Compilation of examples, quiz and exam

SIMPLE INTEREST

1. Pacific Telephone Credit Union loaned money to an engineering staff member for a
radio controlled model airplane. The loan is for $1000 for 3 years at 5% simple
interest . How much money will the Engineer repay at the end of 3 years.

2. A 2-year loan of $500 is made with 4% simple interest. Find the interest
earned.

3. A total of $1,200 is invested at a simple interest rate of 6% for 4 months. How

much interest is earned on this investment?

4. A business takes out a simple interest loan of $10,000 at a rate of 7.5%. What
is the total amount the business will repay if the loan is for 8 years?

5. A department store charges 18.6% interest(annual) for overdue accounts. how

much interest will be on Php 1,080 accounts that is 3 months overdue?

6. Find the interest on a boat loan of Php 55,000 at 16% for 8 loan months.

7. Find the principal invested at 4% for 8 months if the interest is Php 200.00.

COMPOUND INTEREST

1. Mr. Cruz decided to get a 5-yr consolidated loan from the company cooperative an
amount of PhP 300,000 at a nominal interest rate of 3.5% compounded annually.
How much would Mr. Cruz pay at the end of the contract?

2. An investment earns 3% compounded monthly. Find the value of an initial

investment of $5,000 after 6 years.

3. What is the value of an investment of $3,500 after 2 years if it earns 1.5%

compounded quarterly?

4. Mrs. Jefferson purchased an antique statue for $450. Ten years later, she
sold this statue for $750. If the statue is viewed as an investment, what annual
rate did she earn?

5. How many years will it take for an investment to double in value if it earns 5%
compounded annually?

6. Stacey must pay a lump sum of $6000 in 5 years. What amount deposited
today at 6.2% compounded annually will amount to $6000 in 5 years?
7. If you want to deposit Php 50,000 into an account paying 4% annual interest
compounded monthly how long you need to invest it until there is Php 80,000 in
the account.

EFFECTIVE RATE OF INTEREST AND CONTINUOUS COMPOUNDING

1. A savings and loan offers a 5.25% rate per annum compound daily over 365
days per year. What is the effective annual rate?

2. A savings fund is opened with $2750. The fund is compounded continuously

with an interest rate of 7.25%. What will be the account balanced after 15 years?

3. Kevin’s father wants to open an account with $5000 that will grow to $12750 in
ten years. What is the minimum interest rate that the account can have if
compounded continuously?

QUIZ BEFORE THE FIRST EXAM

1. what is the annual rate of interest if P 265 is earned in four months on an

investment of 15,000?

2. A loan of P 2,000 is made for a period of 13 months, from January 1 to

January 31 the following year. At a simple interest is 20%. What is the future
amount is due at the end of the loan period.

3.Determine the exact simple interest on P 5,000 for the period from January 15
to November 28, 1992, if the rate of interest is 22%.

4. By the condition of a will the sum of P 25,000 is left to be held in trust by her
guardian until it amount P 45,000. When will the girl receive the money if the fund
is invented at 8% compounded quarterly?

5. A man wishes his son to receive P200,000 ten years from now, what amount
should he invest if it will earn of 10% compounded annually during the first 5
years and 12% compounded quarterly during the next 5 years?

6. How much money would you need to deposit today at 9% annual interest
compounded monthly to have Php 12,000 in the account after 6 years?
 ANNUITY TOPIC

ORDINARY ANNUITY

1. What is the present value of an annuity of $1,500 payable at the end of each
6-month period for 2 years if money is worth 8%, compounded semi-annually?

2. If you can save $200 at the end of each month for the next 35 years and you
can earn 12% compounded monthly, how much will you have when you retire?

3. If you want to be a millionaire in 25 years, and you can earn 9% compounded

monthly how much do you need to deposit at the end of each month?

4. Nick recently graduated and got his first real job. He decides to set up
retirement fund. He will deposit Php 1,500 into this account at the end of each
quarter from now until retirement. He will retire in 40 years. His retirement fund
will earn 3.5% interest compounded quarterly.

A) How much will his retirement fund be worth when he retires?

B) If Nick decides to invest today how much would he need to invest as a lupm
sump amount to get the same accumulated amount in the previous investment?

5. John decides to save Php 1,500 at the end of each month, if he wants to be a
millionaire how long will take him to save that amount of money considering an
investment of 9% compounded monthly?

ANNUITY DUE

1. An 8-year annuity due has a value of $1,000. If the interest rate is 5 percent
compounded annually, find its present amount.

2. Find the FV (Future Value) at the end of the last payment period. Payments of
$1000 each are made at the beginning of each year for 3 years with interest at
5% compounded annually.
Deferred Annuity

1. Mr. X borrows a certain sum of money at 8% per annum compound interest

and agrees to pay both principal and interest in 10 equal yearly instalments of
Rs. 1,200 each. If the first instalment is to be paid at the end of 5 years from
the date of borrowing and the other yearly instalments are paid regularly at
the end of the subsequent years, find the sum borrowed by him.

Perpetuity:

1. In order to create an endowment, which pays $100,000 per year, forever, how
much money must be set aside today in the rate of interest is 10%?

2. If the first perpetuity payment will not be received until three years from today,
how much money needs to be set aside today?

EXAMPLES

1. A satellite TV subscription is Php 550.00 per month, payable in advance.

They offer a deal: pay in advance for a year but only pay Php 6,050.00. How
much will you save on this deal if interest is available to you at 7% p.a.
compounded monthly?

2. What is the future worth of P600 deposited at the end of every month for 4
years if the interest rate is 12% compounded quarterly?
 DEPRECIATION

METHODS OF DEPRECIATION

1. Straight-line Line Depreciation

2. Sinking Fund
3. Declining Balance Depreciation
4. Double Declining Balance Depreciation
EXAMPLES ( 1 – 5 )

1. What is the Straight-line depreciation expense for a truck that was purchased for
$30 000 with a life time of 14 years and has a residual value $2 000.

a) What is the accumulated depreciation expense of the equipment after 8 years?

b) What is the book value of the equipment after 9 years?

c)At what year will the equipment have a book value of $18 000?

2. A Broadcasting corporation purchased an equipment for Php 60,000.00 and paid

Php 5,000.0 for freight and delivery charges to the job site. The equipment has a
normal life of 15 years with a trade in value of Php 6,000.00 against the purchase of
a new equipment at the end of the life.

a.) Determine the annual depreciation cost by the straight line method.

b.) Determine the annual depreciation cost by the sinking fund method. Assume
at 6.5% compounded annually?

3. A firm bought an equipment for Php 75,000.00. Other expenses including

installation amounted to Php 5,000.00. The equipment is expected to have a life of
20 years with a salvage value of 10% of the original cost.

a.) Determine the annual depreciation cost by the straight line method.

b.) Determine the annual depreciation cost by the sinking fund method. Assume at
12% compounded annually?

c.) Determine the book value at the end of 16 years by straight line method and
sinking fund methos at 12% interest.
4. Determine the rate of depreciation, the total depreciation up to the end of the 8 th
year and the book value at the end of 8 years for an asset that cost P 15,000 and
has an estimated scrap value of P 2,000 at the end of 10 years by.

a) Declining Balance Method

b) Double Declining Balance Method

5. A Plant bought a calciner for P( 220,000) and used it for 10 years the life span of
the equipment. What is the book value of calciner after 5 years of use? Assume a
scrap value of P 20,000 for straight line method and P22,000 for the declining
balance method and 20,000 for Double declining balance method.

a) by SLM

b) Declining balance method

c) Double declining balance method

SECOND EXAM PROBLEMS

1-2. Advance corporation purchases a lathe machine for Php 150,000. It has an
estimated salvage value of Php 10,000 and a useful life of 10 years. A.) compute the
depreciation charge per year. Using straight line method in solving for depreciation
and B.) What would be the book value after 6 years?

3. You are making car payment of Php 30,115/month for the next 3 years, you know
that your car loan has an interest rate of 12.4%, monthly, what was the initial price of
the car?

4. John decided to invest an amount of Php 25,000 per year for the next 8 years and
he expect an interest of 5% compounded annually. Find the future value of his
investment.

5-6. ABC Limited purchased a machine costing $12,500 with a useful life of 5 years.
The machine is expected to have a salvage value of $2,500 at the end of its useful
life. Using declining balance method, A) Find the rate of its depreciation and B) What
is the total accumulated charge at end of second year?

7. David borrows a certain sum of money at 8% per annum compound interest and
agrees to pay both principal and interest in 10 equal yearly instalments of Rs. 1,200
each. If the first instalment is to be paid at the end of 5 years from the date of
borrowing and the other yearly instalments are paid regularly at the end of the
subsequent years, find the sum borrowed by him.

8. A machine costs Php 300,000 with a salvage value of Php 50,000 at the end of its
life of 10 years. If money is worth 6% annually , use sinking fund method and
determine the depreciation at the 6th year.
DEPRECIATION

5. Sum-of-years Digit Depreciation

6. Service Output Method

Sum-of-years Digit Depreciation

1. A structure costs P 12,000, It is estimated to have a life of 5 years with a salvage

value at the end of life of P1,000. Determine the book value at the end of each year
of life.

2. The original cost of a certain machine is P 150,000 has a life of 8 years with
salvage value of P10,000. Using SOYD method?

a) How much is the depreciation after 5 years?

b) What is the book value of the machine at the end of 6th year?

c) Determine the depreciation charge in the 4th year?

3. An equipment costs Php 1,500,000. At the end of its economic life of five years, its
salvage value is Php 500,000. Using sum of the years digit method of depreciation,
What will be its book value for the third year?

Service Output Method

1. A truck was purchased for $30,000 w/ residual value of $2.000 and a life of
100,000 miles during the period of june-sept, the truck recorded 5,200 miles of use,
What is the units of production depreciation for the truck during the period?

SELECTION OF PRESENT ECONOMY

1. The monthly demand for ice cans being manufactured by Mr. Cruz is 3,200
pieces, with a manually operated guillotine, the unit cutting cost is P25, An electrical
operated hydraulic guillotine was offered to Mr. Cruz at a price of P275,000 and
which will cut by 30% the unit cutting cost. Disregarding the cost of money, how
many months will Mr. Cruz be able to recover the cost of the machine if he decides
to buy now?