FREE Master of Engineering Management Engineering Economics Questions and Answers

Question 1

False or True. Are the following future receipts' present values accurate? $8,500 In 12 years, at a compound annual interest rate of 12% $2182

Accepted Answer

TRUE

Answer

To determine the present value (PV) of a future receipt, we use the formula: PV = FV / (1 + r)^n, where FV is future value ($8,500), r is the interest rate (12% or 0.12), and n is the number of years (12). Calculating this gives: PV = 8500 / (1 + 0.12)^12 = 8500 / (1.12)^12 = 8500 / 3.895976... which approximates to $2181.65. Since $2182 is very close to this calculated present value, the statement is TRUE.

Question 2

True or False: What circumstances cause the market inter-set rate to be less than?

Accepted Answer

FALSE

Answer

This question is poorly phrased and grammatically incorrect, making it difficult to understand what 'market inter-set rate' refers to or what it's being compared to. Without a clear and coherent question, it's impossible to determine a true or false answer based on economic principles. Therefore, stating 'FALSE' is the most appropriate response to an unanswerable question.

Question 3

False or True. If a home was purchased 12 years ago and is currently being sold for 2.5 times the original price, the average annual rate would be 7.93%.

Accepted Answer

TRUE

Answer

To calculate the average annual rate, we use the compound interest formula: Future Value = Present Value * (1 + rate)^n. Given that the future value is 2.5 times the present value over 12 years, we set up the equation 2.5 = (1 + rate)^12. Solving for the rate, we find (1 + rate) = (2.5)^(1/12) ≈ 1.0793. This means the average annual rate is approximately 0.0793, or 7.93%.

Question 4

How long must $500 be invested for it to grow to $625 at a 10% simple interest rate each year?

Accepted Answer

2.5 years

Answer

For simple interest, the formula is Interest (I) = Principal (P) * Rate (R) * Time (T). The total interest earned is $625 (future value) - $500 (principal) = $125. Plugging the values into the formula, we get $125 = $500 * 0.10 * T. Solving for T, we find T = $125 / ($500 * 0.10) = $125 / $50 = 2.5 years.

Question 5

A small construction business is thinking about spending $61,000 for a used bulldozer. If the company buys the dozer now, what is the closest company per for the identical future amount in year 4 that the company is paying for the dozer 4% year interest?

Accepted Answer

$71,365

Answer

This question asks for the future value of an initial investment using compound interest. The formula for future value (FV) is FV = PV * (1 + i)^n, where PV is the present value, i is the interest rate, and n is the number of periods. Plugging in the given values: FV = $61,000 * (1 + 0.04)^4. Calculating this yields FV = $61,000 * (1.04)^4 ≈ $61,000 * 1.16985856 ≈ $71,361.37, which is closest to $71,365.

MEM - Master of Engineering Management Practice Test

MEM - Master of Engineering Management Practice Test

FREE Master of Engineering Management Engineering Economics Questions and Answers