SIMPLE INTEREST 8.
Sonny borrowed a certain amount on June 1990 from
Romeo. Two years later, Sonny borrowed again from
SITUATION. Romeo an amount of P 5,000. Sonny paid P 1,000 on
How much is the interest that will be paid on a Php25,000 June 1993 and discharged his balance by paying P 7,500
loan that was made on May 1, 2002 and repaid on August on June 1995. What was the amount borrowed by Sonny
1,2005 in June 1990 if the interest rate is 8% compounded
1. With ordinary simple interest at 8% per year. annually?
2. With exact simple interest at 8% per year. Annuities
3. The tag price of a certain commodity is for 100 days. If ANNUITY-Ordinary Annuity
paid in 31 days, there is a 3% discount. What is the rate of
interest paid? 9. A service car whose cash price was P540,000 was bought
with a down-payment of P162,000 and monthly
4. A deposit of Php 110,000 was made for 31 days. The net installments of P10,874.29 for 5 years. What was the rate
interest after deducting the 20% withhold tax is P 890.36 of interest if compounded monthly?
Find the rate of return annually.
ANNUITY-Deferred Annuity
10. A lathe for machine shop costs 60,000 pesos if paid in
Compound Interest and the Cash Flow Diagram
cash. On the installment plan, a purchaser should pay
20,000 pesos down payment and 10 quarterly installments,
5. Suppose that you have P10,000 cash today and can invest the first due at the end of the first year after purchase. If
it at an interest rate of 10% compounded each year. How money is worth 15% compounded quarterly, determine the
many years will it take you to become a millionaire? quarterly installment.
11. Juncel is thinking of establishing a fund for his daughter’s
6. Fifteen years ago, P1,000.00 was deposited in a bank college education. He wants his daughter to be able to
account, and today it is worth P2,370.00. The bank pays withdraw P60,000 from the fund on her 18th birthday,
interest semi-annually. again on her 19th birthday, again on her 20th birthday, up
What was the interest rate paid on this account? to her 23rd birthday. If the fund earns interest at 12% per
year, compounded annually, how much should Juncel
7. A man opened an account P200,000 in the bank today at
deposit at the end of each year, from the time his daughter
the rate of 3% per annum. After two years, he deposits
reaches 5 years old up to her 17th birthday?
another P400,000. After another five years, he will
withdraw P500,000. How much money does he have on
his account after the 10th year?
ANNUITY-Annuity due GEOMETRIC GRADIENT
12. A contractor bought a welding machine costing P250,000
payable in 10 semi-annual payments, each installment
payable at the beginning of each period. If the rate of
interest is 26% compounded semi-annually, determine the
amount of each installment.
13. A contractor wishes to buy a machine worth 1 million after
one year. The bank gives an interest of 1.5% compounded
monthly. If he deposits P100,000 at the beginning of each
month for 6 months starting 6 months from now, how much
more will the contractor has to have to buy the machine?
15. A mechanical contractor is trying to calculate the present
Gradients worth of personnel salaries over the next five years. He
has four employees whose combined salaries thru the end
ARITHMETIC GRADIENT of this year are 900,000php. If he expects to give each
14. Dr. Anderson plans to make a series of gradient-type employee a raise of 5% each year, compute the present
withdrawals from his savings account over a 10-year worth of his employees' salaries at an interest rate of 12%
period, beginning at the end of the second year. What per year.
equal annual withdrawals would be equivalent to a
withdrawal of P1000 at the end of the second year, P2000
at the end of the 3rd year . . . P9000 at the end of the 10th
year, if the bank pays 9% per year compounded annually?
[ ]
n n
A [ ( 1+i ) −1] G ( 1+ i ) −1 n
P= + −
(1+ i) i
n
i ( 1+i ) i
n
( 1+i )n
Effective Rate of Interest and Continuous Compound How much does the firm have to deposit in the account
Interest now?
USE: (P/G, i, n) = 6.3970
EFFECTIVE RATE OF INTEREST (P/A, i, n) = 3.6048
SITUATION. INTEREST RATE FACTORS
Determine the effective rate of interest of the following nominal (12%)
rates. Single Equal Gradient
Payment Payment Series
16. 12% compounded annually.
Series
17. 12% compounded quarterly. Compou Prese Compou Sinkin Prese Capita Gradient
nd nt nd g nt l Gradient
18. 12% compounded bi-monthly. Amount Worth Amount Fund Worth Recov Uniform
Factor Facto Factor Facto Facto ery Present
19. 12% compounded continuously. r r r Factor Series
Worth
20. What is the smallest nominal rate to yield an effective rate N (F/ (P/ (F/ (A/ (P/ (A/ (A/G,i,N)
of P,i,N) F,i,N) A,i,N) F,i,N) A,i,N) P,i,N) (P/G,i,N)
10.15%? 5 1.7623 0.567 6.3528 0.157 3.604 0.2774 1.7746
4 4 8 6.3970
CONTINUOUS COMPOUND INTEREST
21. Money is deposited in a certain account for which the
interest is compounded continuously. If the amount triples Perpetuity
in 10 years, what is the annual percentage rate? 23. Determine the present value of a perpetuity of P100,000
payable annually, with the first payment due at the end of
22. A textile mill has just purchased a lift truck that has a 10 years. Money is worth 10%.
useful life of 5 years. The engineer estimates that the
maintenance costs for the truck during the first year will be 24. Find the present value, in pesos, of a perpetuity of
$1000. Maintenance costs are expected to increase as the P15,000 payable semi-annually if money is worth 8%
truck ages at a rate of $250 per year over the remaining compounded quarterly.
life. Assume that the maintenance costs occur at the end
of each year. The firm wants to set up a maintenance
account that earns 12% annual interest. All future
maintenance expenses will be paid out from this account.
Capitalized Cost and Annual Cost truck has a salvage value of P100,000 at the end of its
25. A new boiler was installed by a textile plant at a total cost useful life of 5 yrs. Annual cost of maintenance is
of P300,000 and projected to have a useful life of 15 P20,000.00. If money is worth 14% per annum. Determine
years. At the end of its useful life, it is estimated to have a the number of days per year that a truck must be used to
salvage value of P30,000. If operation and maintenance warrant the purchase of the truck.
amount to P10,000 per year, determine its capitalized cost
if interest is 18% compounded annually. 28. To decrease costs of operating a lock in a large river, a
new system of operation is proposed. It will cost $450,000
26. A construction firm is considering establishing an to design and build. It is estimated that it will have to be
engineering computing center. This center will be equipped reworked every 10 years at a cost of $50,000. In addition,
with three engineering workstations that would cost there will be an expenditure of $40,000 at the end of the
$50,000 each, and each has a service life of 5 years. The fifth year for a new type of gear that will not be available
expected salvage value of each workstation is $5000. The until then. The annual operating costs are expected to be
annual operating and maintenance cost would be $12,000 $30,000 for the first 15 years and $25,000 a year
for each workstation. At a MARR of 20%, determine the thereafter.
equivalent annual cost for operating the engineering Compute the capitalized cost of perpetual service at i =
center. 10%.
27. A contractor can buy dump trucks for P800,000 each
(surplus) or rent them for P1189 per truck per day. The
Depreciation using Straight-Line Method
29. A machine costing P480,000 has a life expectancy of 12
years with a salvage value of 10% of the first cost. Using Inflation
the Straight-Line Method of Depreciation (SLM), what is
the depreciation and book value of the machine after five 34. An economy is experiencing inflation at the rate of 5% per
years? year. An item presently costs P200. If the 5% inflation rate
continues, what will be the price of this item in 3 years.
Depreciation using Sum of the Years’ Digits Method
30. A machine costing P480,000 has a life expectancy of 12
years with a salvage value of 10% of the first cost. Using Break-even Analysis
the Depreciation by Sum of Years Digit Method (SOYD),
what is the depreciation and book value of the machine 35. The cost of producing a certain commodity consists of
after five years? P45.00 per unit for labor and material cost and P15.00 per
unit for other variable cost. The fixed cost per month
amounts to P450,000. If the commodity is sold at P250.00
Depreciation using Declining Balance Method each, what is the break-even quantity?
31. A machine costing P480,000 has a life expectancy of 12
years with a salvage value of 10% of the first cost. Using
the Depreciation by Declining Balance Method (DBM),
what is the depreciation and book value of the machine
after five years?
Depreciation using Double Declining Balance Method
32. A machine costing P480,000 has a life expectancy of 12
years with a salvage value of 10% of the first cost. Using
the Depreciation by Double Declining Balance Method
(DDBM), what is the depreciation and book value of the
machine after five years?
Depreciation using Sinking-fund Method
33. A machine costing P480,000 has a life expectancy of 12
years with a salvage value of 10% of the first cost. Using
the Depreciation by Sinking Fund Method (SFM), what is
the depreciation and book value of the machine after five
years? (assume interest rate= 8%)