Engineering Economics Homework
Project description
Problem:
You are going to begin your freshmen year of college and you will be getting a student loan to help pay for your
schooling. You will have four different options that you will need to analyze to answer the questions identified below. The option and the terms of the loans are
provided below.
Loan Terms:
1. All loans shall be computed at an annual percentage interest rate (APR) of 3.75%
2. It is assumed that you will need the loan for four years (eight semesters)
3.It is assumed that you will be gainfully employed upon graduation and will begin repaying the principle four calendar years after the loan(s) began
4. You will not make any payments towards the principle of the loans while you are attending college
5.It has been determined that you will need $48,000 ($6000 a semester) to finish school
Loan Options:
1.You can take the loan in one lump sum of $48000 at the beginning of the four years. Using this option you will also be able reinvest the remainder of the loan
into a CD for six months each time; i.e. after paying for the first semester you can invest $42000 and after paying for the second semester you can invest $36000,
after the third semester you can invest $30000, etc…. This CD will return an annual percentage interest rate (APR) of 1.25%. For this option you will not be making
any payments on the interest (from the loan) generated from the principle while you are attending school, so no payments for four years.
2.You can take the loan in one lump sum of $48000 at the beginning of the four years. Using this option you will also be able reinvest the remainder of the loan
into a CD for six months each time; i.e. after paying for the first semester you can invest $42000 and after paying for the second semester you can invest $36000,
after the third semester you can invest $30000, etc…. This CD will return an annual percentage interest rate (APR) of 1.25%. For this option you will be making
monthly payments on the interest (from the loan) generated from the principle while you are attending school.
Northern Arizona University
College of Engineering, Forestry, and Natural Sciences
CENE 286: Engineering Economics
Engineering Economics Homework 2 Assigned: 03/02/2015
100 points Due: 03/11/2015
Engineering Economics Homework
You will evaluate the student loan conditions identified below. This work is to be completed and submitted as an individual.
Problem:
You are going to begin your freshmen year of college and you will be getting a student loan to help pay for your schooling. You will have four different options that
you will need to analyze to answer the questions identified below. The option and the terms of the loans are provided below.
Loan Terms:
? All loans shall be computed at an annual percentage interest rate (APR) of 3.75%
? It is assumed that you will need the loan for four years (eight semesters)
? It is assumed that you will be gainfully employed upon graduation and will begin repaying the principle four calendar years after the loan(s) began
? You will not make any payments towards the principle of the loans while you are attending college
? It has been determined that you will need $48,000 ($6000 a semester) to finish school
Loan Options:
1. You can take the loan in one lump sum of $48000 at the beginning of the four years. Using this option you will also be able reinvest the remainder of the loan into
a CD for six months each time; i.e. after paying for the first semester you can invest $42000 and after paying for the second semester you can invest $36000, after the
third semester you can invest $30000, etc…. This CD will return an annual percentage interest rate (APR) of 1.25%. For this option you will not be making any payments
on the interest (from the loan) generated from the principle while you are attending school, so no payments for four years.
2. You can take the loan in one lump sum of $48000 at the beginning of the four years. Using this option you will also be able reinvest the remainder of the loan into
a CD for six months each time; i.e. after paying for the first semester you can invest $42000 and after paying for the second semester you can invest $36000, after the
third semester you can invest $30000, etc…. This CD will return an
annual percentage interest rate (APR) of 1.25%. For this option you will be making monthly payments on the interest (from the loan) generated from the principle while
you are attending school.
3. You can take the $6000 at the beginning of each semester. You will not be given the chance to reinvest anything this time because you will use the principle every
semester to pay for school. For this option you will not be making any payments on the interest (from the loan) generated from the principle while you are attending
school, so no payments for four years.
4. You can take the $6000 at the beginning of each semester. You will not be given the chance to reinvest anything this time because you will use the principle every
semester to pay for school. For this option you will be making monthly payments on the interest (from the loan) generated from the principle while you are attending
school.
Deliverable:
On engineering paper you need to provide the following information:
1. Draw a cash flow diagram for each option (8 points each option)
2. For each option you need to have hand calculations that determine the total amount owed and income generated at the end of the four years (8 points each option)
3. For each option you need to have hand calculations that determine the annual percentage yield for each option (5 points each option)
4. Explain which option is ultimately the most expensive and why you think it is (4 points for each part)
5. Explain which option is ultimately the least expensive and why you think it is (4 points for each part)
3.You can take the $6000 at the beginning of each semester. You will not be given the chance to reinvest anything this time because you will use the principle every
semester to pay for school. For this option you will not be making any payments on the interest (from the loan) generated from the principle while you are attending
school, so no payments for four years.
4.You can take the $6000 at the beginning of each semester. You will not be given the chance to reinvest anything this time because you will use the principle every
semester to pay for school. For this option
you will be making monthly payments on the interest (from the loan) generated from the principle while you are attending school.
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