2023 ASEE Annual Conference & Exposition

This paper describes a long running individual project to teach engineering economy concepts to new students. Many of these students were not exposed to even a minimal level of interest calculation in high school. In addition, engineering economy is not a required course for any engineering major at this university, but a junior level engineering economy course is offered as an elective by a graduate program in engineering management. This project is a part of a two-credit course in exploration of engineering and technology, and it provides the only exposure to engineering economy for most of the graduates.

Each student starts with a fixed imaginary sum of $10,000 (P) to make a short-term investment within a semester. Up to $5,000 of the P may be invested in an FDIC insured on-line high yield savings account (HYSA) that recently started paying over 2.00% annual APR. The rest is invested in individual stocks. Nine stocks are provided from three sectors (Aerospace, Banking, and Automotive) and each student is asked to select up to three stocks after a short online search as to what to pick by using the current online prices. The sum of the funds invested in the HYSA and stocks must add up to P. Students make their choices on a form which is checked and approved by the instructor.

Students are taught the basic concepts of present and future worth. After about 8 weeks, stocks are “sold” in class using the online price then, and the HYSA balance is “cashed out” by calculating its own future value. The future worth of the HYSA is certain, but the future of the stocks varies widely. The sum of both proceeds is the overall future value (F). Many students are surprised to realize that the F can be less than the P for many of them. Next, they learn how to calculate the daily return that provides equivalence of F and P. The daily return realized, which can be negative, is then converted to annual effective return to judge the overall performance of the investment. Students write an MS Excel code to perform the calculations, but they also provide manual solutions in their reports. In addition, an online tool is also used. All three methods yield the same effective annual return. Returns for all sections are plotted in individual reports as a function of the percentage invested in the safe, but low yield component (HYSA) in the overall scheme. Students find this project exciting and behave as if the P were real.

The outcomes include some understanding of time value of money, learning the calculation of effective annual return for short term investment, the impact of diversification and risk taking in portfolio performance, and enhanced MS Excel skills. Freshmen are also urged to take engineering economy as an elective later. They are told that engineering economy is the course they are sure to use regularly in their personal and professional activities.