PROBLEM payments, one of Jan. 1. 1982 and the other on Jan. 1.

1983
the second being 50 % larger than the first. If the interest rate
1. What, is the annual rate of interest, if ₱265 is earned m four is 12%, what is the amount, of each payment?
months on an investment of P15.000? Ans. ₱9.136.91; ₱ 13,705.36
Ans. 5.3%
9. A woman borrowed ₱3,000 to be paid after 1 ½ years with
2. A loan of P2.000 is made for a period of 13 months, from interest at 12% compounded semiannually and ₱5,000 to be
January 1 to January 31 the following year, at a simple interest, paid after 3 years at 12% compounded monthly. What single
rate of 20%. What future amount is due at the end of the loan payment must she pay after 3 years at an interest rate of 16%
period? compounded quarterly to settle the two obligations?
Ans. ₱2,433.33 Ans. ₱12, 627.59
10. Mr. J. de la Cruz borrowed money from a bank. He received
3. If you borrow money from your friend with simple interest of from the bank ₱1,342 and promise to repay ₱1,500 at the end of
12%, find the present worth of ₱ 20,000, which is due at the end 9 months. Determine the simple interest rate and the
of nine months. corresponding discount rate or often referred to as the “Banker’s
Ans. ₱18.348.62 discount.”
Ans. 11.7%. 10.53%
4. Determine the exact simple interest, on ₱5,000 tor the period 11. A man deposits ₱50,000 in a bank account at 6%
from Jan. 15 to Nov. 28. 1992, if the rate of interest is 22%. compounded monthly for 5 years. If the inflation rate of 6.5%
Ans. ₱955.74 per year continues for this period, will this effectively protect the
purchasing power of the original principal?
5. A man wishes his son to receive ₱200,000 ten years from now. Ans. No: ₱49,225
What amount should he invest if it will earn interest of 10%
compounded annually during the first 5 years and 12% 12. What is the future worth of P600 deposited at the end of
compounded quarterly during the next 5 years? every month for 4 years if the interest rate is 12% compounded
Ans. ₱68.758.67 quarterly?
Ans. ₱36,641
6. By the conditions of a will the sum of ₱25,000 is left to a girl
to be held in trust by her guardian until it amounts to ₱45,000. 13. A young woman, 22 years old, has just graduated from
When will the girl receive the money if the fund is invested at 8% college. She accepts a good job and desires to establish her own
compounded quarterly? retirement fund. At the end of each year thereafter she plans to
Ans. 7.42 years deposit ₱2,000 in a fund at 15% annual interest. How old will
she be when the fund has an accumulated value of ₱1,000,000?
7. At a certain interest rate compounded semiannually, ₱5,000 Ans. 53 years old
will amount to ₱20,000 after 10 years. What is the amount at
the end of’15 years? 14. Reyes borrows ₱600.000 at 12% compounded annually,
Ans. ₱40,029.72 agreeing to repay the loan in 15 equal annual payments. How
8. Jones Corporation borrowed ₱9,000 from Brown Corporation much of the original principal is still unpaid after he has made
on Jan. 1, 1978 and 12.000 on Jan. 1, 1980. Jones Corporation the 8th payment?
made a partial payment of ₱7,000 on Jan. 1 1981. It was agreed Ans. ₱402,040
that the balance of the loan would bet amortized by two
15. M purchased a small lot in a subdivision, paying ₱200,000 annum, compounded quarterly. The insurance company has a
down and promising to pay ₱15,000 every 3 months for the next one-time service charge of 5% of the balance. This new loan also
10 years. The seller figured interest at 12% compounded calls for equal quarterly payments.
quarterly. (a) What is the balance due on the original mortgage
(a) What was the cash price of the lot? (principal) if all payments have been made through a
(b) If M missed the first 12 payment, what must he pay at full-five years?
the time the 13th is due to bring himself up to date? (b) What will be the difference between the equal quarterly
(c) After making 8 payments, M wished to discharge his payments in the existing arrangement and the revised
remaining indebtedness by a single payment at the time when proposal?
the 9th regular payment was due, what must he pay in addition Ans. (a) ₱7,262.733; (b) ₱120,862
to the regular payment then due?
(d) If M missed the first 10 payments, what must he pay 18. An asphalt road requires no upkeep until the end of 2 years
when the 11th payment is due to discharge his entire when ₱60.000 will be needed for repairs. After this ₱90,000 will
indebtedness? be needed for repairs at the end of each year for the next 5 years,
Ans. (a) ₱546,722; (b) ₱234,270; (e) ₱300,006; then ₱120,000 at the end of each year for the next 5 years.
(d) ₱479,948 If money is worth 14% compounded annually, what was the
equivalent, uniform annual cost for the 12-year period?
16. A man approaches the ABC Lean Agency for ₱100,000 to be Ans. ₱79,245
paid in 24 monthly installments. The Agency advertises an
interest rate of 1.5% per month. They proceed to calculate the 19. A man wishes to provide a fund for his retirement such that
amount of his monthly payment, in the following manner. from his 60th to 70th birthdays he will be able to withdraw equal
Amount requested: ₱100.000 sums of ₱18,000 for his yearly expenses. He invests equal
Credit investigation: ₱500 amount for his 41st to 59th birthdays in a fund earning 10%
Credit risk insurance: ₱1.000______ compounded annually. How much should each of these
Total ₱101,500 amounts be?
Interest: (₱101,500) (24) (0.015) = ₱36,540 Ans. ₱2,285
Total owed: ₱101,500 + ₱36,540 = ₱138,040
138,040 20. Juan Reyes inherited ₱280,000 on his birthday. This he
Payment = = ₱5,751.67
24 placed in his own pension fund (bank account), which earns
What is the effective rate of interest of the loan? interest at 12% compounded annually. He withdraw ₱450,000
Ans. 38.83% on his 35th birthday to make the initial payment on a house. He
drew his annual uniform payment for the pension fund on his
17. A new office building was constructed 5 years ago by a 65th birthday and planned to make 20 such withdrawals so as
consulting engineering firm. At that time the firm obtained the to just exhaust the fund. He died at the age of 71; however, just
bank loan for ₱10,000,000 with a 20% annual interest rate, before withdrawing the amount due on that date. How much is
compounded quarterly. The terms of the loan called for equal left in the fund to be passed on to the heirs at the time of Juan’s
quarterly payments for a 10-year period with the right of death?
prepayment at any time without penalty. Ans. ₱155,980
Due to internal changes in the firm, it is now proposed to
refinance the loan through an insurance company. The new loan
is planned for a 20-year term with an interest rate of 24% per 21. Determine the present worth and the accumulated amount
of an annuity consisting of 6 payments of ₱120,000 each, the INTEREST AND DISCOUNT
payment are made at the beginning of each year. Money is worth
15% compounded annually. P3-03 (ECE Board, February 1978)
Ans. ₱52,226.40; ₱120,801.60 Juan dela Cruz borrowed money from a bank. He received
₱1,340 and promised to pay ₱lt500 at the end of 9 months.
22. Calculate the capitalized cost of a project that has an initial Determine the following:
cost of ₱3,000,000 and an additional investment cost of (a) The rate of simple interest.
₱1,000,000 at the end of every ten years. The annual operating (b) The corresponding discount rate.
cost will be P 100,000 the end of every year for the first four
years and P 160,000 thereafter. In addition, there is expected to P3-O4 (ECE Board, February 1979)
be a recurring major rework cost of ₱300,000 every 13 years. A man borrows money from a bank which uses a simple
Assume i=l5%. discount rate of 4%. He signs a promissory note promising to
Ans. ₱4,281,990 pay ₱500 per month at the end of the 4th, 6th, and 7th months,
respectively. Determine the amount he received from the bank.
23. The will of a wealthy philanthropist left ₱5,000,000 to
establish a perpetual charitable foundation. The foundation P3-O5 (ECE Board, August 1979)
trustees decided to spend ₱1,200,000 to provide facilities An amount of ₱3,000 is invested for 9 years at 6% compounded
immediately and to provide ₱100,000 of capital replacement at quarterly. Determine the amount of interest earned by the
the end of each 5-year period. If the invested funds earned 12% investment.
per annum, what would be the year-end amount available in P3-O6 (ECE Board, March 1982)
perpetuity from the endowment for charitable purposes? If ₱10,000 is invested at 12% interest compounded annually,
Ans. P440.259 determine how many years it will take to double.

24. The surface are of a certain plant that requires painting is P3-O7 (ECE Board, September 1982)
8,000 sq. ft. Two kinds of paint are available whose brands are Which is better for an investor, to invest at 5 ½ % compounded
A and B. Paint A costs ₱1.40 per sq. ft. but needs renewal at the semi-annually or 5% compounded monthly?
end of every 4 years, while paint B costs ₱ 1.80 per sq. ft. If F3-O8 (ECE Board, September 1983)
money is worth 12% effective, how often should paint B be Mr. W borrowed ₱2,000 from Mr. Y on June 1, 1928 and ₱500
renewed so that it will be as economical as Paint A? on June 1, 1930. Mr. W paid ₱500 on June 1, 1931, ₱400 on
Ans. 5.58 years June 1, 1932, and ₱700 on June 1, 1933. If money is worth 5%
25. A contract has been signed to lease a building at ₱200,000 compounded annually, what additional payment should Mr. W
per year with an annual increase of ₱ 1,000 for 8 years. pay on June 11, 1936 to discharge all remaining liability?
Payments are to be made at the end of each year, starting one
year from now. The prevailing interest rate is 7%. What lump P3-09 (M.E. Board, September 1979)
sum paid today would be equivalent to the 8-year lease-payment How long will it take ₱500 to be four times in value if invested at
plan? the rate of 7% compounded semi-annually? What is the effective
Ans. P147 609 rate of interest?

P3-10 (M-E. Board, October 1986)

It is the practice of almost all banks in the Philippines that when
they grant a loan that the interest for one year is automatically
deducted from the principal amount upon release of money to Exercise 2.1
the borrower. Let us therefore assume that you applied for a loan The Compound Interest Formula
with a bank and the amount of ₱80,000 was approved at an
interest rate of 14% of which ₱11,200 was deducted and you were Answer the following problems. Show your solutions.
given a check for ₱68,800. Since you have to pay ₱80,000 one
year after, what then will be the effective interest rate? 1-5. Compute for the missing data，
P3-11 (M.E* Board, 1987)
The sum of ₱26,000 was deposited in a fund earning interest at Principal Time Nominal Rate Amount
8% interest per annum compounded quarterly. What was the
amount in the fund at the end of 3 years? 1. ₱25,000 4 years 12%, quarterly ₱xxxxx
2. ₱xxxxx 12 months 18%, semi-annually ₱90,000
P3-12 (M.E- Boards April 1988)
The Philippine Society of Mechanical Engineers is planning to 3. ₱xxxxx 10 years 15%, monthly ₱145,000
construct its own building. Two proposals are being considered： 4. ₱45,000 3 years 8%, annually ₱xxxxx
(a) The construction of the building now to cost ₱400,000
(b) The construction of a smaller building now, to cost 5. ₱135,000 5 years 24%, monthly ₱xxxxx
₱300, 000 and at the end of 5 years, an extension to be added
to cost ₱200,000.
Which proposal is more economics if interest is 20%, deprecia- 6. Find the compound amount if ₱48,000 is deposited in a bank
tion is disregarded and by how much? paying 8% compounded quarterly for 6 years.

P3-13 (M-E- Board, April 1989) 7. Cris borrowed，₱50,500 from Romy. He promised to pay the
If the sum of ₱15,000 is deposited in an account earning 4% per interest and the principal after 4 years. How much would Romy
annum compounded quarterly, what will be the amount of the receive from Cris if he charged interest at 9% compounded
deposit at the end of 5 years? monthly?
P3—14 (M-E- Board，June 1990)
A man who won ₱300,000 in a lottery decided to place 50% of 8. Find the present value or ₱80,000 due at the end of 8 years if
his winnings in a trust fund for the college education of his son. interest is computed at 14% compounded semi-annually?
If the money will earn 14% a year compounded quarterly, how
much will the man have at the end of 10 years/ when his son 9. If ₱450,000 is invested for 9 years at 10% compounded
will be starting his college education? quarterly find:
a. The compound interest
P3-15 (Geodetic Engineering Board, August 1980 & February b. The compound amount
1982) 10. What is the compound amount if ₱79,000 is invested for 3
A man borrowed ₱25,000 from a bank for which he signed a years at 12% compounded semi-annually?
promissory note to repay the loan at the end of one year. He only
received the amount of ₱21,915 after the bank collected the ad- 11. Discount ₱250,000 at 8% converted quarterly for 7 years.
vance interest and an additional amount of P85.00 for legal fees.
What was the rate of interest that the bank charged? 12. Michael borrowed ₱240,000 from a bank charging 18%
compounded monthly. How much would he pay at the end of
three years?
 Exercise 2.2
13. Mr. Albert promised to pay Mr. Guinto ₱120,000 for a loan Compound Amount with a Fractional Time Period
he made 5 years ago. If Mr. Guinto charged an interest rate of
14% compounded quarterly, how much did Mr. Albert borrow? Answer the following problems. Show your solutions.

14. Honey received ₱7,000 after 12 months at 10% converted ； 1-5. Compute for the missing data.
quarterly. What was her initial payment? Principal Time Nominal Rate Amount

15. Mary would like to have ₱250,000 five years from now. What 1. ₱75,000 2 years and 5 months 10%, quarterly ₱xxxxx
sum of money should she deposit today in a bank paying 12% 2. ₱60,000 16%, ₱xxxxx
compounded monthly? 1 year and 2 months
semi-annually
3. ₱65,000 11%, ₱xxxxx
16. Accumulate P35#000 for 3 years at: 8 years and 7 months
A) 15% simple interest. semi-annually
B) 15% compounded annually. 4. ₱15,000 2 years and 8 months 14%, annually ₱xxxxx
5. ₱128,000 5 years and 10 months 24%, quarterly ₱xxxxx
17. Discount ₱88,000 for 6 years at:
A) 18% simple interest.
B) 18% compounded monthly.

18. Susan owes me ₱150,000. She offers to pay the principal 6. On January 5, Crisel borrowed ₱28,000 from Philip at 8%
plus the accumulated interest at the rate of 10.5% compounded compounded quarterly for 6 years and 4 months. How much
semi-annually at the end of three years. How much will I receive would she pay then?
after three years? 7. Accumulate ₱145,000 at 16.5% converted annually for 7
years and 11 months.
19. On his eighteenth birthday Chimmy received ₱250,000, the
sum of which was the result of an investment made by his father 8. If you have ₱25,000 in a savings paying 5% compounded
on the day that he was born. How large was the investment if it quarterly, how much will you expect at the end of 1 year and 7
earned interest at 14% compounded quarterly? months.

20. What sum of money invested 20 years ago would amount 9. Find the compound amount ₱98,000 is invested in the money
to ₱950,000 if it was invested at 12%? market paying 12% compounded semi-annually for 4 years and
A) Simple interest 8 months.
B) Compounded annually
C) Compounded semi-annually 10. Mike borrowed ₱250,000 from a cooperative charging 18%
D) Compounded quarterly compounded quarterly. How much would he pay after 4 years
E) Compounded monthly and 2 months?

11. On June 15, Rose borrowed ₱50,000from his friend and

promised to pay the principal and interest 3 years and 10
months later. If money is worth 12.5% compounded semi-
annually, how would she pay then?
12. Find the compound amount of ₱90,000 if it is invested for 6 Exercise 2.3
years and 11 months at 11% compounded quarterly? Compound Present Value with a Fractional Time
Period
13. Ricardo received ₱35,000 as bonus from the company for a Answer the following problems. Show your solutions.
job well done. He saves this amount in the bank to earn 10%
interest compounded quarterly for 4 years and 5 months. How
much will he have then?
1-5. Compute for the missing data.
Principal Time Nominal Rate Amount
14. If ₱400,000 is invested today in a universal bank, how much
Bub have after 7years and 2 months if interest is at 16% 1. ₱xxxxx 6 years and 4 months 12%, quarterly ₱170,000
converted annually?
2. ₱xxxxx 8 years and 1 month 8.5%, semi-annually ₱ 68,000
15. How much money will Nette have if she invested her ₱85,000
yearly salary at 8% compounded quarterly for 3 years and 11 10%,
3. ₱xxxxx 2 years and 5 months ₱ 145,000
semi-annually
months?
4. ₱xxxxx 3 years and 8 months 4%, annually ₱ 8,500

5. ₱xxxxx 10 years and 10 months 9.5%, quarterly ₱ l33,000

6. Maria borrowed a sum of money and promised to pay ₱60,000

at the end of one year and 4 months. If interest is charged at
9% compounded quarterly, what was the original sum
borrowed?

7. Freddie bought a television set. How much was the original

cost if he paid ₱24,500 at the end of 3 years and 2 months
at 8% compounded quarterly?

8. Jose wishes to have ₱100,000 at the end of 4 years and 5

months. If his money will earn at 5% compounded quarterly,
how much should his initial savings be?

9. Eleven months from today, Rizza will need ₱58,000 for the
tuition fees of his son. How much must she save in a thrift
association today if the interest to be earned is at 6%
compounded annually?

10. Miriam wants to have ₱335,000 at the end of 8 years and 1

month. How much must she invest today in a fund if it earns
18% compounded annually?
11. A cash prize of ₱500,000 was invested 20 years and 5 Exercise 2.4
months ago at 12.5% compounded semi-annually for an Continuous Compounding
invention of a cure for an infectious disease. How much is the Answer the following problems. Show your solutions.
amount now?
1-5. Compute for the missing data.
12. Find the present value of ₱420,000 if it was invested at 14% Principal Time Nominal Rate Amount
compounded semi-annually for 7 years and 10 months.
1.₱400,000 6.5 years 14.5%, continuously ₱xxxxx
13. Cripin needs ₱560,000 in three years and 1 month to pay for
8 year and
a lot. How much should he invest today in a bank if money is 2.₱47,500
8 months
6.5%, continuously ₱xxxxx
worth 14.5% compounded annually?
2 years and
3. ₱xxxxx 4%, continuously ₱15,000
14. How much must Karlo invest today in a savings account to 7 months
realize ₱98,000 in 5 years and 2 months if the money will earn
3 years and
at 9.5% compounded quarterly? 4. ₱xxxxx 7.5%, continuously ₱88,000
10 months

15. How much should a farmer deposit today for his son’s college 10 years and 11
5.₱72,000 7%, continuously ₱xxxxx
education 8 years and 11 months from today if his deposit, months
earning at 9.5% compounded annually, should amount to
₱650,000?