Bacos, Romelito D. Engr.

Roslyn Pea, ce

201111820 20 January 2014

PROBLEM 1. A man invested Php 36,020 at 12 % interest compounded quarterly. In how many years will the money earn Php 200,000? SOLUTION: F F 236,020 6.55 4n n = = = = = = 15.9 years 200,000 + 36,020 = 236,020 P(1+i)mn 36,020[1+ (1.03) 4n ]4n

PROBLEM 2. If the money invested will earn Php 200,020 after 10 years at 16% compounded annually, what is the principal amount? SOLUTION: F P+200,020 P+200,020 P = = = = P(1+i) n P(1.16)10 4.41P Php 58,656.89

PROBLEM 3. If money will triple itself after 8 years, determine the nominal interest rate. SOLUTION: F 3P I = = = P(1+i) n P(1+i) 8 14.72%

PROBLEM 4. If you deposit $120 now (n=0) and $220 two years from now (n=2) in a savings account that pays 10% interest, how much would you have at the end of year 10? SOLUTION: F1 F2 FT FT = = = = $120(1+0.10)10 $220(1+0.10)8 F1 + F2 $782.84

PROBLEM 5. If you deposit $2, 062 today in a savings account that pays an 8% interest annually, how much would you have at the end of 5 years? SOLUTION: F F F = = = P(1+i) n $2,062 (1+0.08)5 $3,029.75

PROBLEM 6. You want to set aside a lump sum amount today in a savings account that earns 7% annual interest to meet a future expense in the amount of $10,020 to be incurred in 6 years. How much do you need to deposit today? SOLUTION: P P P = = = $10,020(P/F,7%,6) $10,020(1+0.07)-6 $6,676.50

PROBLEM 7. Your perfectly reliable friend, Merle, asks for a loan and promises to pay back $170 two years from now. If the minimum interest rate you will accept is 8%, what is the maximum amount you will loan him? SOLUTION: P P P = = = F(1+i) n $170(1+0.08)-2 $145.75

PROBLEM 8. $12,020 is borrowed now at 12% interest. The first payment is $4000 and is made 3 years from now. The balance of the debt immediately after the payment is? SOLUTION: F F F = = = [$12,020(1+.12)3]-$4,000 $16,887.23 - $4,000 $12,887.23

PROBLEM 9. A company issued 50 bonds of $1,020 face value each, redeemable at par at the end of 15 years. To accumulate the funds required for redemption, the firm established a sinking fund consisting of annual deposits, the interest rate of the fund being 4%. What was the principal in the fund at the end of the 12th year? SOLUTION:

= 50($1020)

= $51,000.00

F 51,000 R after 12 years: F12 F12

= = = = = $38, 270.73 $2547.00

PROBLEM 10. A house and lot can be acquired a down payment of Php 500,020.00 and a yearly payment of Php 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 14% compounded annually, what is the cash prize of the property? SOLUTION:

P P

= = Php 521,611.56 down payment + P 500,020 + 500,020 + Php 808,855.92

P = solving for the cash prize: CP = CP CP CP = = =

PROBLEM 11. A piece of machinery can be bought for Php 10,020.00 cash, or for P2,000 down and payments of Php 750 per year for 15 years. What is the annual interest rate for the time payments? SOLUTION:

P P P 8,020 Use trial-and-error: TRY i=4.61% 8,020

= = = =

10,020 2,000 8,020

8,020 Therefore, i=4.61%.

8,020

PROBLEM 12. An instructor plans to retire in exactly one year and want an account that will pay him Php 25,000 a year for the next 15 years. Assuming a 6% annual effective, what is the amount he would need to deposit now? (The fund will be deposited after 15 years) SOLUTION:

P P P

= = = Php 242,806.00

PROBLEM 13. A manufacturing firm wishes to give each 80 employee a holiday bonus. How much is needed to invest monthly for a year at 12% nominal interest rate compounded monthly, so that each employee will receive a Php 2,020.00 bonus? SOLUTION: i F F 161,600 R = = = = = Php 12,741.96 12%/12 80(2,020) = 0.01 = 161,600

PROBLEM 14. A parent on the day the child is born wishes to determine what lump sum would have to be paid into an account bearing interest at 5% compound annually, in order to withdraw Php 20,000 each on the childs 18th, 19th,20th and 21st birthdays. SOLUTION:

P1 P1 P1 P

= = = = Php 70,919.00

P P

= = Php 30,941.73

PROBLEM 15. What is the size of 10 equal annual payments to repay a loan of P100,000 if money earns 10%? First payment is one year after receiving the loan. SOLUTION: P 100,000 R = = = Php 16, 274.54

PROBLEM 16. A credit card charges an annual rate of 14% compounded monthly. This months bill is $6,020. The minimum payment is $125. Suppose I keep paying $125 each month. How long will it take to pay off the bill? What is the total interest paid during that period? SOLUTION: F 6,020 n = = = 71.14

n = So about 71 months. The interest paid is: [(71)(125)]-6020

Php 2,855.00

PROBLEM 17. Suppose you want an item which costs $10,020. You can save it at $200 per month in an account earning 3% interest compounded monthly, or you can borrow at 8% paying of at a arate of $200 per month. With both of these options how long will it take until you have finished the payments? What is the total paid in each case? SOLUTION: F 10,020 n n Therefore, FT FT = = = = = = 47.26 47($200) $9,400

PROBLEM 18. A car dealer offers either 0% financing for 3 years or a $3,000 rebate on a $25,020 car. Assuming that you can find a loan for 6% for 36 months which gives you a smaller payment? SOLUTION: For 0% financing: $25,020/36 = $695.00 if you finance $25,020 -$3,000 at 6% payments will be: R R = = $669.89

PROBLEM 19. A new widget twister, with a life of six years, would save $2,000 in production cost each year. Using a 12% interest rate, determine the highest price that could be justified for the machine. Although the savings occur continuously throughout each year, follow the usual practice of lumping all amounts at the ends of years. SOLUTION:

P P P

= = = $8,222.81

PROBLEM 20. How soon does money double if it is invested at 8% interest? SOLUTION: F 2P 2 n n = = = = = 2P P(1+i)n 1.08n log1.08 (2) 9