited in a savings account, for 10 years, based on
one of the following quoted interest rates: 6% compounding annually, semiannually, quarterly,
monthly, and daily. The solution to this problem is presented in Table 20.5.TABLE 20.5 The Solution of Example 20.5
Total Number of Total Future Amount Interest
Compounding Compounding Using Eq. (16.8) (dollars
Period Periods (dollars and cents) and cents)Annually 10 5000(1 0.06)
10
8954.23 3954.23
Semiannually 20 4030.55
Quarterly 40 4070.09
Monthly 120 4096.98
Daily 3650 5000 a 1 4110.14
0.06
365b
3650
9110.14
5000 a 1
0.06
12b
120
9096.98
5000 a 1
0.06
4b
40
9070.09
5000 a 1
0.06
2b
20
9030.55
Example 20.6 Determine the effective interest rates corresponding to the nominal rates: (a) 7% compound-
ing monthly, (b) 16.5% compounding monthly, (c) 6% compounding semiannually, (d) 9%
compounding quarterly.
We can compute theiefffor each case by substituting foriandmin Equation (20.4).(a)
(b)
(c)
(d)ieffa 1
0.09
4
b
4
1 0.0930 or 9.30%ieffa 1
0.06
2
b
2
1 0.0609 or 6.09%ieffa 1
0.165
12
b
12
1 0.1780 or 17.80%ieffa 1
i
m
b
m
1 a 1 0.07
12
b
12
1 0.0722 or 7.22%Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).圀圀圀⸀夀䄀娀䐀䄀一倀刀䔀匀匀⸀䌀伀䴀圀圀圀⸀夀䄀娀䐀䄀一倀刀䔀匀匀⸀䌀伀䴀