College of Engineering

Visayas State University

Visca, Baybay City, Leyte

ESci 182 – Engineering Economy

Problem Set No. 3

Discount Rate and Inflation

Zev L. Oliveros
March 23, 2018
1. Mr. Cruz borrowed money from a bank. He received P2,657 but promised to pay P5,000 at
the end of 3 years and 4 months. Determine the discount and interest rate in this
transaction.
2. A man applied for a P20,00 loan from a loan firm. The firm approved his loan and he got
P18,500 only but still he has to pay P10,000 at the end of the year. What is the interest rate
in this case?
3. Based on news reports, it is predicted that there will be an average annual of 9.40% in the
process of commodities in the next ten years. Assuming this prediction to be accurate, a
home currently costing P48,000 will be how much ten years from now?
4. A real estate agent said that a house he sold in 1980 for P40,000 was sold by the buyer for
P92,000 in 1990. If the increase in prices is solely due to inflation, determine the rate of
inflation between 1980 to 1990.
5. On his son’s fifth birthday, the father deposited a certain amount of money which will
become P30,000 in today’s purchasing power on his son’s eighteenth birthday for his college
education. If the bank pays 6.50% while the inflation is 8.90%, how much should the father
deposit now?
6. Ten years ago, a watch costs P1,500. The rate of inflation for the first four years was 5%,
then 7% for the next three years and 8% for the last three years. Assuming that the increase
in price was due to inflation alone, how much would the watch cost now? What is the
average inflation rate for the last ten years?
7. A pair of running shoes now costing P1,000 will be P2,500 in seven years due to an inflation
of 7.5%. Determine the combined interest-inflation rate and the interest rate alone.
8. A man wishes to set aside some money in a fund for his retirement at 60 years old which will
have an amount equivalent to P60,000 in today’s purchasing power. The estimated inflation
rate is 6.750%. if the fund will earn 10% compounded semi-annually, how much will he be
investing now if he is still 45 hears old?