Engineering Economics II

Question 1

Amount of money paid for the use of borrowed capital or the income produced by money which has been loaned.

Answer 1

Interest

Question 2

The percentage of money charged as interest.

Answer 2

interest rate

Question 3

Calculated using the principal only, ignoring any interest that has been accrued in preceding periods.

Answer 3

Simple Interest

Question 4

Computed on the basis of 12 months of 30 days each or 360 days a year.

Answer 4

Ordinary simple interest

Question 5

Based on the exact number of days in a year, 365 days for an ordinary year and 366 days for a leap year.

Answer 5

Exact simple interest

Question 6

The interest for an interest period is calculated on the principal plus total amount of interest accumulated in previous periods. Thus it means “interest on top of interest.”

Answer 6

Compound Interest

Question 7

A graphical representation of cash flows drawn on a time scale. Cash-flow diagram for economic analysis problems is analogous to that of free body diagram for mechanics problems.

Answer 7

Cash Flow Diagram

Question 8

positive cash flow or cash inflow

Answer 8

Receipt

Question 9

negative cash flow or cash outflow

Answer 9

Disbursement

Question 10

Difference between total cash receipts (inflows) and total cash disbursements (outflows) expenditures for a given period of time.

Answer 10

Cash flow

Question 11

the interest is compounded at the end of each finite- length period, such as a month, a quarter, or a year.

Answer 11

discrete compounding

Question 12

it is assumed that cash payments occur once per year, but the compounding is continuous throughout the year.

Answer 12

continuous compounding

Question 13

It is often said that money makes money.

Answer 13

Cash flow diagram

Question 14

Changes in the amount of money over a given period of time.

Answer 14

Time Value of Money

Question 15

different sums of money at different times can be equal in economic value.

Answer 15

equivalence

Question 16

the interest is compounded at the end of each finite length period, such as a month, a quarter year.

Answer 16

Discrete compounding

Question 17

Single payment compound amount factor.

Answer 17

(1+i)^n

Question 18

single payment present worth factor.

Answer 18

(1+i)^-n

Question 19

Specifies the rate of interest and a number of interest periods in one year.

Answer 19

Nominal rate of interest

Question 20

The actual or exact rate of interest on the principal during one year.

Answer 20

Effective rate of interest

Question 21

Assumed that cash payment occur one a year, but the compounding is continuous throughout the year.

Answer 21

continuous compounding

Question 22

the difference between Future Worth and Present Worth

Answer 22

Discount

Question 23

difference between the present worth (the amount received for the paper in cash) and the worth of the paper at some time in the future (the face value of the paper or principal)

Answer 23

Discount

Question 24

interest paid in advance.

Answer 24

Discount

Question 25

The discount on one unit of principal per unit of time.

Answer 25

rate of discount

Question 26

Is the increase in the prices for goods and services from one year to another, thus decreasing the purchasing power of money.

Answer 26

Inflation

Question 27

Obtained by setting the sum of the values on a certain comparison or focal date of one set of obligations equal to the sum of the values on the same date of another set of obligations.

Answer 27

Equation of Value

Question 28

a series of equal payments occurring at equal periods of time.

Answer 28

annuity

Question 29

one where the payments are made at the end of each period.

Answer 29

Ordinary Annuity

Question 30

one where the first payment is made several periods after the beginning of the annuity.

Answer 30

Deferred Annuity

Question 31

one where the payments are made at the beginning of each period.

Answer 31

Annuity Due

Question 32

an annuity in which the payments continue indefinitely.

Answer 32

Perpetuity

Question 33

One of the most important applications of perpetuity.

Answer 33

Capitalized Cost

Question 34

the sum of the first cost and the present worth of all costs of replacement, operation and maintenance for a long time or forever.

Answer 34

Capitalized Cost

Question 35

Capitalized cost= | 1st cost + Present worth of perpetual operation and or maintenance.

Answer 35

Case 1: no replacement, only maintenance and or operation every period.

Question 36

Capitalized cost= | 1st cost + Present worth of perpetual replacement.

Answer 36

Case 2- replacement only, no maintenance and or operation.

Question 37

Capitalized cost= | 1st cost + Present worth of perpetual operation and or maintenance + Present worth of cost of perpetual replacement.

Answer 37

Case 3- Replacement, maintenance and or operation every period.

Question 38

method of repaying a debt, the principal and interest included, usually by a series of equal payments at equal interval of time.

Answer 38

Amortization

Question 39

Involves the analysis of problems for manufacturing a product or rendering a service based on present or immediate cost

Answer 39

present Economy

Question 40

The decrease in the vale of physical property with the passage of time

Answer 40

depreciation