Ruizo, Charlene Joy A.

BSSE 2

Activity #1

Engineering Economic

Problem 1. A principal of P20 000 was invested on January 15, 2016 at a simple interest rate of

8%. Determine the total amount that the investor can withdraw on April 15, 2016 using (a)

ordinary simple interest, and (b) exact simple interest.

Given:

P = 20, 000

r = 8/100 = 0.08 (decimal)

a) n = 3 / 12

b) n = 31, 28, 31 / 365

Solution:

a) I = Prn

I = 20,000 x 0.08 x (3/12)

I = 400

F=P+I
 F = 20,000 + 400

F = 20,400

b) I = Prn

I = 20,000 x 0.08 x (31+28+31)

365
I = 394.52

F=P+I

F = 20,000 + 394.52

F = 20,394.52

Problem 2. A man borrows P10,000 from a loan firm. The rate of simple interest is 15%, but the

interest is to be deducted from the loan at the time the money is borrowed. At the end of one year

he has to pay back P10,000. What is the actual rate of interest?

Given:

P1 = 10,000 ; P2 = 8,500

F = 10,000

r1 = 15/100 = 0.15 ; r2 = ?

n = 12/12 or 360/360

t = 1 year
Solution:

I = Prn

I = 10,000 x 0.15 x (12/12)

I = 1,500

P=F–I

P = !0,000 – 1500

P = 8,500

I = Prt

1,500 = 8,500 (r) (1)

r = 0.17

r = 17%

Problem 3. A time deposit of P110,000 for 31 days earns P890.39 on maturity date after

deducting the 20% withholding tax on interest income. Find the rate of interest per annum.

Given:
P = 110,000

I = 890.39 / 0.8 = 1,112.98

r1 = 20/100 = 0.2

r2 = 100-20 = 80/100 = 0.8

n = 31 /360

Solution:

I = Prn

1,112.98 = 110,000 (r) (31)

360
r = 0.11749

r = 11.75%

Problem 4. The tag price of a certain commodity is for 100 days. If paid in 31 days, there is a 3%
discount. What is the simple interest paid?

Given:

P = 100% - 3% = 97% of x = 0.97x

F = 100% of x = 1x

n = 100 – 31 = 69/ 360

r =?

Solution:

F = P (1 + rt )

1 = 0.97 (1 + r (69/ 360))

r = 0. 161363

r = 16.14%

Problem 5. A student borrowed money from a bank. She receives from the bank P1,340.00 and

promised to pay P1,500.00 at the end of 9 months. Determine the corresponding discount rate or

often referred to as the “banker’s discount”.

Given:

P = 1,340.00

I = 1,500.00 - 1,340.00 = 160

n = 9/12

r =?

Solution:

I = Prn
160 = 1,340.00 (r) (9/12)

r = 0.15

r = 15%

Problem 7. A P5,000 loan was originally made at 12% simple interest for 3 years. At the end of

this period the loan was extended for another 2 years, without the interest being paid, but the new

interest rate was made 8% compounded quarterly. How much should the borrower pay at the end

of 5 years.

Given:

P = 5000

Simple Interest

r1 = 12/100 = 0.12

t1 = 3 years

Compounded Quarterly

r2 = 8/100 = 0.08

t2 = 2 years

Solution:
Simple Interest;

I = Prt

I = 5,000 (0.12) (3)

I = 1,800

Compounded Quarterly;

F = P (1 + r/n)nt

F = 5,000 (1 + 0.08/4 )4(2)

F = 5,858

Total = F + I

= 5,858 + 1,800

Total = 6,658