SlideShare a Scribd company logo
Interest
Why Engineers should know ?
Dr. K. Shahzad Baig
Memorial University of Newfoundland (MUN) Canada
Interest
“Interest is the money returned to the owners of capital for use of
their capital.”
“When a person loans money, a charge is made for the use of
these borrowed funds.”
“The compensation paid for the use of borrowed capital.”
The size of the fee will depend upon:
i. the scarcity of money, the size of the loan,
ii. the length of the loan,
iii. the risk the lender feels that the loan may not be paid back, and
iv. the prevailing economic conditions.
Why Engineers should know about interest ?
Engineers may be involved in the evaluation of an investment of
money in a venture, it is important that they understand the time
value of money and how it is applied in the evaluation of
projects.
Types of Interests
Principal: The amount of capital on which interest is paid.
Rate of interest: The amount of interest earned by a unit of
principal in a unit of time.
The time unit is usually taken as one year.
Simple Interest
This form of interest requires compensation payment at a
constant interest rate based only on the original principal.
If P represents the principal, N the number of time units or
interest periods, and i the interest rate based on the length of one
interest period, the amount of simple interest I during N interest
periods is
I=P i N
The principal must be repaid eventually; therefore, the entire
amount of principal plus simple interest due after N interest
periods is
F= P+I= P (1+i N )
Problem Statement
An initial loan of $1000 at an annual interest rate of 10 percent
would require payment of $100 as interest at the end of the first
year. If this payment were not made, the interest for the second
year would be ?
The total compound amount due after 2 years would be ?
The interest for the second year =
= ($1000 + $100X0.10) = $110
The total compound amount due after 2 years =
= $1000 + $100 + $110 = $1210
Problem Statement
Rs. 100,000 was deposited in a bank account and Rs115,000 is
withdrawn one year later.
Compute
a) the interest received from the Rs100,000 investment, and
b) the annual interest rate which was paid
a)
I = Rs. 115,000 – Rs. 100,000 = Rs. 15,000
𝑖 =
15,000/𝑦𝑟
100,000
𝑥 100% = 15% 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
Compound interest
It is the interest calculated on the initial principal and also on the
accumulated interest of previous periods of a deposit or loan, in
other words, interest on interest.
Compound interest is the result of reinvesting interest, rather than
paying it out, so that interest in the next period is then on the
principal sum plus previously accumulated interest.
𝐹 = 𝑃 1 + 𝑖 𝑁
F = The total amount of money accumulated
P = Present Value of Money
i = interest rate
n = Number of interest periods
Problem Statement
• At a 10% per year interest rate, how much is $500 now
equivalent to three years from now?
• $500 now will increase 10% in each on the three years
Now End of 1st yr End of 2nd yr End of 3rd yr
$500 500+ 10% (500) 550 + 10% (550) 605 + 10 % (605)
550.00 605.00 665.50
The $500 now is equivalent to $665.50 at the end of 3 years.
The time standard for interest computations – One Year
• One Year: Can be segmented into:
– 365 days
– 52 Weeks
– 12 Months
– One quarter: 3 months – 4 quarters/year
• Interest can be computed more frequently than one time a
year
Common Compounding Frequencies
Quotation of Interest Rates
Interest rates can be quoted in more than one way.
• Example:
– Interest equals “5% per 6-months”
– Interest is “12%” (12% per what?)
– Interest is 1% per month
– “Interest is “12.5% per year, compounded monthly”
• Thus, one must “decipher the various ways to state interest
Two types of interest quotation
– 1. Quotation using a Nominal Interest Rate
– 2. Quoting an Effective Periodic Interest Rate
Following books were used in preparation of notes
 Blank, L., Tarquin. A. 2005. Engineering Economy. 6th Edition, McGraw-Hill.
 Eschenbach, T. G. 2003. Engineering Economy”, 2nd Edition, Oxford University Press
 Riggs, J. L., Bedworth, D. D., Randhawa, S. U. 1996. Engineering Economics”, 4th Edition, Tata McGraw-Hill.
 Riggs, J. L., West. T. M. 1986. Essentials of Engineering Economics”, 2nd Edition, McGraw-Hill.
 Peter, M. S., Timmerhaus, K. D. 1991. Plant Design and Economics for Chemical Engineers. 4th Edition, McGraw-Hill.

More Related Content

What's hot

Time value of money
Time value of moneyTime value of money
Time value of money
Manohar Boda
 
Time value of money
Time value of moneyTime value of money
Time value of money
ManmathTripathy1
 
Transtutors time value of money
Transtutors time value of moneyTranstutors time value of money
Transtutors time value of money
Transweb Global Inc
 
Time value of money
Time value of moneyTime value of money
Time value of money
sabaAkhan47
 
Bonds 2016
Bonds 2016Bonds 2016
Bonds 2016
David Keck
 
Time value of money
Time value of  moneyTime value of  money
Time value of money
Jubayer Alam Shoikat
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
Sultan Islam
 
القيمة الزمنية للنقود Tvm
القيمة الزمنية للنقود Tvmالقيمة الزمنية للنقود Tvm
القيمة الزمنية للنقود Tvm
Mahmoud Al Saftawi
 
Time Value of Money - Business Finance
Time Value of Money - Business FinanceTime Value of Money - Business Finance
Time Value of Money - Business Finance
FaHaD .H. NooR
 
Bonds part 2
Bonds part 2Bonds part 2
Bonds part 2
David Keck
 
Present value
Present valuePresent value
Present value
CA Yash Jagati
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
Indukoori S S N Raju - MVGR DMS
 
Rates part 1
Rates part 1 Rates part 1
Rates part 1
David Keck
 
Time value of money
Time value of moneyTime value of money
Time value of money
Ankit Jain
 
Time value of money
Time value of moneyTime value of money
Time value of money
Esmatullah Mohammady
 
time value of money
 time value of money time value of money
time value of money
Riya Arora
 
GSB711-Lecture-Note-03-The-Time-Value-of-Money
GSB711-Lecture-Note-03-The-Time-Value-of-MoneyGSB711-Lecture-Note-03-The-Time-Value-of-Money
GSB711-Lecture-Note-03-The-Time-Value-of-Money
University of New England
 
Time value of money with simple sums
Time value of money   with simple sumsTime value of money   with simple sums
Time value of money with simple sums
aarthi ramakrishnan
 
Time value of money (TVM)
Time value of money (TVM)Time value of money (TVM)
Time value of money (TVM)
Hasnatuttakween BE
 
Time value of money
Time value of moneyTime value of money
Time value of money
Arvinderpal Kaur
 

What's hot (20)

Time value of money
Time value of moneyTime value of money
Time value of money
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
Transtutors time value of money
Transtutors time value of moneyTranstutors time value of money
Transtutors time value of money
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
Bonds 2016
Bonds 2016Bonds 2016
Bonds 2016
 
Time value of money
Time value of  moneyTime value of  money
Time value of money
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
 
القيمة الزمنية للنقود Tvm
القيمة الزمنية للنقود Tvmالقيمة الزمنية للنقود Tvm
القيمة الزمنية للنقود Tvm
 
Time Value of Money - Business Finance
Time Value of Money - Business FinanceTime Value of Money - Business Finance
Time Value of Money - Business Finance
 
Bonds part 2
Bonds part 2Bonds part 2
Bonds part 2
 
Present value
Present valuePresent value
Present value
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
 
Rates part 1
Rates part 1 Rates part 1
Rates part 1
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
time value of money
 time value of money time value of money
time value of money
 
GSB711-Lecture-Note-03-The-Time-Value-of-Money
GSB711-Lecture-Note-03-The-Time-Value-of-MoneyGSB711-Lecture-Note-03-The-Time-Value-of-Money
GSB711-Lecture-Note-03-The-Time-Value-of-Money
 
Time value of money with simple sums
Time value of money   with simple sumsTime value of money   with simple sums
Time value of money with simple sums
 
Time value of money (TVM)
Time value of money (TVM)Time value of money (TVM)
Time value of money (TVM)
 
Time value of money
Time value of moneyTime value of money
Time value of money
 

Similar to Interest Why Engineers should know ?

L3 - With Answers.pdf
L3 - With Answers.pdfL3 - With Answers.pdf
L3 - With Answers.pdf
newton47
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
Fahim Muntaha
 
Simple and Compound Interest.pptx
Simple and Compound Interest.pptxSimple and Compound Interest.pptx
Simple and Compound Interest.pptx
NobelynFabito
 
Comparison of Simple and Compound Interest.ppt
Comparison of Simple and Compound Interest.pptComparison of Simple and Compound Interest.ppt
Comparison of Simple and Compound Interest.ppt
ssuser96ac0b
 
Actuarial Statistics
Actuarial StatisticsActuarial Statistics
Actuarial Statistics
Mary Montoya
 
Time value Ch6.pdf
Time value Ch6.pdfTime value Ch6.pdf
Time value Ch6.pdf
abdullahmamun649356
 
Time Value of Money.pptx .
Time Value of Money.pptx                       .Time Value of Money.pptx                       .
Time Value of Money.pptx .
Athar739197
 
Lecture 4 tvm
Lecture 4  tvmLecture 4  tvm
Lecture 4 tvm
sohag sikder
 
Business finance time value of money
Business finance time value of moneyBusiness finance time value of money
Business finance time value of money
VivekSharma1518
 
(Week 3)
(Week 3)(Week 3)
(Week 3)
sayyed sabir
 
4th Lecture- discounted cash flows (1).pptx
4th Lecture- discounted cash flows (1).pptx4th Lecture- discounted cash flows (1).pptx
4th Lecture- discounted cash flows (1).pptx
abdelhameedibrahim4
 
What is Financial Management - Short notes
What is Financial Management - Short notesWhat is Financial Management - Short notes
What is Financial Management - Short notes
M Riaz Khan
 
BASIC LONG-TERM FINANCIAL CONCEPTS.pptx
BASIC LONG-TERM FINANCIAL CONCEPTS.pptxBASIC LONG-TERM FINANCIAL CONCEPTS.pptx
BASIC LONG-TERM FINANCIAL CONCEPTS.pptx
joanabesoreta2
 
Interés compuesto.
Interés compuesto.Interés compuesto.
Interés compuesto.
Oscar Funes
 
Lesson: Amortization and Sinking Fund.ppt
Lesson: Amortization and Sinking Fund.pptLesson: Amortization and Sinking Fund.ppt
Lesson: Amortization and Sinking Fund.ppt
JayLagman3
 
FIN202_FMS-1.pptx
FIN202_FMS-1.pptxFIN202_FMS-1.pptx
FIN202_FMS-1.pptx
UlySses36
 
Maths Banking Easy ppt
 Maths Banking Easy ppt Maths Banking Easy ppt
Maths Banking Easy ppt
BhumikAggarwal1
 
Chapter 5 Mathematics of Finance and Optimization.pdf
Chapter 5 Mathematics of Finance and Optimization.pdfChapter 5 Mathematics of Finance and Optimization.pdf
Chapter 5 Mathematics of Finance and Optimization.pdf
RaRaRamirez
 
Time value of money
Time value of moneyTime value of money
Time value of money
Visakhapatnam
 
El valor del dinero a traves del tiempo.pptx
El valor del dinero a traves del tiempo.pptxEl valor del dinero a traves del tiempo.pptx
El valor del dinero a traves del tiempo.pptx
VICTOR MANUEL PIEDRA MAYORGA
 

Similar to Interest Why Engineers should know ? (20)

L3 - With Answers.pdf
L3 - With Answers.pdfL3 - With Answers.pdf
L3 - With Answers.pdf
 
Time Value of Money
Time Value of MoneyTime Value of Money
Time Value of Money
 
Simple and Compound Interest.pptx
Simple and Compound Interest.pptxSimple and Compound Interest.pptx
Simple and Compound Interest.pptx
 
Comparison of Simple and Compound Interest.ppt
Comparison of Simple and Compound Interest.pptComparison of Simple and Compound Interest.ppt
Comparison of Simple and Compound Interest.ppt
 
Actuarial Statistics
Actuarial StatisticsActuarial Statistics
Actuarial Statistics
 
Time value Ch6.pdf
Time value Ch6.pdfTime value Ch6.pdf
Time value Ch6.pdf
 
Time Value of Money.pptx .
Time Value of Money.pptx                       .Time Value of Money.pptx                       .
Time Value of Money.pptx .
 
Lecture 4 tvm
Lecture 4  tvmLecture 4  tvm
Lecture 4 tvm
 
Business finance time value of money
Business finance time value of moneyBusiness finance time value of money
Business finance time value of money
 
(Week 3)
(Week 3)(Week 3)
(Week 3)
 
4th Lecture- discounted cash flows (1).pptx
4th Lecture- discounted cash flows (1).pptx4th Lecture- discounted cash flows (1).pptx
4th Lecture- discounted cash flows (1).pptx
 
What is Financial Management - Short notes
What is Financial Management - Short notesWhat is Financial Management - Short notes
What is Financial Management - Short notes
 
BASIC LONG-TERM FINANCIAL CONCEPTS.pptx
BASIC LONG-TERM FINANCIAL CONCEPTS.pptxBASIC LONG-TERM FINANCIAL CONCEPTS.pptx
BASIC LONG-TERM FINANCIAL CONCEPTS.pptx
 
Interés compuesto.
Interés compuesto.Interés compuesto.
Interés compuesto.
 
Lesson: Amortization and Sinking Fund.ppt
Lesson: Amortization and Sinking Fund.pptLesson: Amortization and Sinking Fund.ppt
Lesson: Amortization and Sinking Fund.ppt
 
FIN202_FMS-1.pptx
FIN202_FMS-1.pptxFIN202_FMS-1.pptx
FIN202_FMS-1.pptx
 
Maths Banking Easy ppt
 Maths Banking Easy ppt Maths Banking Easy ppt
Maths Banking Easy ppt
 
Chapter 5 Mathematics of Finance and Optimization.pdf
Chapter 5 Mathematics of Finance and Optimization.pdfChapter 5 Mathematics of Finance and Optimization.pdf
Chapter 5 Mathematics of Finance and Optimization.pdf
 
Time value of money
Time value of moneyTime value of money
Time value of money
 
El valor del dinero a traves del tiempo.pptx
El valor del dinero a traves del tiempo.pptxEl valor del dinero a traves del tiempo.pptx
El valor del dinero a traves del tiempo.pptx
 

More from K. Shahzad Baig

Income tax
Income taxIncome tax
Income tax
K. Shahzad Baig
 
Nominal and Effective Interest Rate
Nominal and Effective Interest RateNominal and Effective Interest Rate
Nominal and Effective Interest Rate
K. Shahzad Baig
 
Projects, Investment, Profitability
Projects, Investment, ProfitabilityProjects, Investment, Profitability
Projects, Investment, Profitability
K. Shahzad Baig
 
Taxes and Insurance Engineering point of view
Taxes and InsuranceEngineering point of viewTaxes and InsuranceEngineering point of view
Taxes and Insurance Engineering point of view
K. Shahzad Baig
 
Estimation of Fixed Capital Cost
Estimation of Fixed Capital CostEstimation of Fixed Capital Cost
Estimation of Fixed Capital Cost
K. Shahzad Baig
 
Summary of Production Costs
Summary of Production CostsSummary of Production Costs
Summary of Production Costs
K. Shahzad Baig
 
Purchase Cost of Miscellaneous Equipment
Purchase Cost of Miscellaneous EquipmentPurchase Cost of Miscellaneous Equipment
Purchase Cost of Miscellaneous Equipment
K. Shahzad Baig
 
Mass Transfer Equipment Cost
Mass Transfer Equipment CostMass Transfer Equipment Cost
Mass Transfer Equipment Cost
K. Shahzad Baig
 
HEAT-TRANSFER EQUIPMENT COSTS
HEAT-TRANSFER EQUIPMENT COSTSHEAT-TRANSFER EQUIPMENT COSTS
HEAT-TRANSFER EQUIPMENT COSTS
K. Shahzad Baig
 
Gross Profit, Net Profit
Gross Profit, Net ProfitGross Profit, Net Profit
Gross Profit, Net Profit
K. Shahzad Baig
 
Manufacturing Costs
Manufacturing Costs Manufacturing Costs
Manufacturing Costs
K. Shahzad Baig
 
Capital Investment
Capital InvestmentCapital Investment
Capital Investment
K. Shahzad Baig
 
Cost Indices for Industrial Application
Cost Indices for Industrial ApplicationCost Indices for Industrial Application
Cost Indices for Industrial Application
K. Shahzad Baig
 
Estimation of Capital Investments
Estimation of Capital  Investments Estimation of Capital  Investments
Estimation of Capital Investments
K. Shahzad Baig
 
Production Costs
Production CostsProduction Costs
Production Costs
K. Shahzad Baig
 
Location of an industry
Location of an industryLocation of an industry
Location of an industry
K. Shahzad Baig
 
Fluctuation of money value with time
Fluctuation of money value with timeFluctuation of money value with time
Fluctuation of money value with time
K. Shahzad Baig
 
Economics for Engineers, Why ?
Economics for Engineers, Why ?Economics for Engineers, Why ?
Economics for Engineers, Why ?
K. Shahzad Baig
 
Psychrometric chart, How to read
Psychrometric chart, How to readPsychrometric chart, How to read
Psychrometric chart, How to read
K. Shahzad Baig
 
The Scientific Methods
The Scientific MethodsThe Scientific Methods
The Scientific Methods
K. Shahzad Baig
 

More from K. Shahzad Baig (20)

Income tax
Income taxIncome tax
Income tax
 
Nominal and Effective Interest Rate
Nominal and Effective Interest RateNominal and Effective Interest Rate
Nominal and Effective Interest Rate
 
Projects, Investment, Profitability
Projects, Investment, ProfitabilityProjects, Investment, Profitability
Projects, Investment, Profitability
 
Taxes and Insurance Engineering point of view
Taxes and InsuranceEngineering point of viewTaxes and InsuranceEngineering point of view
Taxes and Insurance Engineering point of view
 
Estimation of Fixed Capital Cost
Estimation of Fixed Capital CostEstimation of Fixed Capital Cost
Estimation of Fixed Capital Cost
 
Summary of Production Costs
Summary of Production CostsSummary of Production Costs
Summary of Production Costs
 
Purchase Cost of Miscellaneous Equipment
Purchase Cost of Miscellaneous EquipmentPurchase Cost of Miscellaneous Equipment
Purchase Cost of Miscellaneous Equipment
 
Mass Transfer Equipment Cost
Mass Transfer Equipment CostMass Transfer Equipment Cost
Mass Transfer Equipment Cost
 
HEAT-TRANSFER EQUIPMENT COSTS
HEAT-TRANSFER EQUIPMENT COSTSHEAT-TRANSFER EQUIPMENT COSTS
HEAT-TRANSFER EQUIPMENT COSTS
 
Gross Profit, Net Profit
Gross Profit, Net ProfitGross Profit, Net Profit
Gross Profit, Net Profit
 
Manufacturing Costs
Manufacturing Costs Manufacturing Costs
Manufacturing Costs
 
Capital Investment
Capital InvestmentCapital Investment
Capital Investment
 
Cost Indices for Industrial Application
Cost Indices for Industrial ApplicationCost Indices for Industrial Application
Cost Indices for Industrial Application
 
Estimation of Capital Investments
Estimation of Capital  Investments Estimation of Capital  Investments
Estimation of Capital Investments
 
Production Costs
Production CostsProduction Costs
Production Costs
 
Location of an industry
Location of an industryLocation of an industry
Location of an industry
 
Fluctuation of money value with time
Fluctuation of money value with timeFluctuation of money value with time
Fluctuation of money value with time
 
Economics for Engineers, Why ?
Economics for Engineers, Why ?Economics for Engineers, Why ?
Economics for Engineers, Why ?
 
Psychrometric chart, How to read
Psychrometric chart, How to readPsychrometric chart, How to read
Psychrometric chart, How to read
 
The Scientific Methods
The Scientific MethodsThe Scientific Methods
The Scientific Methods
 

Recently uploaded

LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UP
LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UPLAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UP
LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UP
RAHUL
 
math operations ued in python and all used
math operations ued in python and all usedmath operations ued in python and all used
math operations ued in python and all used
ssuser13ffe4
 
Pharmaceutics Pharmaceuticals best of brub
Pharmaceutics Pharmaceuticals best of brubPharmaceutics Pharmaceuticals best of brub
Pharmaceutics Pharmaceuticals best of brub
danielkiash986
 
Level 3 NCEA - NZ: A Nation In the Making 1872 - 1900 SML.ppt
Level 3 NCEA - NZ: A  Nation In the Making 1872 - 1900 SML.pptLevel 3 NCEA - NZ: A  Nation In the Making 1872 - 1900 SML.ppt
Level 3 NCEA - NZ: A Nation In the Making 1872 - 1900 SML.ppt
Henry Hollis
 
A Visual Guide to 1 Samuel | A Tale of Two Hearts
A Visual Guide to 1 Samuel | A Tale of Two HeartsA Visual Guide to 1 Samuel | A Tale of Two Hearts
A Visual Guide to 1 Samuel | A Tale of Two Hearts
Steve Thomason
 
Philippine Edukasyong Pantahanan at Pangkabuhayan (EPP) Curriculum
Philippine Edukasyong Pantahanan at Pangkabuhayan (EPP) CurriculumPhilippine Edukasyong Pantahanan at Pangkabuhayan (EPP) Curriculum
Philippine Edukasyong Pantahanan at Pangkabuhayan (EPP) Curriculum
MJDuyan
 
Standardized tool for Intelligence test.
Standardized tool for Intelligence test.Standardized tool for Intelligence test.
Standardized tool for Intelligence test.
deepaannamalai16
 
BIOLOGY NATIONAL EXAMINATION COUNCIL (NECO) 2024 PRACTICAL MANUAL.pptx
BIOLOGY NATIONAL EXAMINATION COUNCIL (NECO) 2024 PRACTICAL MANUAL.pptxBIOLOGY NATIONAL EXAMINATION COUNCIL (NECO) 2024 PRACTICAL MANUAL.pptx
BIOLOGY NATIONAL EXAMINATION COUNCIL (NECO) 2024 PRACTICAL MANUAL.pptx
RidwanHassanYusuf
 
UGC NET Exam Paper 1- Unit 1:Teaching Aptitude
UGC NET Exam Paper 1- Unit 1:Teaching AptitudeUGC NET Exam Paper 1- Unit 1:Teaching Aptitude
UGC NET Exam Paper 1- Unit 1:Teaching Aptitude
S. Raj Kumar
 
How to deliver Powerpoint Presentations.pptx
How to deliver Powerpoint  Presentations.pptxHow to deliver Powerpoint  Presentations.pptx
How to deliver Powerpoint Presentations.pptx
HajraNaeem15
 
مصحف القراءات العشر أعد أحرف الخلاف سمير بسيوني.pdf
مصحف القراءات العشر   أعد أحرف الخلاف سمير بسيوني.pdfمصحف القراءات العشر   أعد أحرف الخلاف سمير بسيوني.pdf
مصحف القراءات العشر أعد أحرف الخلاف سمير بسيوني.pdf
سمير بسيوني
 
spot a liar (Haiqa 146).pptx Technical writhing and presentation skills
spot a liar (Haiqa 146).pptx Technical writhing and presentation skillsspot a liar (Haiqa 146).pptx Technical writhing and presentation skills
spot a liar (Haiqa 146).pptx Technical writhing and presentation skills
haiqairshad
 
Leveraging Generative AI to Drive Nonprofit Innovation
Leveraging Generative AI to Drive Nonprofit InnovationLeveraging Generative AI to Drive Nonprofit Innovation
Leveraging Generative AI to Drive Nonprofit Innovation
TechSoup
 
How to Make a Field Mandatory in Odoo 17
How to Make a Field Mandatory in Odoo 17How to Make a Field Mandatory in Odoo 17
How to Make a Field Mandatory in Odoo 17
Celine George
 
Mule event processing models | MuleSoft Mysore Meetup #47
Mule event processing models | MuleSoft Mysore Meetup #47Mule event processing models | MuleSoft Mysore Meetup #47
Mule event processing models | MuleSoft Mysore Meetup #47
MysoreMuleSoftMeetup
 
HYPERTENSION - SLIDE SHARE PRESENTATION.
HYPERTENSION - SLIDE SHARE PRESENTATION.HYPERTENSION - SLIDE SHARE PRESENTATION.
HYPERTENSION - SLIDE SHARE PRESENTATION.
deepaannamalai16
 
Gender and Mental Health - Counselling and Family Therapy Applications and In...
Gender and Mental Health - Counselling and Family Therapy Applications and In...Gender and Mental Health - Counselling and Family Therapy Applications and In...
Gender and Mental Health - Counselling and Family Therapy Applications and In...
PsychoTech Services
 
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptxC1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
mulvey2
 
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...
imrankhan141184
 
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptxNEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
iammrhaywood
 

Recently uploaded (20)

LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UP
LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UPLAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UP
LAND USE LAND COVER AND NDVI OF MIRZAPUR DISTRICT, UP
 
math operations ued in python and all used
math operations ued in python and all usedmath operations ued in python and all used
math operations ued in python and all used
 
Pharmaceutics Pharmaceuticals best of brub
Pharmaceutics Pharmaceuticals best of brubPharmaceutics Pharmaceuticals best of brub
Pharmaceutics Pharmaceuticals best of brub
 
Level 3 NCEA - NZ: A Nation In the Making 1872 - 1900 SML.ppt
Level 3 NCEA - NZ: A  Nation In the Making 1872 - 1900 SML.pptLevel 3 NCEA - NZ: A  Nation In the Making 1872 - 1900 SML.ppt
Level 3 NCEA - NZ: A Nation In the Making 1872 - 1900 SML.ppt
 
A Visual Guide to 1 Samuel | A Tale of Two Hearts
A Visual Guide to 1 Samuel | A Tale of Two HeartsA Visual Guide to 1 Samuel | A Tale of Two Hearts
A Visual Guide to 1 Samuel | A Tale of Two Hearts
 
Philippine Edukasyong Pantahanan at Pangkabuhayan (EPP) Curriculum
Philippine Edukasyong Pantahanan at Pangkabuhayan (EPP) CurriculumPhilippine Edukasyong Pantahanan at Pangkabuhayan (EPP) Curriculum
Philippine Edukasyong Pantahanan at Pangkabuhayan (EPP) Curriculum
 
Standardized tool for Intelligence test.
Standardized tool for Intelligence test.Standardized tool for Intelligence test.
Standardized tool for Intelligence test.
 
BIOLOGY NATIONAL EXAMINATION COUNCIL (NECO) 2024 PRACTICAL MANUAL.pptx
BIOLOGY NATIONAL EXAMINATION COUNCIL (NECO) 2024 PRACTICAL MANUAL.pptxBIOLOGY NATIONAL EXAMINATION COUNCIL (NECO) 2024 PRACTICAL MANUAL.pptx
BIOLOGY NATIONAL EXAMINATION COUNCIL (NECO) 2024 PRACTICAL MANUAL.pptx
 
UGC NET Exam Paper 1- Unit 1:Teaching Aptitude
UGC NET Exam Paper 1- Unit 1:Teaching AptitudeUGC NET Exam Paper 1- Unit 1:Teaching Aptitude
UGC NET Exam Paper 1- Unit 1:Teaching Aptitude
 
How to deliver Powerpoint Presentations.pptx
How to deliver Powerpoint  Presentations.pptxHow to deliver Powerpoint  Presentations.pptx
How to deliver Powerpoint Presentations.pptx
 
مصحف القراءات العشر أعد أحرف الخلاف سمير بسيوني.pdf
مصحف القراءات العشر   أعد أحرف الخلاف سمير بسيوني.pdfمصحف القراءات العشر   أعد أحرف الخلاف سمير بسيوني.pdf
مصحف القراءات العشر أعد أحرف الخلاف سمير بسيوني.pdf
 
spot a liar (Haiqa 146).pptx Technical writhing and presentation skills
spot a liar (Haiqa 146).pptx Technical writhing and presentation skillsspot a liar (Haiqa 146).pptx Technical writhing and presentation skills
spot a liar (Haiqa 146).pptx Technical writhing and presentation skills
 
Leveraging Generative AI to Drive Nonprofit Innovation
Leveraging Generative AI to Drive Nonprofit InnovationLeveraging Generative AI to Drive Nonprofit Innovation
Leveraging Generative AI to Drive Nonprofit Innovation
 
How to Make a Field Mandatory in Odoo 17
How to Make a Field Mandatory in Odoo 17How to Make a Field Mandatory in Odoo 17
How to Make a Field Mandatory in Odoo 17
 
Mule event processing models | MuleSoft Mysore Meetup #47
Mule event processing models | MuleSoft Mysore Meetup #47Mule event processing models | MuleSoft Mysore Meetup #47
Mule event processing models | MuleSoft Mysore Meetup #47
 
HYPERTENSION - SLIDE SHARE PRESENTATION.
HYPERTENSION - SLIDE SHARE PRESENTATION.HYPERTENSION - SLIDE SHARE PRESENTATION.
HYPERTENSION - SLIDE SHARE PRESENTATION.
 
Gender and Mental Health - Counselling and Family Therapy Applications and In...
Gender and Mental Health - Counselling and Family Therapy Applications and In...Gender and Mental Health - Counselling and Family Therapy Applications and In...
Gender and Mental Health - Counselling and Family Therapy Applications and In...
 
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptxC1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
C1 Rubenstein AP HuG xxxxxxxxxxxxxx.pptx
 
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...
Traditional Musical Instruments of Arunachal Pradesh and Uttar Pradesh - RAYH...
 
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptxNEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
NEWSPAPERS - QUESTION 1 - REVISION POWERPOINT.pptx
 

Interest Why Engineers should know ?

  • 1. Interest Why Engineers should know ? Dr. K. Shahzad Baig Memorial University of Newfoundland (MUN) Canada
  • 2. Interest “Interest is the money returned to the owners of capital for use of their capital.” “When a person loans money, a charge is made for the use of these borrowed funds.” “The compensation paid for the use of borrowed capital.” The size of the fee will depend upon: i. the scarcity of money, the size of the loan, ii. the length of the loan, iii. the risk the lender feels that the loan may not be paid back, and iv. the prevailing economic conditions.
  • 3. Why Engineers should know about interest ? Engineers may be involved in the evaluation of an investment of money in a venture, it is important that they understand the time value of money and how it is applied in the evaluation of projects.
  • 4. Types of Interests Principal: The amount of capital on which interest is paid. Rate of interest: The amount of interest earned by a unit of principal in a unit of time. The time unit is usually taken as one year.
  • 5. Simple Interest This form of interest requires compensation payment at a constant interest rate based only on the original principal. If P represents the principal, N the number of time units or interest periods, and i the interest rate based on the length of one interest period, the amount of simple interest I during N interest periods is I=P i N The principal must be repaid eventually; therefore, the entire amount of principal plus simple interest due after N interest periods is F= P+I= P (1+i N )
  • 6. Problem Statement An initial loan of $1000 at an annual interest rate of 10 percent would require payment of $100 as interest at the end of the first year. If this payment were not made, the interest for the second year would be ? The total compound amount due after 2 years would be ? The interest for the second year = = ($1000 + $100X0.10) = $110 The total compound amount due after 2 years = = $1000 + $100 + $110 = $1210
  • 7. Problem Statement Rs. 100,000 was deposited in a bank account and Rs115,000 is withdrawn one year later. Compute a) the interest received from the Rs100,000 investment, and b) the annual interest rate which was paid a) I = Rs. 115,000 – Rs. 100,000 = Rs. 15,000 𝑖 = 15,000/𝑦𝑟 100,000 𝑥 100% = 15% 𝑝𝑒𝑟 𝑦𝑒𝑎𝑟
  • 8. Compound interest It is the interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan, in other words, interest on interest. Compound interest is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then on the principal sum plus previously accumulated interest. 𝐹 = 𝑃 1 + 𝑖 𝑁 F = The total amount of money accumulated P = Present Value of Money i = interest rate n = Number of interest periods
  • 9. Problem Statement • At a 10% per year interest rate, how much is $500 now equivalent to three years from now? • $500 now will increase 10% in each on the three years Now End of 1st yr End of 2nd yr End of 3rd yr $500 500+ 10% (500) 550 + 10% (550) 605 + 10 % (605) 550.00 605.00 665.50 The $500 now is equivalent to $665.50 at the end of 3 years.
  • 10. The time standard for interest computations – One Year • One Year: Can be segmented into: – 365 days – 52 Weeks – 12 Months – One quarter: 3 months – 4 quarters/year • Interest can be computed more frequently than one time a year Common Compounding Frequencies
  • 11. Quotation of Interest Rates Interest rates can be quoted in more than one way. • Example: – Interest equals “5% per 6-months” – Interest is “12%” (12% per what?) – Interest is 1% per month – “Interest is “12.5% per year, compounded monthly” • Thus, one must “decipher the various ways to state interest Two types of interest quotation – 1. Quotation using a Nominal Interest Rate – 2. Quoting an Effective Periodic Interest Rate
  • 12. Following books were used in preparation of notes  Blank, L., Tarquin. A. 2005. Engineering Economy. 6th Edition, McGraw-Hill.  Eschenbach, T. G. 2003. Engineering Economy”, 2nd Edition, Oxford University Press  Riggs, J. L., Bedworth, D. D., Randhawa, S. U. 1996. Engineering Economics”, 4th Edition, Tata McGraw-Hill.  Riggs, J. L., West. T. M. 1986. Essentials of Engineering Economics”, 2nd Edition, McGraw-Hill.  Peter, M. S., Timmerhaus, K. D. 1991. Plant Design and Economics for Chemical Engineers. 4th Edition, McGraw-Hill.