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Engr 315 Quiz No.

3: Solutions to Problems

1. Determine the exact simple interest on P700 from January 1, 2016 to September 13, 2016 if the rate of
interest is 15% p.a.

Solution:
January 1 31 = 30 (excluding January 1) Exact simple interest = P700 0.15
February = 29 Is = P 73.44
March = 31
April = 30
May = 31
June = 30
July = 31
August = 31
September = 13 (including Sept. 13)
256 days

2. You have an option to purchase an agricultural land that will be worth P1.2M in 6 years. If its value
increases at 7% each year, how much should you be willing to pay right now for that property?

Solution:
P = F(P/F, 7%, 6) = F(1+ i)N = 1,200,000(1+0.07) 6 = P 799,610.67

3. You loaned P100,000 from a bank with a simple interest rate of 20%, but the interest was deducted from
the loan at the time the money was borrowed. If at the end of one year, you have to pay the full amount of
P100,000, what is the actual rate of interest?

Solution:
Is = P20,000
Amount received = P100,000 (1 0.2) = P80,000
Is = PiN
20,000 = 80,000 (i) (1)
i = 0.25 = 25%

4. The cost of college education in a typical university is estimated to be P120,000 in the 1 st year, increasing
by P30,000 in subsequent years. How much should a parent deposit into an educational fund that pays 4%
interest in order to provide for the 5-year college education of one student?

Solution:
F1 = P120,000 P = P 1 + P2 + P3 + P4 + P5
F2 = P150,000 = F1(P1/F1, 4%, 1) + F2(P2/F2, 4%, 2) + F3(P3/F3, 4%, 3)
F3 = P180,000 + F4(P4/F4, 4%, 4) + F5(P5/F5, 4%, 5)
F4 = P210,000 = 120,000(1+0.04)1 + 150,000(1+0.04)2 + 180,000(1+0.04)3
F5 = P240,000 + 210,000(1+0.04)4 + 240,000(1+0.04)5
N = 5, i = 4% P = P 790,858.78

5. A bank offers 5% compound interest calculated on half-yearly basis. A customer deposits P1,600 each on
the 1st of January and the 1st of July of a year. What amount would he have gained at the end of the year?
Solution:
FV = P ( ) = P1,600 ( ) + P1,600 ( ) = P3,321
Ic = FV P = P3,321 P(1,600+1,600) = P 121

6. Mr. Sully just retired, but instead of a monthly schedule, he opted to withdraw his retirement fund as a
lump sum of P1,000,000 and invest it in the stock market. If he wants to be able to withdraw P120,000
annually for 20 years, what should be the minimum interest rate of the investment?

Solution:
P = A(P/A, i%, N)
1,000,000 = 120,000 * +
i = 10.3%

7. What nominal interest rate compounded semi-annually will yield the same amount as 16% compounded
quarterly?

Solution:

( ) ( )

( ) ( )
= 16.32%

8. The present value of an annuity, A, payable for 5 years, with the 1 st payment done at the end of the 5th
year, is P50,000. What is A if ?

Solution:
N=0 5 10
N
F = P (F/P, 8%, 5) = P (1+i)
= P 50,000 A
F = P 73,466.4 = P2 P F P2

A = P2 (A/P2, 8%, 5) = P2 * +

= P 73,466.4 * +
A = P 18,400