Chapter 15: Engineering Economics
There is a special emphasis on economics in the P.E. examinations. In the final part of the examination, the candidates are required to answer one economics question in each of the morning and afternoon sessions; the economics problems constitute 25 percent of the total number of problems to be solved.
Time Value of Money
When money is borrowed by individuals, corporations, or public service organizations, they are required to pay compensation for the use of the borrowed money. The sum of money loaned is called principal and the compensation paid by the borrower or earned by the lender is termed interest.
Rate of Interest
This is the ratio of the amount of interest payment to the principal per unit of the interest period. It might also be termed as the rate of return or yield on the productive investment of capital. It is denoted by i and expressed as percent per interest period. Thus
Time-Scale Presentation
Economic disbursements on a time scale are represented as follows:
Here 0 to n indicate the time periods, usually in years and A 0, A 1, A n are disbursements. The zero on the time scale is the beginning of the year, and 1 is the end of one year (or first period) or beginning of the second year (or second period) and so on.
Simple Interest
When the interest earned on an investment is not reinvested with the original investment to form new interest-earning...