a. What is the yearly effective interest rate if the nominal interest rate is 20% compounded quarterly? (5 points)
b. The yearly effective rate is 20% when deposits are compounded monthly. What is the yearly nominal rate? (5 points)
c. Your salary is expected to increase by 10% each year. However, the yearly inflation rate is estimated to be 7% in the coming years. What will be your yearly net increase (%) in salary? (5 points)
d. In how many years will your money triple if the annual interest rate is 10%? (5 points)
e. The IRRs (%) of six alternatives and their incremental comparisons are given in the table below:
A 10.6
B 13
C 9.6
D 19.1
E 18.3
F 15.6
(B = A): 16.4
D-B: 22.6
(B - C): 12.4
D-C: 18.2
(E-D): 15.1
D -A: 25.7
(E - B): 24.6
(F = D): 11.1
(E - A): 27.8
(F - B): 23.0
F = E: 8.1
(F = A): 20.8
Which project would you choose when MARR = 10% per year? (15 points)
f. Considering the following cost information about a defender, when would it be most economical to replace it when the challenger's EUAC is i) 12,250 ii) 13,750? Clearly explain your answer. (10 points)
EOY k Total (Marginal) Cost for year k ($) S EUAC through year k ($)
1 10,500 10,500
2 12,000 11,214
3 13,650 11,950
4 15,000 12,607
