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OUTLINE:
This part of the lecture series will include topics and problem sets focusing on
the following:
INTEREST
CASH FLOW DIAGRAMS
SIMPLE INTEREST
ORDINARY AND EXACT SIMPLE INTEREST
COMPOUND INTEREST
CONTINUOUS COMPOUNDING
NOMINAL AND EFFECTIVE RATES OF INTEREST
EQUIVALENT NOMINAL RATES
Problem 2. A man borrowed P10,000.00 from his friend and agrees to pay at
the end of 90 days under 8% simple interest rate. What is the required
amount?
P = P10,000.00
r = 8%
t = 90 days / 360 days = ¼
F = P (1 + rt) = P10,000
06/07/2018
(1 + 0.08(0.25)) = P10,200.00
Interest, Simple Interest, Compound Interest 7
SIMPLE INTEREST (PROBLEM SOLVING)
Problem 3. Annie buys television set from a merchant who offers P25,000.00 at
the end of 60 days. Annie wishes to pay immediately and the merchant offers
to compute the required amount on the assumption that money is worth 14%
simple interest. What is the required amount?
F = P25,000.00
r = 14%
t = 60 days / 360 days = 1/6
P25,000.00 = P (1 + rt)
P25,000.00 = P (1 + 0.14(1/6))
P = P24,429.97
Problem 4. What is the principal amount if the amount of interest at the end of
2 ½ year of P4,500.00 for a simple interest of 6% per annum?
F = P4,500.00
r = 6%
t = 2.5 years
06/07/2018 Interest, Simple Interest, Compound Interest 8
SIMPLE INTEREST (PROBLEM SOLVING)
t = 2.5 years
P4,500.00 = Prt
P4,500.00 = P (0.06)(2.5)
P = P30,000.00
Problem 5. How long must a P40,000.00 note bearing 4% simple interest run to
amount to P41,350.00?
P = P40,000.00
F = P41,350.00
r = 4%
P41,350.00 = P40,000.00 (1 + 0.04t)
t = 0.844 = 303.75 days or 304 days
Problem 2. A mam lends P6,000.00 at 6% simple interest for 4 years. At the end of this
time he invests the entire amount (principal plus interest) at 5% compounded annually
for 12 years. How much will he have at the end of the 16-year period?
Problem 3. A time deposit of P110,000.00 for 31 days earns P890.39 on maturity date
after deducting the 20% withholding tax on interest income. Find the interest per
annum.
Problem 4. A bank charges 12% simple interest on a P300.00 loan. How much will be
repaid if the loan is paid back in one lump sum after three years?
Problem 5. The tag price of a certain commodity is for 100 days. If paid in 31 days,
there is 3% discount. What is the simple interest paid?
Present Worth of F
The present worth of F is:
P = F / (1 + i)n
The term 1 / (1 + i)n, also known as (P/F, I, n) is called the single
payment present worth factor.
3. How long will it take for an investment to fivefold its amount if money is
worth 14% compounded semi-annually?
4. A sum of P1,000.00 is invested now and left for eight years, at which time
the principal is withdrawn. The interest that has accrued is left for another
eight years. If the effective annual interest rate is 5%, what will be the
withdrawal amount at the end of the 16th year?