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Engineering Economy and Simple Interest Quiz

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Engineering Economy and Simple Interest Quiz

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Questions and Answers

What is the difference between ordinary simple interest and exact simple interest?

Ordinary Simple Interest is computed based on the exact number of days in a given year, while Exact Simple Interest is computed on the basis of 12 months, 30 days each.

Ordinary Simple Interest is used for longer-term loans, while Exact Simple Interest is used for short-term loans.

Ordinary Simple Interest does not consider leap years, while Exact Simple Interest considers leap years.

Ordinary Simple Interest is computed on the basis of 12 months, 30 days each, while Exact Simple Interest is computed based on the exact number of days in a given year. (correct)

What is compound interest?

Interest calculated only on the principal amount.

Interest calculated without considering the previous accumulated interest.

Interest calculated on the principal plus the previous accumulated interest. (correct)

Interest deducted in advance from the future worth.

What does discount represent in the context of engineering economy?

The cost of borrowing money or the amount earned by a unit principal per unit time.

The difference between the amount a borrower receives in cash (present worth) and the amount he pays in the future (future worth). (correct)

The total interest paid by the borrower over the loan period.

The additional amount a borrower receives in cash compared to what he pays in the future.

What does nominal rate of interest specify?

<p>The basic annual rate of interest and the number of interest periods in one year.</p> Signup and view all the answers

When is simple interest usually used?

<p>For short-term loans where the period is measured in days.</p> Signup and view all the answers

Study Notes

Types of Interest

Ordinary simple interest is calculated only on the initial principal amount, whereas exact simple interest is calculated on the initial principal amount and any accrued interest.
Compound interest is the interest calculated on both the initial principal amount and any accrued interest over time.

Discount in Engineering Economy

Discount represents the difference between the present worth of a future cash flow and its nominal value.

Nominal Rate of Interest

Nominal rate of interest specifies the rate at which interest is charged or paid per period, without considering the effect of compounding.

Simple Interest Usage

Simple interest is usually used for short-term investments or loans, and when the interest is not compounded over time.

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Description

Test your knowledge of engineering economy and simple interest with this quiz. Explore the analysis and evaluation of factors affecting the economic success of engineering projects, as well as the computation of simple interest on short-term loans.