a. Solve the following problems carefully.

Write your complete solution and box your final

answer. Take a photo of your solution and answer and send it to Ms./Mr.________ for
compilation.
b. Round-off your final answer only to nearest hundredths.
c. Deadline of Submission is until 12noon today.
d. Use any kind of clean paper.

Compound Interest

1. JRT publishes invest ₱100,000 today to be paid in five years in one lump sum at 12%
compounded annually. If the rate of inflation is 4% compounded annually, how much
profit, in today’s peso, if realized over the five-year period?
2. A manufacturing firm contemplates retiring an existing machine at the end of 2002. The
new machine to replace the existing one will have an estimated cost of ₱400,000. This
expense will be partially defrayed by sale of the old machine as scrap for ₱30,000. To
accumulate the balance of the required capital, the firm will deposit the following sum in
an account earning an interest of 5% compounded quarterly:
₱60,000 at the end of 1999
₱60,000 at the end of 2000
₱80,000 at the end of 2001
What cash disbursement will be necessary at the end of 2002 to purchase the new
machine?
3. Excel Institute Incorporated plans to purchase a piece of land and to build a school
building on this land. However, since the school building is not an immediate
requirement, the institute is considering whether it should purchase the land and the
building now or defer this action for 3 years. The current cost are as follows:
Land ₱800,000
Building ₱12,000,000
The purchase price of the land and the cost of the school building are
expected to appreciate at the rate of 15% and 4% per annum, respectively. What will be
the total cost of the land structure 3 years hence?
4. Mr. James Lubay working in the United States planned of returning to the Philippines at
the end of 2001. He established a fund starting at 1995 with the following recorded
deposits and withdrawals:
January 1, 1995 – deposit of ₱40,000
January 1, 1997 – deposit of ₱80,000
July 1, 1997 – withdrawal of ₱12,000
July 1, 1998 – deposit of ₱64,000
January 1, 1999 – withdrawal of ₱48,000
His fund earned an interest at the rate of 3.5% compounded semi-
annually until the end of 1997. At that date, the interest was augmented to 4%
compounded semi-annually. What will be the principal in the fund at the end of 2001?
5. JRT Publishers is contemplating of installing a labor-saving printing equipment. It has a
choice between two different models. Model A will cost ₱1,460,000 while model B will
cost ₱1,452,000. The anticipated repair costs for each model are as follows:
Model A - ₱60,000 at the end of the 5th year
 ₱80,000 at the end of the 10th year
Model B - ₱152,000 at the end of 9th year.
The two models are alike in all aspects. If the publisher is earning a
7.5% return to capital, which model should be purchased? How much savings will be
accrued if the publisher will purchase the more economical model.
6. Alexander owes ₱25,000 due in 1 year and ₱75,000 due in 4 years. He agrees to pay
₱50,000 today and the balance in 2 years. How much must he pays at the end of two
years if money is worth 5% compounded semi-annually?

Simple Interest

1. A man borrowed ₱20,000 from a local commercial bank which has a simple interest of
16% but the interest is to be deducted from the loan at the time the money was
borrowed and the loan is payable at the end of one year. How much is the actual rate of
interest?
2. If you borrowed money from your friend with a simple interest of 12%, find the present
worth of ₱20,000, which is due at the end of nine months.
3. A man borrowed money from a loan shark. He receives from the loan shark an amount
₱1,342 and promise to repay ₱1,500 at the end of 3 quarters. What is the simple
interest?
4. A man borrowed from a bank under a promissory note that he signed in the amount of
₱25,000 for a period of 1 year. He receives only the amount of ₱21,915 after the bank
collected the advance interest and an additional of ₱85 for the notarial and inspection
fees. What was the rate of interest that the bank collected in advance?
5. On her recent birthday, April 22, 2001. Nicole was given by her mother a certain sum of
money as a birthday present. She decided to invest the said amount on 20% exact
simple interest. If the account will mature on Christmas day at an amount of ₱10,000,
how much did Nicole received from her mother on her birthday?