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PHILADELPHIA UNIVERSITY Faculty of Engineering
Civil Engineering Department
Course
Engineering Economy Part One
0670472 Instructor
Eng. Othman Aldmour
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Engineering Economy
1- Introduction 2 – What is Engineering Economy 3- The Principles of Engineering Economy 4 –The Role of Engineering Economy 5 – The Process of Decision Making 6- Examples
Chapter 1
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Engineering Economy
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N = log(F\P) / log(1+i)
Solving for the Number of Periods, n
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Simple Interest and Compound Interest (cont.)
-Compound interest
– Interest earned in Year 1
= 5% of $500 = $25
Interest earned in Year 2
= 5% of ($500 + accumulated interest)
= 5% of ($500 + 25) = .05×525 = $26.25
– Balance in your savings account:
= Principal + interest earned
• = $500 + $25 + $26.25 = $551.25
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Power of Time Figure 5.1 Future Value and Compound Interest Illustrated
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Power of Interest Rate Figure 5.1 Future Value and Compound Interest Illustrated
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Compound Interest with Shorter Compounding Periods (cont.)
Example : You invest $500 for seven years to earn an annual interest rate of 8%, and the investment is compounded semi-annually. What will be the future value of this investment?
We will use equation 5-1b to solve the problem.
This equation adjusts the number of compounding periods and interest rate to reflect the semi-annual compounding.
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Compound Interest with Shorter Compounding Periods (cont.)
FV = PV(1+i/2)m*2
= 500(1+.08/2)7*2
= 500(1.7317)
= $865.85
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Solving for the Number of Periods
Rule of 72 is an approximate formula to determine the number of years it will take to double the value of your investment.
Rule of 72
N = 72/interest rate
Rule of 72
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Rule of 72 (cont.)
Example :Using Rule of 72, determine how long it will take to double your investment of $10,000 if you are able to generate an annual return of 9%.
N = 72/interest rate
N = 72/9 = 8 years
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