EE40 Homework 1

Simple Interest
1. If you borrowed from your friend with simple interest of 12%, find the present
worth of Php20,000, which is due at the end of 9 months.
Answer: Php18,348.62
2. Determine the ordinary and exact simple interests on Php5,000 for the period
from January 15 to June 20, 1993, if the rate of simple interest is 14%.
Answer: Ordinary = Php301.39, Exact = Php299.18
3. Php4,000 is borrowed for 75 days at 16% per annum simple interest. How
much will be due at the end of 75 days?
Answer: Php 4,133.33
4. Determine the exact and ordinary interests on Php1,200 for the period from
January 16 to November 26, 1992, if the rate of interest is 24%.
Answer: Exact = Php 247.87, Ordinary = Php248.00
5. What will be the future worth of money after 12 months, if the sum of
Php25,000 invested today at simple interest rate of 1% per month?
Answer: Php28,000
Compound Interest
1. How long will it take for money to triple itself if invested at 8% compounded
annually?
Answer: 14.27
2. The sum of Php26,000 was deposited in a fund earning interest at 8% annum
compounded quarterly. What is the principal at the end of 3 years?
Answer: Php32,974.29
3. Accumulate Php3,000 for 9 years at 6% compounded quarterly. What is the
compound interest earned?
Answer: Php2,127.42
4. At a certain interest rate compounded quarterly, Php1,000 will amount to
Php4,500 in 15 years. What is the amount at the end of 10 years?
Answer: Php2,726.68
5. RCBC advertises 9.5% account that yields 9.84% annually. Find how often the
interest is compounded.
Answer: Quarterly
6. Determine the effective interest rate of Php1.00 for one year compounded
semi-annually at the nominal rate of 6%.
Answer: 6.09%
7. If Php1,000 becomes Php1,126.29 after 4 years when invested at a certain
nominal rate of interest compounded semi-annually, determine the nominal
rate and the corresponding effective rate.
Answer: Nominal = 3% comp semi-annually, Effective = 3.02%
8. What is the corresponding effective rate of 18% compounded semi-quarterly?
Answer: 19.48%

Discrete Payments

1. On his sixth birthday, a boy is left an inheritance. The inheritance will be paid
in lump sum of Php10,000 on his 21 st birthday. What is the present value of
the inheritance as of the boys sixth birthday, if the interest is 4%
compounded annually?
Answer: Php5,552,65
2. A machine worth Php50,000 is expected to last for 3 years. During its
operation, a maintenance cost of Php1,000 is needed after the 1 st year of
operation and Php2,000 at the end of the 2 nd year. What present amount of
money is required to operate the machine, if money is worth 16%
compounded quarterly?
Answer: Php52,315.28
3. The expansion plan of a business firm requires the purchase of a parcel of
land on which to build a structure, which they will need 5 years hence. The
current costs are: land, Php1,000,000; building PhP3,500,000. Since these are
not needed immediately, the firm plans to defer the purchase of the land and
the construction of the building until they are needed. If the value of the land
and the cost of the building are expected to appreciate at the rates of 20%
and 8% per annum, respectively, what will be the total cost of the land and
structure 5 years hence?
Answer: Php 7,630,968.35
Continuous Interest
1. What is the value of Php100,000 after 8 years if money is worth 3%
compounded continuously?
Answer: P 127,124.92
2. How long does it take Php100,000 to earn Php5,000 interest if money is worth
8% compounded continuously?
Answer: 0.61 years
3. What is the continuous compounding interest rate applied to Php200,000 that
will become Php350,000 in 20 years?
Answer: 2.8%
4. What is the future amount of Php35,000 after 8 years if money is worth 7%
compounded continuously?
Answer: P 61,273.54
5. A man borrows Php10,000 from a loan firm. The rate of simple interest is
15%, but the interest is to be deducted from the loan at the time the money
is borrowed. At the end of one year he has to pay back Php10,000. What is
the actual rate of interest?
Answer: 17.65%
6. A bank charges 12% simple interest on a Php300 loan. How much will be
repaid if the loan is paid back in one lump sum after 3 years?
Answer: P 408.00