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3K views40 pagesEngineering Economics - Gillesania
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© © All Rights Reserved
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/ 40
Part 6 Engineering Engineering Part7
284 Fhid Mechanics Mathematics Vol. 2 Mathematics Vol. 2 Engineering Economics 28S
SOLUTION 9 - 26
ans! B
Part 7
ENGINEERING
ECONOMIC
Energy equation between © and @:
Fyn
Se me ts INTEREST Interest is the amount of money earned by a given
By Bega Pare ty capital, From the borrower's viewpoint, interest is
ag Y TEM the amount of money paid forthe use of a borrowed
IGG capital, From. the lender's viewpoint, it is the
DOTA ae OTS pas income generated by thecapital that was lent.
wo? |, ,0:12(30)) CASH FLOW Cash flow diagrams may be drawn to help
2g | 002 DIAGRAMS visualize and simplify problems having diverse
v= 057 m/s receipis and disbursements,
Q=Av= 3 (0.02)? (0.57)
tl + The horizontal (time) axis is marked off in
Bie ah Conventions used in tal (time)
tial CaHFan qual incremenis, one per period, up to the
ae 4 Gluration or horizon ofthe projec.
+All disbursement and receipts (cash flow) are
‘assumed to take place at the end of the year in
which they occur. This is known as the year-
tnd corvention. The exception of the year-
‘end convention is the Initial cost (purchase
ost) which occur at t= 0.
+ To of more transfers in the same period
plot cto end maybe combined ini ons,
sxpenses incurred before ! = 0 are called sunk
cost and are not relevant to the problem,
+ Receipts and disbursement are represented,
by arrows on opposite sides of the horizontal
time axis.
Consider the following example: An electronic
equipment costs P30,000. Maintenance cost is
P3000 each year. The device will generate
reverues of F15,000 each year for 5 years alter
which the salvage value is expected to be P12,000.
Draw and simplify the cash flow diagram. Part 7
BBG ergincciing Economics
SIMPLE INTEREST
Ordinary and Exact
Simple Interest
Engineering
Mathematics Vol. 2
following shows the cash flow Gagrm for
each transaction
Puzr
IST PIST PIST PIST PIST
PST PST FST aT PST
Pat
‘The simplified cash flow diagram is as follows:
PUT pigT PIZT PZT PRAT
Pao
In. simple interest, the interest earned by the
principal is computed atthe end of the investment
period, and thus, it varies directly with time.
In ordinary simple interest, the interest is computed
on the basis of one banker's year.
1 banker's year = 12 months
(80 days each month) =360 days
Invexact simple interest, the interest is based on the
exact number of days of the year, where there are
365 days for an ordinary year and 366 years for
leap years,
Leap year occurs every four years for years that is
exactly. divisible by four, except century marks
(1800, 1900, etc.) but not including those that are
exactly divisible by 400 (2000, 2400, etc.)
‘Mathematics Vol. 2
Elements of Simple
Interest
COMPOUND
INTEREST
Part? 997
Engineering Economics
‘P= principal or present wort
Jointerestchened
“F=future worth
F=P+i
te simple interest rate (per year)
= timein years or fraction of a year
Note: ? may stand for the amount borrowed or
invested, while F may stand for the amount to be
paid or amount accumulated
T= Prt
FeP stm D4 Prt
Fe Ptr)
Value of
Exampe:
+ years; t= 4
& Amonths; £= 3/12 =
& SOdays
Ordinary simple interest, t= 90/360
Exact simple interest,» 90/365
108 90/366 for leap years.
4 2years & 4 months;
t=24 4/12 2033
In compound interest, the interest is computed
every end of each interest period (compounding
period), and the interest earned for that period is
Added to the principal (interest phis principal),
‘To demonsttate this, consider an investment of
P1000 to earn 10% pet year for three yeais. The
{following diagram shows how the money grows.
0 1 2 3
Pv
1, psi00 —+ Pizi0 —+ Pisat
1000) T=-tioo sot a
Te pk 2 Part7 Engin ‘Engineering
288 Engineering eonomics Mathematics Vol, 2 ‘Mathematics Vol. 2
Elements of ‘P= present worth or principal
worth oz compound amount
Sede ee fective interest per Cooabendine pose
(per interest period)
ixr/m
n= total number of compoundings
netxm
I= interest earned
I=F-P
r= nominal interest rate
ER = effective interest
f= number of years of investment OTS
m= number of compoundings per year ESnenand
Future worth of P ‘After n periods, the compound amount F is: (m— «)
Present worth of F
Values of /and n
Fe Pi+i)"
Theterm (1+i)', also denoted as (F/P, i n) is cal
the single payment compouord-amount facto.
‘The present worth of Fis: Merival acd
= Effective Rates of
oy Intorest
The term ——, also denoted as (P/F, i, n)
aan"
called the single payment present-soorth factor.
‘The following examples show how to get
values of fandn.
Nominal interest rate, r= 12%
Number of years of investment, =5 years
+ Compounded annually (m= 1)
i=012/1=0.12
n=s()=5
4c
mmpounded semi-annually (m = 2)
12/2008
32) =10
Part 7
Engitening Reonpmice 20>
‘ Compounded quarter
Thaaeog
n=5(4)=20
+ Compounded monthly (m= 12)
i= 012/12 = 0.01
n= 5(12) = 60
4 Compounded bicmonthly (7H = 6)
i= 0112/6 = 0.02
n=5(6)= 30.
Interest may be compounded daily, hourly, per
minute, ete, As a limit, interest ee considered
to be compounded an infinite number of times per
year (11). ‘
compounded continuously fort years
Pelt
Nominal rate is the rate quoted in describing a
given paiey of eonpound inert, Consider
sank deposit of P1030 to earn 6% compounded
quatterly, After one yeat, the compound amount F
i
Fe P(L+i)! = 1000(1 + 0.06/4)!"*
F=P 1061.36
Notice that the. interest eamed is P5136
representing 6136% of P1000 (not 6% of P1000).
For this case, 6% (compounded quarterly) is called
the nominal rate and 6,136% is the effective rate,
‘Thus the effective rate of interest (ER) is the actual
interest earned in one year period, | This can be
computed by either of the following:
Interest earned in one year
R= Principal at the beginning of the year
mee(et) a Part 7
290 sngincering Economics
Equivalent Nominal
Rates
ANNUITY
Elements of Annuity
Engineering
Mathematics Vol. 2
Thus, the effective rate of 6% compounded
uarterly is, ER = (1 + 0.06/4)* - 1 = 0.06136 or
136% as computed previously.
The effective
continuously is:
rate of r (%) compounded
ER=
From the previous discussion, we see that 6%
compounded quarterly is not the same as 6%
compounded monthly, for the reason that they
have different effective rates,
Two nominal rates are equal if they have the same
effective rates.
Consider a nominal interest rate of 10%
‘compounded quarterly. The equivalent nominal
rate compounded monihly is:
ERy =ERo.
(1 +1712) =1'= (1 + 0.10/4)'-1
F=0,09918 = 9.918%
‘Thuis, 10% compounded quarterly will have the
‘same interest a8 9.918% compounded monthly.
Annuity is a scries of uniform payments made at
‘equal intervals of time.
Annuities are established for
urposes:
PUPS payment of a debt by » series of equal
payment at equal time intervals, also known
as amortization.
2 To accumulate a certain amount inthe futire
by depositing equal amounts at equal time
intervals, These amounts are called sinking
fund,
As a substitute periodic payment for a future
lump sum payment.
the following.
A = periodic payment
Den cic
For § = future worth or sum ofall the periodic
payments after the last payment is made.
Engineering Part7 994.
‘Mathematics Vol. 2 Engineering Economies
= interest tale per payment
1n= number of payments
TYPES OF ANNUITY
A. Ordinary Annuity In ordinary annuity, the payment is made at the
Future worth of A
Value of A with
known F
(sinking-fund)
Present worth of A
end ofeach period starting from the fist period,
inthediagram shown below. Vie ats |
Qube 3 4 8
ee eee
‘The future worth if is:
= AULA" =
The factor LAUT jy catted equat-payment-seres
compouridamount factor and is denoted as (E/A, in)
‘The value of A if F is known ist
fi
An
(nr
‘The factor fa is known as equal-peyment
sinking: fund factor and is denoted as (A/F. 4, 1)
The present worth of A is:
pe F_ , Al+i'—1)
Oy" ast
‘The fector eae Alec eoleyust parent
ah
series present-worth factor and is designated as (P/A,
inn) Part 7 Engineering
292 Engincering Economics Mathematics Vol. 2
ValueofAwith The valueof A with known P ist
known P Pasir
(capital recovory) Net
cena
Ti factor rag MO oo el
yyment-series-capital-recovery factor’ and is
‘designated as (4/P, |, n)
i In this type, the first payment is deferred a certain
Esters nih) Re eae beae Cons oa
Lar eS
os——t
For the cash flow diagram shown above, the
following calculations can be made for solving P
and F.
So solve for the future worth F:
p= Ald+0*-1)
‘Tosolve for the present worth P:
~—F_ , Ad+i*-1)
ay Grr
©. Annuity D: If the payment is made at the beginning of each
mea period starting from the first period, the annulty is
called annuity dice
Engineering Part7
Mathematics Vol, 2 Engineering Eeoncinice 29S
From the diagram shown:
_Al+i)°—1)
F
arte. Al(L+ i) =1
(+i? (+iri
From the previous examples, the formula for P ean.
be generalized as:
Al(.+i)"=1]
a
whowe 1 ig the number of payments and in! is the
number of periods from zero (0) period up to the
last payment.
PERPETUITY Perpotuity is an. annuity where the payment
Pulees evra iorver oF the period payente
Continue indefinitely.
If he payment is mde atthe Grd of each pened
starting, from the first period, the present worth of
perpetuity is
A
UNIFORM GRADIENT
Arithmetic Gradient
The present worth is:
p= Alld+)"=1) , GI
aay Part 7 Engineering Engineering
294 Engineering Econcmics Mathematics Vol. 2 "Mathematics Vol. 2
“The future worth is
Fe pas GeO +i ie
Geometric Gradient
Alas)" =1) , 6 |
P
aay TH
Annual Cost, AC
Ifw=1 (forr=i)
p= Al +iy Gn
(ay T+r
The future worth is
Fe pati"
CAPITALIZED COST AND ANNUAL COST
lized Cost, K ed_ cost is an application of perpetuity.
Gap ltalizec Tire plaliinl cad ota mat or erie ee
stim of the frst cost (FC) ana the present worth’ of
all future payments and replacements. which Is
‘tured to continue folever. 2
If a project requires a first cost of FC, annual
‘operation and maintenance of OM for 7 years, a
salvage value of SV after every n years, and a
replacement cost of RC after every end of i yearsy
then the capitalized cost is:
Patt? 295
Engineering Economics
Capitalized cost, K
kerce OM
IERC is not specified, use RC= FC.
“Capitalized cost may also be defined as the first
Cost plus the present worth of annual maintenance
and operation cost plus the present worth of
depreciation assumed to continue forever.
‘The annual cost (AC) of a project
‘C= Annual interest on investment +
Annual operation and maintenance +
Annual depreciation cost
In relation to capitalized cost, AC i
Annual cost, AC= Ki
ace (Folsom + RE=SYy
(rot
‘A machine costs P300,000.00 new, and must be
replaced at the end of each 15 years. If the annual
maintenance required is 500000, find the
‘apital'zed cost, if money is worth 5% and the final
salvage value is P50,000.
KeFc+ OM , RC-S¥
i (aan
$5,000 , 300,000 -50,000
K=300,000 + 2000 , 300,000= 80/000
0.05 (140.05)* -1
K=P631,711.44 Part 7
296 Engineering Economics
cost
COMPARISON OF
DIFFERENT
ALTERNATIVES
Esample7 = 2
Seaton
DEPRECIATION
Elements of
Depreciation
A certain equipment costs P150,000.00, lasts for 6
years, and has a salvage value of P30,000. How
Thuch could an investor afford to pay for another
machine for the same purpose, whose life is 10
Years and salvage value is PA,00, f money
‘worth 5%?.
For the first machine:
Rares OM, RC-SV
f @egt=2
150,000-30,000
K= 150,009 + 2000-000"
(1+0.05)°-1
K = P502,841.92
For the other machine:
Ka FC+ CSO 509,841.92
(140.05) —4
FC = P218,69641
Depreciation refers to the decrease in the value of
‘an asset, due to usage of passage of time. An asset
may depreciate physically or functionally,
FC= first cost
‘SV salvage value or trade-in value
d= depreciation charge
yr =economic life of the property in years
m=any time before n
BV. = book value after m years
D,* total depreciation for m years
The following diagram shows the cost of the
property plotted versus time.
Part]? 297
Engineering Economics
Book Value ‘The book value of the property at any time mis:
BV = FC~ Dy
METHODS OF COMPUTING DEPRECIATION
A. Straight Line ‘This is the most common method used in)
Doproclation (SLD) computing depreciation, In this method, the cost
of te ree is assumed to vary linearly with
time, The following formulas are used
Fo- sv
a=
*
Dy= dom
In seme cases, the life m may be the number of
outputs. An example of this is the copying
mactine (XEROX) where the life span is dependent
on the number of copies made.
B. Sinking Fund In this method, an imaginary fund d called a
Method singking fund. is invested yearly at a rate of i to
amount to (FC - SY) at the end of the life of the
property,
ga FOV
asi=1
p= alts" —11
i
©. Sum of the Years The depreciation charge in this method is assumed
Digit Method (SOYD) to vary directly to the number of years and
inversely to the sum of the year's digit. part7
208. fagnecing Economics
‘Sum of year's digit, SUM =F (+n)
om+1
SUM
(Qn ms)
2xSUM
d= (FC-SV)-
D,=(FC-SY)
D, Declining ‘This method is based on the compound interest
Balance Method formula F= P(t +)", where P's the first cost, FC, F
(Constant is the book value at any time, and # i the
‘percentage method) depreciation rateand is equal to-K Then
BV_= FC(=K)™
and SV = FC(1-K)"
dy FCQ=K)"*K
E. Double Declining
Balance Mathod *BVat the
Depreciation charge to date =
beginning of the year,
Bvqn Fe(1-2) zsv
#
2
eke
:
If you invest FC now and desires a rate of return of
cee teeny
(DEPLETION) amousl of RG, ard will also receivea salvage value
of SV-from your invested property at the end of 1
periods, then the periodic dividend ot income D
required is:
(RE=SVji
Datos a
Note: If RC isnot specified, RC= FC.
Engineering —
Mathematics VoL 2
Engineering
‘Mathematics Vol. 2
Enns 7-2
BOND
Eloments of Bond
Price of a bond ata
given /
Erample7 - 4
Part? 299
Engineering Economies
‘A mire costs P21M, and will lest for 20 years. ts
plant has a salvage value of PIM, at the end of the
time, The mine will yield an equal dividend at the
end of each year, What is the annual dividend, ifit
is sufficient to pay interest annually at the rate of
6% on the original investment and fo accumulate a
replacement fund, invested at 4%?
(RC=SV)i
D=(F) r+
(hat
FC= 21,000,000
SV P1,000,000
= (21,000,000)(0106)
4, (21,000,000 — 1,000,000)(0.08)
(1+ 004)" =1
r= 6% = 006
f= 4% = 0.08
D=P1,931,635.00
A bond is a written contract to pay a certain
redemption vatue C on a specified redemption date
and to pay equal dividends D periodically,
F = face value or par value of the bond
C= redemption value on a specified redemption
date
r= bond rate or dividend rate
D = periodic dividend
DeFxr
i investor's interest rate of return
P= price of the bond ata given interest
+ Abond is said to be redeemable at par if the
‘redemption value C equals the face value F.
4+ Abbond is said (o be redeemable at a premium
ifC>F,
+ ae bond is said to be redeemable at a discount
CF.
CDi si" =1)
p=
Gf Gant
A P10000.00, 6% bond, pays dividends semi-
annually and will be redeemed at 110% on july 1, Part7
BOO) Frelncetng Economics
Soliton
BREAK-EVEN
ANALYSIS
Elements and
Formulas
pea, Find iis price i bought on July 1, 1995, to
yield an investor 4%, compounded semi-annually,
Face value of the bond, F = P100,00000
Redemption value, C = 10% (100,000) = P110,000.00 |
Bond rate, r= 0.06/2 = 0.03
Periodic dividend, D = F x r= 100,000(003)
D=P3,000.00
Investor's rate of retum (per semi-annual),
i= 0004/2 = 0.02
Number of dividends = n= 3(2) =6
pa —C_, Dds =1)
a+i)" a+pt
110,000, 3000((1+0.02)*
(2+0.02)? (1+0,02)°(0.02)
P= PI14A8114
Beak-even analysis is a method of determining
When costs exactly equal revenue. If the:
manufactured quantity is less than the break-oven
quantity, a loss is incurred. If the manufactured
‘quantity is greater than the break-even quantity, @
profit is incurred.
{f= fixed cost which does not vary with production
= an incremental cost which is the cost to product)
‘one additional item, It may also be called the:
marginal cost or differential cost.
N = break-even point or quantity produced and
sold for break-even
p= incremental revenue or selling price per uni
R= total revenue
R=pN
C= total cost
C=ftaN
Assuming there is no change in inventory, the)
break-even point can be found front
Cost, C= Revenue, R
feaN=pN
Part? 391,
Engineering Economics
cote av tt
Bheakaven
oat
to| 4
‘Quan,
=
Breakeven
‘quant
‘The cost of producing a computer diskette is as
follows: Material cost is P7.00 each, labor cost is
P2.00 each, and other expense is P1.50 each, If the
fixed expenses is P69,000,00 per month, how many
diskettes must be produced each month for breake
‘even if each diskettes is worth P45,00?
Given/ = tixed cost = 69,000 per month
‘marginal cost P7,00 + P2.00 + P1.50
10:
p= marginal revenue = PAS 00
tb
N
9,000
N“B-108
N= 2000 diskettes per month G02 ete
Problems - Set 10
Simple and Compound Interest
PROBLEN 10-1
PROBLEN 10-2
PROBLEM 10-3
EE Beard
PROBLEM 10-4
PROBLEM 10-5
PROBLEM 10-6
PROBLEM 10-7
Find the interest on 6800.00 for 3 years at 11% simple
interest.
A. 71,875.00 ©. P2a44.00
B. P1,987.00, D, F2,244.00
‘A man borrowed P10,000.00 from his friend and agrees
to pay at the end of $0 days under 8% simple interest
rate, What is the required amount?
‘A. P10200.00 . 79,500.00
B, P11,500,00 D. P10,700.00
‘Annie buys a television set froma merchant who offers
25,000.00 at the end of 60 days. Annie wishes to pay
immediately and the mezchant offers to. compute the
required amount on the assumption that money is worth
14% simple interest. What is the required amount?
C, P2442097
D. 728,456.23
‘What is the principal amount if the amount of interest at
the end of 2¥4 year is P4500 for a simple interest of 6%
‘A, P20,234.87
B, P19222.67
perannum?
A. P. 35,000.00 C. P 40,000.00,
B. P.30,000.00 D. P.45,000.00
How long must « P40,000 note bearing 4% simple
interest nin to amount to P 4150.00?
A. 340 days C30 days
B. 403 days 1D. 430 days
If P16,000 earns P480 in 9 months, what is the annual
rate of interest?
AAR 3%
B, 2% D, 4%
‘A.iman lends P6000 at 6% simple interest for 4 years. At
He eee ere he ire oan
rincipal plus interest) at 5% compounded annually for
2 vests How tach wil be hawe ot he ead of Uo 16
year period?’
A, P13,361.20 ¢. P1333320
B, P 13,633.20 D. P1632320
Engineering
Mathematics Vol. 2
|
ROBLEM 10 - 10,
(CE May 1999
PROBLEM 10 = 11
ROBLEM 10 - 12
PROBLEM 10-15
PROBLEM 10 - 14
PROBLEM 10 - 15
PROBLEM 10 - 16
Part 7
Englncetingteonenics OOS
‘A tinte deposit of P110,000 for SI days eams PA9039 on
maturity date after deducting the 20% withholding tax
on interest income, Find the rate of interest per annuum,
A. 125% G.1225%
B. 11.95% D.10.75%
{A bank charges 12% simple interest on a P300,00 loan,
How much will be repaid if the load is paid back in one
Jump sum after three years?
‘A, P0800 ©, PaI5.00
B, P551.00 1B, PAs0.00
The tg price of a certain commodity is fr 100 days If
paid int 31 days, there is a3% discount, What is the
simple interest paid?
‘A. 125% G, 22.32%
B. 6.25% 1D. 16.14%
Accumulate 5,000,00 for 10 years at'8% compounded
juarterly.
NA. PI.A56.90 ©. 1034580
B. P13,876.50 D. P11040.20
‘Aceumulate 5,000.00 for 10 years at 8% compounded
semi-annually,
A. PID OSS . Po4ssor
B Pigawer B.Pinsreas
Accumulate P5,000,00 for 10 years at 8% compounded
monthly,
A, P15,456,75 C. P14,768.34
B. P11,102.61 D, P12,867,34
ca 5,000.00 for 10 years at 8% compounded
‘A. PIO794.62 . 71098790
B. P8567.98 D. P7,876.87
How tong will it take P1,000 to amount to P1346 if
Invested ab compounded quarterly?
A 3 years 5 years
B, 4 years D. 6 years
How long will it take for an investment to double its
amount if invested at an interest rate of 5% compounded
biemonthly?
‘A. 10 years,
© 1B yea
B. 12years Heth
D. 14 years Part 7
3040 fngicerng Economics
PROBLEM 10-17
PROBLEM 10 18)
PROBLEM 10-19,
PROBLEM 10 - 20,
PROBLEM 10 - 21
PROBLEM 10- 22
PROBLEM 10-23
PROBLEM 10 - 24
Tf the compound interest on 5,000.00 in 2 years
500.00, then the campound interest on P3,000.00 in 4
‘years is:
‘A. 956.00
B. P1,083.00
‘The salary of Mr, Cruzis increased by 30% every 2yé
beginning January 1, 1982, Counting from that date,
‘what year will his salary just exceed twice his or}
PL125.00
D. PL 526.00
salary?
‘AL 1988 c. 1990
B. 1989 D. 1991
If you borrowed P10,000 from a bank with 18% int
per annum, what is the total amount to be repaid at
nd of ong year?
‘A. 711,800.00 ©. 28,000.00
B. P19:000.00 D, P10,180.00
What is the effective rate for an interest rate of 1
compounded continuously?
A. 12.01% ©. 1242%
B, 12.89%. D. 12.75%,
How long will it uke for an investment to fivefold
amount if money is worth 14% compound
semiannwally?
All cB
B. 12 Di
An interest rate of 8% compounded semiannisally is hi
many percent if compounded quarterly?
As 781% 792%
B. 7.85% D. 801%
‘A than is expecting to receive P450,000.00 at the end of
ars. If money is worth 14% compounded quarterly
10w much fs it worth at present?
A, PI25A58.35 ©. PL62AS5.68
B. P147.456.35 D. PI7L 744.44
A man has a will of P650,000.00 from his father. If
father deposited an amount of P450,000.00 in a
fund earning 8% compounded annually, after
many years will the man receive his will?
© 51 years
1D. 533 years
‘A. 455 years
B. 477 years
Engineering Fart] 305
‘Mathematics Vol. 2 Engineering Economics
PROBLEM 10 Mr. Adam cleposited 120,000.00 in a bank who offers
PROBLEM 10 - 26
PROBLEM 10.- 27
ME April 1996
PROBLEM 10 - 28
ME April 1996
PROBLEM 10 = 29
ME April 1996
PROBLEM 10 ~ 30
~ PROBLEM 10 - 31
ME Oct, 1997
PROBLEM 10 - 32
ME Oct. 1997
8% interest compounded quarterly. if the interest is
subject to a 14% tax, how much will he receive after 5
years?
A, PI78 313.69. © Pi70.119.77
B, P153349.77 D.175343.77
‘What interest compounded monthly is equivalent to an
interest ate of14 compounded quarterly?
A.115% C.10.03%
B, 19.84% D, 11.52%
What is the present worth of two P100.00 payments at
the end of the third and the fourth year? The annual
interest rate is 8%.
‘A, P5287 G, P187.98
D. PI76
|. P234
Consiler epost of 600.0), tobe pid up in one yar
by 7700.00. What are the conditions on the rate of
interest, (& per year compounded annually, stich that
the net present worth of the investment is positive?
Assume 20,
A0< 1 <167% © 125%< i < 143%
BO0
200. 600 >0
(a4)
7/6>1+ {ori <16.7%
‘Therefore: for P > 0,0<#<16.7%
Future worth of P2000 for 6 years at 8% = 2000(1 + 0.08)¢
= P3173.73
‘New capital after 6 years = 3173.75 + 2000 = 5173.75
Lump sum due after 2 years at 8%:
F=5173.75(1 + 0.08)? = 6034.66
F= P(1 +i)" = 1000(1 + 0.08)‘ = P1360.50
F= P(1+1)" = 20000 (1 + 0.08)? = P34,276.48
The future worth F of an amount P at an interest rate d
for n periods is:
FePitip
where i= 0115/1,n =!x1=tand F=3P
3P = Pal +015)
1215'= 3
@)
Jog (1.115)
tx log (1.115) = log (2); = 10.09 years
ple)
a
The future worth of P at a nominal interest rate 1.
compounded continuously for t years is:
F=Per!
F=10,000 x #000)
P= P14918.25
Engineering
Mathematics Vol. 2
SOLUTION 10-34
Ans C
SOLUTION 10-35,
Ans B
SOLUTION 10 - 36
‘Ans A
SOLLITION 10 - 37,
Ans: C
SOLUTION 10-38
Ans: A
SOLUTION 10 -39
Aus:
Pat? 345
Engineering Economics
‘The amount required is ? = aoa
3
Where F = £2,000, (= 0.06 and n= 6-1=5,
2,000
= a = Pann.
Geanep te
‘The future worth of P5000 for 10 years is
F= Pasi
F = 5000/1 + 0.08/4)1® = P31,040.2
‘The compound interest ist
T= F-P= P21040.2 - P5,000 = P6,040.2
The conditions in the problem is shown in the cash flow
diagram below.
Fue P(e
Fy 1000(1 + 0.059
Fye PLA77455.
Pam Fa- 1000
Pe= PTZ 455
Fio= Pal +i)"
Fie 477A55(1 + 005) = P705.42
Theamount Fto be paid at the end of one year is PBO000
The total principal amount P is 80000 ~ P11,200 =
68,800.00
E= P(t i
80,000 = 68,800(1 + i)
1.1628 = 147
f= 0.1628 = 16.28%
Setting 20 years ago as present time, then;
E= PQ +i)" 511 = 20(2) ~ 40,1 r/2
3000 = 1590(1 +
#00174 = 7/2
70,089 = 3.49%
The future worth of P at an interest rate of r
compounded continuously for ! years is given by the
formula F = Pet, where e= 271828.
F = 5000 x e000)
F= P674930 Part 7
B16. FreincertigEeonomics
SODITION 10-0,
‘Ans: D
SOLLMTION 10 - 41
Ans: B
SOLUTION 10-42
‘Ans:¢
SOLUTION 10-43
Ans Bt
SOLLITION 10-44
Ans’ D)
SOLUTION 10-45,
Ans A
SOLUTION 10 - 46
Ans:
SOLUTION 10-47.
Ans: A
SOLUTION 10 - 48
Ans: B
SOLUTION 10 - 49,
Ans D
FHP + iy = 200 + O15) = P4,626.00
F=P(1si' =A500(1 + 0145) = P13,298.02
Future worth of all funds (on the fourth year)
F =50000(1+0.2)$+ 40000(1+0.2) + 3000001402)?
+20000(1+03)!
F=P240,000.00
Additional amount needed = 250,000 - 240,000
Additional amount needed = 710,000.00
Future worth of P10,000 without inflation:
F = 1000001 + 0.15)* = P20,119.57
Present worth of 20,113.57 considering 6% inflation
P= 20113:57/(1 + 0.06)$ = Pi5,030.03
Future worth of P10,000:
F = 10000( + 0.12)$ = P17,623.42
Present worth of P17,623.42 considering 3% inflation
rate:
P= 1762342/(1 + 0,03)$= P15,202.11
Profit = 1520211 - 10,000 = P5,202.11
1
on» (14248) 218016 = 16%
ER = (1+016/4)'-1 = 0.1698 = 16.98%
‘neo ominal rates ave equal ther effetve rates ag
equal
EReninunty * EReoarety
(1 +012/2)-1
(1 +0.25x)*= 1,06% x= 0,1183 = 11.83%
EReniemaaty = Reon
(1+022/2)2-1= (1 + x/12)2-1
(1 $.0.083333)" = Loe
r=00I71 = 11.71%
ER= (2)
Nominal rate, r = 9
effective rate = 954%
Engineering
‘Mathematics Vol.
Engineering
Mathematics Vol. 2
Part]? 347
Engineering Economics
SOLUTION 10 - 50)
Ans: A
SOLUTION 10 - 51
Ans: A
SOLUTION 10 - 52
Ans: C
SOLUTION 10-53
‘Ans: A
SOLUTION 10 - $4
Ans: C
SOLUTION 19 + 55
Ans: C
SOLUTION 10 - 56
Ans: ¢
SOLUTION 10 - 57
‘Assi D
SOLUTION 10 58
Ans: C
SOLUTION 10 - 59
‘Ans: D
SOLUTION 10 - 60
Ans: D.
(0.0984 = (140.095 /m)" -1
By trial anc’ error using the choices, m= 4 (quarterly)
F= Pasi"
Let x number of years required:
F = P45,000; i =0.08/4 = 0.02; P = P25,000; n= 4x
45,000 = 25,000(1 + 0.02)%«
1028 = 18
In(2.8); 4x x In(1.02) = In(1.8)
7.2 years
F=PQ4i)’
20000 P(A + 0.06/4)!0%; P= P21,025.28
ER=(1+r/m)n-1
ER = (1 + 016/360) ~1 = 0.1795 = 17.35%
Fe P(L+i)! = 17200(1 + 002/4)%0 » P19,387.15
F=P(1+i)"; 72000 = 54000(1 + i)?
(1+ OF = 1.993; 1= 0.0592 = 5.92%
F= P(1+i)* = 8000000(1 + 0.06)” = P12,029,082
P=E/(14i)'; P(P/F6%/12) = P(P/E,6%,9)
F/(1 + 0.06)! = 7000/(1 + 0.06)’ = P3370
P=E/(1+i)" = 6000/ (1 +0,06)' = 376450
F=F(P/Bin) = PCL+ iy = 4500(1 + 0.145)"
F= p13204.90
‘Compound interest=1= F- P
T= P+ )e-P
n= 712) + 9 = 93; {= 0.1125/12 = 0.009375
‘T= 500000(1 + 0.009375)” -500000 ~ P690,548.73.
Present worth, P= P200,000.00
Future worth) P= P(L-+ it
F = 200000(1 + 024/2)¢0 = P621169.64 Part 7
B18 engineering Economics
Engineering
Mathematics Vol. 2
Problems - Set 11
Compound Interest, Annuity
PROBLEM 11-1
CE Now. 1996
PROBLEM 11-2
CE Nov. 1999
PROBLEN 11 - 3
CE Nov, 1998)
PROBLEM 11-4
TECE Nov. 1956
PROBLEM 1-5
PROBLEM 11-6
CE May 1998,
PROBLEM 11 - 7
ECE April 1958
PROBLEM 11-8
ECE Nov. 1997
Find the nominal rate that if converted quarterly could:
be used instead for 15% compounded semiannually?
A. 14.93% 15.56%.
B, 14.73% D. 15.90%
Which of the following has the least effective annual
interest rate?
‘A. 12% compounded quarter
B. 115% compounded monthly
€. 11.7% compounded semi-annually
1D, 12.2% compounded annually
‘One hundred thousand pesos was placed in a time
deposit that earns 9% compounded quarterly, tax free.
fer how many years would it be able to eam a total
interest of fity thousand pesos?
A456 C432
B 447 D. 463
‘The amount of P2,825000 in 8 years at 5% compounded
arterly is:
NN: PA 16677 C, P4,188.56
B. P4397.86 D, 4,203.97
‘The amount of P2,825.00 in 8 years at 5% compounded
continuously is:
‘A. P4,366.77
B, P4,188.56
What rate (%)'compounded quarterly is equivalent to
C. P4.397.86
D. P4214.40
6% compounded semi-annually?
4.593 = 596
B. 5.99 D.59
‘The amount of P12,800 in 4 years at 5% compounded
quarterly is:
A. P 1561459 ©. P1631126
B, P 18,785.34 D. P15 4733
Fifteen percent (15%) when compounded semi-annually
will have effective rate of:
Engineering Pat7 349
‘Mathematics Vol. 2 Engineeting Economics
‘A 15.93% ©. 1602%
B. 18.78% 3, 15.56%
PROBLEM 11-9 What rate of interest compounded annually is the same
ECE Nov. 1997
PROBLEM 11 - 10
GE Nov, 1597
PROBLEM 11-11
ECE Nov. 1997
PROBLEM 11-12
HECE Nov. 1997
PROBLEM 11 - 14
ME Oct. 1997
PROBLEM 11 - 15
ME Oct. 1997,
PROBLEM 11 - 16
ME Oct. 1997
as the rate of interest of
A, 8.24%
B, 842%
8% compounded quarterly?
C688 Bark
D. 7.90%
How long will it take the money to triple itself if
invested af 10’ compounded semi-annually’
A. 133 yea 11.9 years
B, 11.3 years 1D. 125 years
‘What is the accumuloted amount alter three (3) years of
76,500.00. invested at the rate of 12% per year
compounded semi-annually?
‘A. P9500.0) ©. P9,221.00
1.00 D, P9,24800
What interest rate, compounded monthly is equivalent
fo10%effectveraie? ican
A, 9.75% C, 9.68%
B. 920% 1 957%
B, P9,
‘A man wishes his son to receive P500,000.00 ten years
from now. What amount should he invest now if 1 will
earn interest of 12% compounded annually during the
first 5 years and 15% compounded quarterly during the
next years?
A. P135,868.19.
B. P134,678.90
GC. 123,433.23
D, P145,345.34
A savings association pays 4% interest quarterly, What
is the effective annual interest rate?
A. 18045% C, 16.88%
B. 17155% D.17.230%
A bank offers 1.2% effective monthly interes. What is
the effective annual rate with monthly compounding?
A.154% C. 44%
B 89% D. 79%
What is the present worth of P27,000.00 due in 6 years if
money is worth 13% and is compounded semi-annually?
"12,681.00 C. P15,250.00
B. P13,500.00 D. P21,931.00 Part7
ZO EnginceringEconamics
PROBLEM -
ME Oct. 1997
PROWIEM 11 -
PROBLEM 11
PROBLEM 11 -
PROBLEM 11
PROBLEM 11 -
PROBLEM 11 -
ECE Nov. 1995
17,
19
20
2
2
2
Engin
‘Mathematics Vol.
‘A student deposits Pi-s00.00 ia 9% account today. He
intends to deposit another P3,000,00 at the end of two.
years: He plans to purchase in five yeas his favorit
Shoes worth P5,000.00. Calculate the money that will be
feft in his account one year after the purchase.
‘A, P1,280.00 © P1300.00
B. 1,250.00 D. P1/260.00
If money is worth 4% compounded monthly, what
payment at the end of each quarter will replace
payments of ? 300.00 monthly?
‘2. 1,500.00 © P1505.00
B, P 1525.00 D, P 1,565.00
‘What amount would have to be invested at the end of)
teach year for the next 8 years at 4% compounded semis)
‘annually itv order to have P5,000.00 at the end of the
time?
AL P5AL86 C P5a264
B. P553182 D. P5823,
A contractor bough! a concrete mixer at P120,00000 if
aid in cash, The mixer may also be purchasest
Installment to be paid within 5 years. If money is w
8%, the amount of each annual payment, if all payments
are made at the beginning of each year, is
‘A. P2782900 © P51,005.00
B, 72956800 1, 32,555.00
A contract calls for semiannual payments of P40,000.00
for the next 10 years and an additional payment
250,000.00 at the end of that time. Find the equivalent
cash value of the contract at 7% compound
semiannually?
A. Pas.
B, P598,589.00
Mr, Rankine bought a piece of property for P100,000.00
down payment and 10 deferred serniannaal payments of
P8000 00 starting 3 years from now. If the interest rae
is 12% compounded semiannually, what is the present
©. P694,138.00
D. P75277700
worth of the property?
A piasspoe © PI52 44405
B. P148/555.02 ‘D, PI66888.01
If money is worth 8%, determine the present value of 8
perpetuity of FON payable annually, with the first
payment due at theend of 5 years.
Engineering Pat7 394,
Mathematics Vol. 2 Engineering Economics,
B. P9187.87 c Poa7aee
B. P9178.87 D. 79,272.46
PROBLEM 11 = 24
PROBLEM 11-25,
CE Nov, 1999
PROBLEM 11 - 26
PROBLEM 11-27
PROBLEM 11-28
PROBLEM 11-29
‘Amanis left with an inhefitance from his father, He has
an option to receive P2 M at the end of 10 years,
however he wishes to receive the money at the énd of
each year for 5 years. If interest rate is 87s, how much
would ho receive every year?
‘A P406,000.00 G, P-232,020,00
B. 352,333.00 , P 290,000.00
To maintain its newly acquired equipment, the company
needs P4000 pet year for the first five years and
60,000 per yeat for the next five yoars, In addition, an
amount of P140,000 would also be needed at the end of
thefifth and the eighth years, At6%, what is the present
worth of these costs?
C. P59.812
A, P6RS,214
B. P512453 D. P586,425
‘A man receives P125,000.00 ctedit for his old ear when
buying a new model costing P375,000.00. What cash
event wil be necessary 39 that the Balance cal
liquidated by payments of P 12,500.00 at the end of each
‘month for 18 months when interest is charged at the rate
of 6% compounded monthly?
‘A. P23400.00 C. 733,650.00
B, P28,750.00 1, P39,340.00
Determine the present worth of an annual payment of
2500.00. at the end of each year for 12 years at 8%
compounded annually. nog
5,000.
A. P18,340.20
B P30,000.00 1D, P17,546.04
A man borrowed P200,000.00 from a bank at 12%
compounded monthly, which is payable monthly for 10
years (120 payments), Ifthe first payment is to be made
after 3 months, how much is the monthly payment?
A. P2,869.42 ¢. P313.10
B. 2,927.10 D, P3,124.12
What is the present worth of a P1000.00 annuity over a
10-year period interes rat 88%
16.00 ©. 6234.80
B, 8976.00 D. P6710.00 Part7
322_ Engineering Economics
PROBLEM 11-30
ME Gai. 1995
PROBLEM 11-31
PROBLEM 11» 32.
ME Aptil 1996
PROBLEM 11
PROBLEM 11. 34
PROBLEM 11 «35,
ME Oct, 1995
PROBLEM 11 36
"Hew much money must you invest today in order to.
withdraw P 1000 per year for 10 years if interest rate is
12%?
‘A. P5650.00 P5560.00
=B. 6550.00 D. P7550.00
‘A machine is under consideration for investment. The cost
of the machine is P2500. Each year it operates, the
machine will generate a savings of P15000. Given an
effective annual interest of 18%, what is the discounted
payback period, in years, on the investment in. the
machine?
A156 © 2155,
B 2233 Di. 2677
What is the present worth of a P100 annuity starting a the
‘end of the third year and continuing to the end of the
fourth year, ifthe annual interest rate is 8%
A 13d © 1549
B. 152.89 D, 15633,
Consider a. project which involves the investment of
F100,000 now and 7'100,000.at the end of one year.
Revertues af P150,000 will be generated at the end of
years 1 and 2. What is the net present value of this
Project ifthe effective annual interest rateis 10%
‘A. P65421.50 © 68,421.50
B P67A2150 D, Pe9A21.50
‘An investment of x pesos is made at the end of each year
for three years, at an interest rate of 94% per year
compounded arinwally. What wil be the value ofthe
lep
investment upon the deposit of the third payment?
A. 32782 C 3728
8, 3287x D. 3782:
If P500 is invested at the end of each year for 6 years, at
an effective annual interest rate of 7%. What is the total
‘amount available upon the deposit of the 6th payment?
‘A, F3455.00 €pas7700
B, F35#.00 1D, P368800
You need a P40,000 per year for four years to go to
college. Your father invested P50,000 in a 7% account
for Your education when you were born. If you
‘withdraw the P40,000 at the end of your 17%, 184, 198,
and 20% years, how much money will be left in the
accouint at the end of your 21* year?
Engineering
Mathematics Vol. 2.
PRODLEM 11 - 37
PROBLEM 11» 38
PROBLEM 11-39
‘ME April 1996
PROBLEM 11-40
PROBLEM 11-41
PROBLEM 11-42
Engineering Fart7 393
Mathematics Vol. 2 Engineering Economics
‘A, P1600, C PI6,000
B. P1700 D. PI9,000,
If money is worth 10% yearly, compounded quarterly,
What monthly savings is required monthly in order to
have P200,000 at the énd of 10 years?
A. POLSAD C. P80599
B, PR78OR 1D. P9B128
How much money must you deposit today to an
account eamning 12% 40 that you can withdraw 25,000
yearly indefinitely starting at the end of the 20th year?
‘A. P125,00) © P3767
B. 80,155 D. P75A27
In five years, P18000 will be needed to pay for a
building renovation, In order to generate this sum,
sinking fund consisting of three annual payments is
established now. For tax purposes, no further payments
will be mede after three years. What payment is
necessary if money is worth 15% per annum?
‘A. P3315 65, C 13,919.53
B. P3,78934 D, P3,878.56
An investment of P40,000,00 has 0 revenue of x pesos at
the end of the first and second year, Given a discount
rate of 15% compounded annually, find x so that the net
present worth of the investment is zero.
‘A, P33)/789.54 CP 604.65
B, P27,789.78 D. P21,879.99
Mrs, Jones borrowed P150,000 two years ago. The terms
of the loan are 10% interest for 10 years with uniform
payments, He just made his second annual payment
jGw much principal does he still owe?
‘A. P130,235.20
B. PLH4567.30
Given that the discount rate is 15%, what is the
equivalent uniform annual cash flow of the following,
stream of cash flows?
© PI32,456.20
D, P129,456.78
year 0 100,000.00
year 1 200,000.00
year 2 50,000.00
year3 75,000.00
A. P158124.60 © Pi57,345.98
B. P158897.50 D, PI55,7894 Part 7
B24 Engineering Economics
TRowiew 1-3
PROBLEM 11-44
ECE Nov. 1995,
PROBLEM 11-45
PROBLEM 11 46
PROBLEM 11 47
PROBLEM 11-48,
PROBLEM 11 - 49)
PROBLEM 11 - 50
Nr Bean borrowed 7100000 et 10% effective annual
terest rate. He must pay back the loan over 30 years:
uniform monthly payments due on the first day of
‘each month. What does he pay each month?
A. P768.67 C. P856.30
B, P9734 1D, P839.20
‘An employee obtained a loan of P10,000 at the rate of 6%
Junded annually in order to repair a house. How
fhuch must he pay monthly to amortize the loan within
2 period of ten years?
‘A. P198.20 Cc P02
}, PI50.55 D, Pi2.02
he accumulated value of a payment of P12500,
at the end of each year for 9 years with interest at 5%
compounded annually?
A. P'138,738.05 C. P178,338.50
B, P13783205 D. P187,833.5
What is the accumulated value of a payment of P 6,000
every six months for 16 years with interest at 7%
‘compounded semiannually?
‘A. P312345.00 CP 347,898.00
B. P345,67800 D.P344,007.00
‘A mining property is offered for sale for P5:7 M. On the:
basis of timated ‘producion, an annual return of
800,000 is foreseen for a period of 10 years. After 10
‘year, the property will be worthless. What annual rate of
yetum is in prospect?
A 6.7%
B 61%
5.6%
D.52%
ea down payiment of P600,000 is made on a house and
P8000 a year for the next 12 years is required, what
was the price of the house if money is worth 6%
compounded annually?
. P1345555
A Pi270,707
D. Pi,678420
B. P1130450
What annuity over @ 10-year period at 8% interest is
equivalent to a present worth of P100,0002
‘A. P1S,903 C. P13803
B. P15,003 D, P12,003
its of P1500 each were made in a sinking fund at
the end of each year. If the fund earned interest at the
Engineering
Mathematics Vol. 2
PROBLEM 11 = 51
CE Now. 1956,
Nov, 1994
PROBLEM 11 - 52
CE May 1996
PROBLEM 11 - 53
CE May 1998
PROBLEM 11 » 54
ECE Api! 1998
PROBLEM 11-55,
ECE Apfil 1998
PROBLEM 11 - 56
ME Oct. 1997
Pat7 395
Engineering Economics
Tate of 6% per annum compounded quarterly, what was
the princisal in the fund immediately after the seventh
deposit was made?
P10243,23
B, P12,591.00
© P14249.00
D. P13.643.23
‘A man inherited 2 regular endowment of P100,000 every
tnd of 3 months for 10 years. However, he may choose to
‘gota single lump sum payment atthe end of 4 years. How
Mnuch is this lump sum If the cost of money is 14%
compounded quarterly?
G. P3,702.939
A P3,502,546
B. 3,802,862 1, P3,602451
A service car whose cash price was P540,000_ was
brought with # down payment of Pt62,000 and monthly.
‘0f 210,874.29 for 5 years. What was the rato of interest if
compounded monthly?
A 20% Cy
26% Di, 22%,
The present value of an annuity of R pesos. payable
‘annually for 8 years, with the first payment at the end of
10 years, 's P187,481.25. Find the value of R if money is
worth 5%.
‘A. PA5,000 . P42,000
B, P44,000 1D. P43,000
How much money must you invest today In order to
‘withdraw P2,000 annually for 10 years ifthe interest rate
is 9%?
‘A. P12285.92 C, P12,8%5.32
B. P12853.32 D. P12,861.37
Money borrowed today is to be paid in 6 equal
Bye the end of each of 6 quarters. If the interest
124 compounded quately. How much was inily
borrowed if quarterly payment is P2000,00?
‘A. P10;382.90 C P1083 38
B. P 10,200.56 D.P 10,566.99
'A car was bought on installment basis with a monthly
installment of P10,00000 for 60 months. 1f interest is 12:
yunded annually calculate the cash price of the car.
‘A, PA55,875.00 G, P678,519.75
B, 567,939.75, D. P345,539.75 Part 7
326 Engincering Economics
PROBLEM IT - 57
ME Oct. 1997
PROBLEM 11 - 58
ME April 1998
PROBLEM 11 59,
(ME April 1998,
PROBLEM 11 - 60
ME April 1998
PROBLEM 11-61
ME April 1998
PROBLEM 11 62
Engineering
Mathematics Vol. 2
‘A steel mill estimates that one of is furnaces will require
‘maintenance P20,000.00 at the end of 2 years, P40,000.00,
at the end 4 years and P80,000.00 at the end of 8 years.
What uniform semi-annual amounts could it set aside
over the nest eight years at the end of each period to
meet these requirements of maintenance cost if all the
funds would eam interest at the rate of 6% compounded
semi-annually?
A. P7897: C. P3,897.35
B. 9,397.35 D. P589735
‘A house and lot can be acquired at a down payment of
500,000.00 and a yearly payment of P100,000.00 at the
‘end of each year for a period of 10 years, starting at the
end of 5 years from the date of purchase. If money is,
worth 14% compounded annually, whats the cash price
of the propert
‘A. Pett 10000 808,836.00
B. 801,900.00 1, 805,902.00
How much mast be deposited at 6% each year
inning on January 1, year 1, in order to accumulate
P5,000.00 on the date of the last deposit, January 1, year
6
A. P751.00 P7700
B, P715.00 D. P7250
A piece of machinery can be bought for P10,000.00 cash,
(or for P2,000.00 down and payments of £750.00 per year
for 15 years. What is the annual interest rate for the time
Payments?
61% © 381%
BS71% 1B. 1.00%
‘An instructor plans to retire in exactly one year and
‘want an account that will pay him P25,000.00 a year for
the next 15 years, Assuming a 6% annual effective
interest rate, what is the amount he would need to
deposit now? (The fund will be depleted after 15 years)
‘A, P249,000.00 C P242.806.00
B. 248,500.00 D, P250,40000
‘A man invested P 1,000.00 per month on a bank that
offers 6% interest. How much canhe get after 5 years?
‘A. P-60.000.00 P72540.00
B. P6970.00 D. P69,491.00
Engineering Fart? 397
‘Mathematics Vol. 2 Engineering Econsmics
FRODEEM 11-6) Find the present value in pesos, OF a perpetuity of
CE Nov. 1995 PI5000 payable semiarnualy money le hort Be,
compounded quarterly.
‘A, P371,287 ¢ ragz4z2
; B. 385,227 D. 9358477
PROBLEM 11-64 A man paid 10% down payment of P200,000 for a house
GE May 1999, Se aE Ria? apse i bay al GlaceatonreanIEa
May I installments for 60 months at an interest rate of 15%
compounded monthly, Determine the required monthly
ayment.
PK" Pi, 283.00 C. 758,477.00
B, 4382200 + D, P5808,00
PROBLEM 11 - 65 it
PRonLen 1 A debt of x pesos, with interest rate of 7% compounded
annually will be retired at the end of 10 years through
the accumulation of deposit in the sinking fund invested
at 6% comsounded semi-annually, The deposit in the
si g fund every end of six months is P 21,962.68.
What is the value of x?
©, 350,000
‘A, 300,000
B, P-250,000 1D, 400,000 Part 7 Engineering Engineering Patt? 399
32S Engincering Economics Mathematics Vol. 2 ‘Mathematics Vol. 2 Engineering Economics
pea eal a ee an
(1 +0251)
{Oise Losey r= 00596 «5.96%
ANSWER SHEET Solutions to Set 11
na Sse5e RSEHE Compound Interest, Annuity
- : < £
i 3 3 : ; : é 3 : : ; : SOLUTION 11-1 te ie the equivalent nominal rate compounded
43 S383 SSEREe ERQ=ER, (1+1/4)'-1=(1+.015/2)?-1
58 eSsess S8ese 1= 0.14729 = 14.729%
68 SSCREPI« SESRE SOLUTION 11-2 Chole A: ER = (1+012/4)'=1= 01225 = 12.55%
We esbak geeee Ans: C Ge Rb 40us/ 2-1 00218
83 BSCREP*# SS ERE Choice C: ER = (1+ 0117/6)'-1= 0.1204" 1204%
08 SECS Ef lo 8508 Ge: ences
10. $ SCRE SSese ‘Thus, 11.7% compounded semi-annually has the least
‘| effective rate
1. $3 2 8 $ . ey SOLUTION 11-3 Letaxbe the requted numberof years
nd $3E8 3 g Interest = F = 100,000 = 50,000
2.3 $ : : 3 g $ : 5 F = 100,000(2/P,0.09/4,4x) = 150,000
4S g ee 409004 + 909/4)= 18000
nes x as é 4
A 3 Sees ee é i {i fog 1.0285 og 5:2 = 436
me BEES EMI ORES EE MME cero FBP om eran
He 3 2388 geese gouUmON 11-5 pe petaaEas emi = panies
20,
oe 2 SOLUTION 11-6 — Two nominal rates are equal if they have the same
‘| a effective rate, then.
eegey ERyiaray * ERenacoi
Beaet (ue BI Ea
Bese =
Bede
BEdE
SOLUTION 11-7 F=PQ+
poe Fo 1800/1 +.005/4} = pis.614s9 Part 7
930. Engineering Economics
SOLUTION 11-8
Ans: D
SOWTION 11-9
Ans: A
SOLUTION 11-10
Ans: B
SOLUTION 11-11
Ans: C
SOLUTION 11-12
Ans: D
SOLUTION 11
Ane A
SOLUTION 11 - 14
‘Ans
Engineering
‘Mathematics Vol. 2
Effeciverae, ER = (1+ 1/m)= - 1, where 7 Is the,
nominal rate = 15%, and m is the number of,
Compoundings per year = 2 (semi-annually)
ER=[1+015/2 = 1= 01556 =15.56%
The rate of interest compounded annually is also the,
effective rat.
ER=(141/m)=-1
r= 8%;m =4 (compounded quarterly)
ER=[14008/4}!-1~ 00824 =8.21%
Fe P+! where F=3P
= number of years, then n= 2t
3P=P{1+010/2P"
3 (1.05) ‘Taking the logarithm on both sides
In.3-= In (1.05) 2¢ = 24 In (1.05); = 11.258 years
‘Accumulated amount:
Fe PQ + r= 6,500 (1+ (02/2) } 92 = P92z08
Exfective rate, ER = (1 + t/m)>-1
O10" [1+ /12]2-1
i= (+ r/1Q2
147/12= LT =1,00797
1/2 = 0.00797; r= 0.0957 = 957%
From the cash flow diagram shown:
FePa ei
F,=P(L+012)°
B= 1.76237
FoF +i"
500,000 = 1.7625P (1 + 0.0375)"; P = P135,868.19
Effectiverate, ER = (1 +1/m)=~1
Note: The interest rate is 4% quarterly (not compounded
quarterly). Meaning, every quarter they pay 4%, then
the periodic interest = r/mi=4%
ER= [140.04 ]$-1 = 0.16985 = 16.985%
Engineering Part7 333
‘Mathematics Vol. 2 Engineering Economics
SOLOMON I-15 ER= (Lt yymyreT
ana 1/m=12%= 0012; m= 12
ER=(140019)2-1= 01539 = 15.39%
Sree ONG PaE/ (4" = 27000/ (1 +013/2) = PIa6s1ad
SOuMTION 11-17 ist The cash flow diagram is.as follows:
3000
‘The balance at the end of the 6 year
is Fut Fr- By
Balance = 1500(1 + 0,05)6
+3000(1 +0.09)¢
aA = 5000(1 + 0.09)!
Nyy Balance = P1300.39
SOLUTION 11-18 The equivalent quarterly payment is the future worth of
Ans: three monthly payments of P500,
pe Al)" 1) _6H/CL 0.04 /12)* =)
1 0.04/12
P= P1,505.00
SOLUTION 11-19 i
awd Fe Agog = P5,000.00
Solve fori
ER,™ ERs
(1+ pt=1= (1+ 0104/2)?-2;7= 040
) = 5000
SOLUTION 11 - 20 From the diagram shown:
Ans A
gag Pacha = 120,000
Pte AlCl + 6.08)* -1) + A= 120,000
Fr (1 +0.08)*(0.08)
Sete bras ai 312A + A= 120,000
nt A= P27,825.00
FTAs 120000 Part7
B32 Engincering Economics
‘SOLUTION 11 - 21
‘Ans:
vo
SOLUTION 11 - 23
Ans: A
cea
Engineering Engineering
Mathematics Vol. 2
Present worth, P=P, +P;
_Ald+i"-1) ,F
SOLUTION 11-24
Ans: ¢
oy ewe PG a+
i=007/2= 0.035
eee se
etos, 40000 {(1 + 0.035)” — 1]
(i + 0.035) (0.035)
SOLUTION 11 + 25
Ans: C
Present worth = P2* 100,000
i= 12/2" 0.06
‘8000{(1 +-0.05)"" ~ 1]
7m S0001(1 + 0.06) =I) ps,1.00
1 1 +0105)" (0.06) el
58,881
(0+0.06)°
Another way to solve Ps:
‘8000{(1 + 0.06)" 1)
y= BOOOE/ 0.06.10) , 9.05
(+006) (1+0.06)*
Pr» PA3,999.08
P = P43,999.08 + 100,000.00 = P143,999.08
‘The worth of the perpetuity at the end of the 4 year is:
A_ 1000
Pata 7 71250000
‘The present worth at of P’ is:
PB 12500
Grp" (1+0.08)*
SOLUTION 11 - 26
Ans: D.
=P9;187.87
‘Mathematics Vol. 2
Part7
Enginecting Economics
333
The present worth of P2M at the end of 10 years
Py = P2,000,000 / (1 + 0.08)'” = 926,286.98
The present worth of the annuity of A at the end of each
year for 5 years should be equal to P926,386.98.
p= Alc+008)* —1)
(1 +0.08)° (0.08)
A= 232,019.60
hot I ie sa hot
or oor Year Yor Yeo
= P926,386.98
%
Pe
P= 40000(P/ A, 0.06, 5) + 140000(P/F, 0.06, 5)
4, GOL? /A,1.08.5) 5 sso¢00(0/F, 0106 8)
Prt Py Pom Dy +Pa+ ae +P)
(10.06)
p= S000011 +0.06)%-1) , _149000
(1+-006)°(0.06) —(1-+-0106)°
00C0{(1 + 0.06)§ — 1]
(2+ 0.06)5(0.06) 140000
¢ OO)
(1 +0.06)*. (14006)
P= 168,454.55 + P104,61614 + P188,863.39 + P37,837.73
P= P549811.81
‘Amount payable (Balance) = P375,000 - P125,000
‘Amount payable (Balance) = P250,000.00
Present worth of P12,500 payment at the end of each
month for 18 months:
12500[(1 +0.06 / 12)" = 1}
(1+ 0.06 /12)'* (0.06 / 12)
Cash payment = P250,000 - P214,660 = P35,340.00
= P214,660.00 Part 7 Engineering
334 Engineering Economics Mathematics Vol. 2
SOLUTION I-27 001 + 0.08)!2 —1}
Ras A : = P18,540.20
(1 £0.08) (008)
SOLUTION 11-23 Since the payment is to be made after three months, the
Ans: B amount of F200,000 at the beginning of the third month
{end of second) is 200,000(1 + 0.12/12} 020
Alt 00) M4 «pasz710
(+001 (00H)
Another Solution
200,000(8/P, 0.01, 122) = ACF/A, 0.01, 120)
+001) =
20000001 + 0.1 = Al +a01)"" = 1)
0.01
A= P2,927.10
SOLUTION 11 = 29 nS 10.
sus p= AH 21) _ 1000(0-4005)—) » periogg
(ra (1 +0.08)""(0.08)
SOLUTION 11-20
pea p= MO+i" 11’, ro0o4ct +012)" —2)
rat (1+0:2)" (012)
SOLUTION 11-31) ‘The discounted payback period is the period where the
Ans present worth of all income equals the investment
= P5650.00
P= 2,000.00 (investment)
‘A= 15,000 (income per year)
- Bepon = JBandlas.0.18)"—1
(a-018)"(018)
i= 18% =0.18
18°0.18
1.18"-1=03(1.18)" fog (1-18)> = log 1.4286
nlogl 18 = log 1.4286
s n= 2155 years
SOLUTION 11-22 P= 100(P/F, 0:03, 3) + 100(P/4, 008, 4)
Engineering Patt? 395
‘Mathematics Vol. 2 Engineering Economics
SOLUTION 1-33 Present worth of all revenues:
as:
‘ 2
Re Al(L+i)' } = 150000, ee -1 = P26033058
iv (+01? x
Present worth of all investment
= 109900 + 200000 199,909.09
(+01)!
[Net present worth = 260320.58 - 190090.09 = P69,421.50
SOLUTION 11 - 34 3
we A F= x(6/A,0109)3) = HU LDON = saree
0.09
SoLunioN 11-35 pee
Aas c P= s00(F/, 07,6) = SUG =ORZY