Engineering Economics Part 1: Fundamentals of Financial Calculations TSYH 4720

Upon successful completion, the student will be able to:

Module 1 - Simple Interest

• Convert percent rates to their correct fractional form.
• Determine the time period in a simple interest calculation under a variety of ways of stating loan periods.
• Describe the linear behavior of simple interest.
• Calculate the value for any variable in a simple interest model given sufficient data on the other variables.
• Construct cash flow diagrams from text descriptions and use these to obtain solutions to problems.

Module 2 - Applications of Simple Interest and Discounting

• Setup and solve the equations of value.
• Understand what is meant by a negotiable instrument and specifically the nature of notes and drafts.
• Understand the terminology of promissory notes (maturity, date, legal due date, days of grace).
• Describe the difference between simple discount and bank discount and perform the necessary calculations from text descriptions.
• Determine final balances in partial payment plans.

Module 3 - Compound Interest

• Understand the difference between simple interest and compound interest.
• Determine the interest rate per period and number of conversion periods from any nominal annual rate and loan duration.
• Apply the compound interest formula to determine present values, future values, interest rates per period and nominal annual rates, number of compounding periods, or loan duration from text descriptions.
• Apply correctly the techniques for determining present and future values under fractional periods of compounding.
• Convert nominal interest rates to effective rates.
• Find equivalent interest rates.
• Set-up and solve for financial equivalence using compound interest.

Module 4 - Simple Case Annuities

• Describe the characteristics of annuities.
• Calculate the payment size, present value, future value, interest rate, or a number of payments for simple annuities due (beginning of period annuities).

Module 5 - Other Type Annuities

• Apply the ordinary annuity model to solve for parameters or deferred annuities.
• Recognize the general or complex case annuity and to solve for parameters of this type of annuity.
• Solve for parameters of the perpetual annuity.
• Find capitalized costs and apply these in financial evaluation.
• Find final odd-sized payments in annuities.

Effective as of Fall 2003