PROBLEM SET 1 (Part 1)

1. A loan of ₱2,000.00 is made for a period of 13 months, from January 1 to January 31 the following year,
at simple interest rate of 20%. What future amount is due at the end of the loan period? Ans. ₱2,433.33
2. What is the annual rate of simple interest if $265 is earned in four months on an investment of
$15,000? Ans. 5.3%
3. Compare the interest earned from an investment of $1000 for 15 years at 10% per annum simple
interest, with the amount of interest that could be earned if these funds were invested for 15 years at
10°/o per year, compounded annually. Ans. $3177.25 or more than double the amount earned in simple
interest.
4. A woman deposits $2000 in a savings account that pays interest at 8% per year, compounded
annually. If all the money is allowed to accumulate, how much will she have at the end of (a)10 years?
(b) 15 years? Ans. $4317.80, $6344.14
5. At what rate of interest, compounded annually, will an investment triple itself in (a) 8 years? (b) 10
years? (c) 12 years? Ans. 14.7%, 11.6%, 9.6%
6. Kathy buys a television set from merchant who asks ₱1,250.00 at the end of 60 days (cash in 60 days).
Kathy wishes to pay immediately and the merchant offers to compute the cash price on the assumption
that money is worth 8% simple interest. What is the cash price today? ₱1,233.55
7. A bill for motorboat specifies the cost as ₱1,200.00 due at the end of 100 days but offers a 4% discount
for cash in 30 days. What is the highest rate, simple interest at which the buyer can afford to borrow
money in order to take advantage of the discount? 21.4%
8. On March 1,1996 Mr. Almagro obtains a loan of ₱1500.00 from Mr. Abella and signs a note promising
to pay the principal and accumulated simple interest at the rate of 5% at the end of 120 days. On March
15, 1996, Mr. Abella discounts the note at the bank whose discount rate is 6%. What does he received?
₱1513.56
9. In how many years is required for ₱2000.00 to increase by ₱3000.00 if interest at 12% compounded
semi-annually? Ans. 8 years
10. If ₱500000.00 is deposited at a rate of 11.25% compounded monthly, determine the compounded
interest after 7 years and 9 months? Ans. ₱690849.00
11. ₱200000.00 was deposited on Jan. 1, 1988 at an interest rate of 245 compounded semi-annually. How
much would the sum be on Jan. 1, 1993? ₱621170.00
12. Determine the exact simple interest on ₱5000.00 for the period from Jan. 15 to Nov. 28, 1992, if the
rate of interest is 22%. ₱955.74
13. A man wishes his son to receive ₱200000 ten years from now. What amount should he invest if it will
earn interest of 10% compounded annually during the first 5 years and 12% compounded during the
next 5 years? ₱68758.67
14. At a certain interest rate compounded semiannually, ₱5000 will amount to ₱20000 after 10 years. What
is the amount at the end of 15 years? ₱40029.72
15. The Phil. Society of Mechanical Engineers is planning to put up its own building. Two proposals being
considered are:
a. The construction of the building now, to cost ₱400000.00
b. The construction of a smaller building now, to cost ₱300000 and at the end of 5 years, an extension
to be added to cost ₱200000.00.
Which proposal is more economical, interest rate is 20%, depreciation to be neglected and by how
much? Ans. B is more economical by ₱19624.50
16. What present sum would be needed for annual end of year payments of ₱15,000.00 each, forever if
money is worth 8%? ₱187,500.00
17. Find the present value of a perpetuity of ₱100.00 payable semi-annually if money is worth 4%
compounded quarterly. ₱4,975.12
18. In year zero, you invest ₱10,000.00 in a 15% security for 5 years. During that time, the average annual
inflation is 6%. How much, in terms of year zero dollars, will be in the account at maturity? ₱15,030.00
19. In 2020 a couple invested ₱10,000.00 for 5 years at the rate of 16% annually. During that time the rate
of inflation is 5% compounded annually. How much money will he give in 2025 and how much profit is
realized over the 5 years? ₱16,456.73 & ₱6456.73
20. The future amount of ₱100,000.00 for a period of 8 years is equal to ₱341,655.49, considering money is
worth 10% per year with an inflation rate of “x” percent per year. Find the value of “x”. 6%
21. If the rate of interest is 7% per annum, compounded continuously, after how many years will a deposit
be tripled? 15.7 years
22. A lady executive deposits ₱50,000.00 at the end of each year in an account that pays 6% per annum,
compounded continuously. How many years will it take her to accumulate one million pesos? 13.42
years
23. A man wants to buy a car by paying a down payment of ₱100,000.00 and the balance to be paid at
₱300,000.00 at the end of second year and ₱600,000.00 at the end of the 5th year. The rate of interest
is 18% compounded annually.
a. What is the present worth of all his payments? ₱577,720.85
b. Find the lump sum of all payments at the end of 5th year. ₱1,321,685.38
c. If instead he will pay his balance by a monthly payment at the rate of 1.5% monthly, how much is
his monthly payment until the 5th year? ₱12,130.97
24. A printing press is considering buying a new offset machine which cost ₱80,000.00. The machine has a
useful life of 20 years with a salvage value of ₱20,000.00. The annual operating cost is equal to
₱18,000.00. The offset machine will produce an annual savings in materials. Find the rate of return if
the machine is installed? 8%
25. A businessman invested ₱20,000.00 in a certain company. In return he receives ₱1,200.00 per year for
8 years and his ₱20,000.00 investment back at the end of 8 years. Compute the rate of return for his
investment. 6%
26. Compute the number of years so that the capital recovery factor of a uniform payment series be equal
to 0.218638 if money is worth 3% compounded continuously? 5 years
27. A man borrows ₱100,000.00 at a rate of 6% compounded continuously for 5 years. How much must he
pay annually if money is compounded continuously. ₱23,859.87
28. Each year a single payment of ₱1,766.00 is deposited in an account that earns 6% compounded
continuously. What is the amount in the account immediately after the 5th payment? ₱9,991.60
29. A commercial building can be acquired at a downpayment of ₱500,000.00 and a yearly payment of
₱100,000.00 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 12% compounded yearly, what is the cash price of the commercial
building? ₱859,082.00
30. The cash price of an apartment condominium is ₱85,908.00 and can be acquired by a down payment of
₱50,000.00 and a yearly payment of ₱10,000.00 at the end of each year for 10 years starting at the end
of 5 years from the date of purchase. If the money is worth “x” percent compounded annually, what is
the value of “x”? 12%
31. Two years ago the rental for the use of equipment and facilities as paid 5 years in advance, with option
to renew the rent for another years by payment of ₱15,000.00 annually at the start of each year for the
renewal period. Now, the lessor asks the lessee if it could be possible to prepay the rental that will be
paid annually in the renewed 5 years period. If the lessee will consider the request, what would the fair
prepayment to be made to the lessor if interest is now figured at 8%? ₱51,346.59
32. A couple decided to save for the college education of their two-year-old son. What annual deposit
should they make on each birthday from the third to the 16th inclusive so that their son will eb able to
withdraw ₱1,500.00 on each birthday from the 17th to the 20th inclusive? Money is worth 4%
compounded annually? ₱297.66
33. A man bought an Olivetti electric typewriter for ₱50.00 down and ₱30.00 a month for 2 years, he could
have bought the same typewriter for 675.00 cash. What true effective annual rate of return, before
taxes, did the time payment indicate? 14.93%
34. An employee obtained a loan of ₱10,000.00 at the rate of 6% compounded annually in order to repair a
house. How much must he pay monthly to amortize the loan within a period of 10 years? ₱110.22
35. A company invested ₱400,00.00 presently and expected a revenue of “x” at the end of years one and
two. What value of “x” is expected to have a net present worth of approximately zero, if the campany is
given a discount rate of 14% compounded annually? ₱242,915.89
36. A man bought a brand new car for ₱650,000.00 on installment basis at the rate of 10% per annum on
the unpaid balance. If he paid a downpayment of ₱120,000.00 cash and proposed to pay the balance in
equal monthly payment for two years, what should be his monthly payment? ₱24,447.03
37. The purchase amount of an equipment ₱100,000.00 has been made available through a loan which
earns 12% per annum. It has been agreed that the loan be payable in 10 equal annual payments. How
much then is the yearly due? ₱17,698.42
38. Instead of paying ₱100,000.00 in annual rent for office space at the beginning of each year for the next
10 years, an engineering firm has decided to take out a 10-year ₱1,000,000.00 loan for a new building
at 6% interest. The firm will invest ₱100,000.00 of the rent saved and earn 18% annual interest on that
amount. What will be the difference between the firm’s annual revenue and expenses? ₱10,177.32
39. Under a factory savings plan, a workman deposits ₱25.00 at the beginning of each month for 4 years,
and the management guarantees accumulation at 6% compounded monthly. How much stands to the
work man’s credit at the end of 4 years. ₱1,359.21
40. A man plans to buy a ₱150,000.00 house. He wants to make a down payment of ₱30,000.00 and to
take out a 30-year mortgage for the remaining ₱120,000.00, at 10% per year, compounded monthly.
How much must he repay each month? ₱₱1,053.08
41. What is the present value of a stream of monthly payments of ₱500.00 each over 10 years, if the
interest rate is 10% per annum, compounded monthly? ₱37,835.72
42. Mrs. Carter deposits ₱100.00 in the bank at the of each month. If the bank pays (a) 6% per year, (b) 7%
per year, compounded monthly, how much money will she have accumulated at the end of 5 years?
₱6,977.00 & ₱7,159.29
43. In relation to #42, suppose that Mrs. Carter deposits ₱100.00 a month during the first year, ₱110.00 a
month during the second year, ₱120.00 a month during the third year, etc. how much will have
accumulated at the end of 5 years if the interest rate is 6% per year, compounded monthly? ₱8,289.18
44. A recent government study reported that a college degree is worth an extra ₱23,000.00 per year in
income (A) compared to what a high-school graduate makes. If the interest rate (i) is 6% per year and
you work for 40 years (N), what is the future compound amount (F) of this extra income? ₱3,559.526.00
45. A steel mill estimates that one of its furnaces will require maintenance ₱20,000.00 at the end of 2 years,
₱40,000.00 at the end of 4 years and ₱80,000.00 at the end of 8 years. What uniform semi-annual
amounts could it set aside over the next eight years at the end of each period to meet these
requirements of maintenance cost if all the funds would earn interest at the rate of 6% compounded
semi-annually? ₱7,897.35