MODULE 3

I. CASH FLOW DIAGRAMS

A cash- flow diagram is a graphical representation of cash
flows drawn on a time scale: Borrower’s Viewpoint

Arrow Convention:
- Arrows directed upward represents positive cash flow Lender’s Viewpoint
or cash inflow (receipts).
- Arrows directed downward represents negative cash
flow or cash outflow (disbursement) Single Payment t=n

1. Single Payment Cash Flow

- Can occur at the beginning of the time line ( t = 0 ), at the
end of the line ( t = n ), or any time in between. t=1 t=n
Uniform Series
2. Uniform Series Cash Flow
- Consist of a series of equal payments “A” starting at t = 1
and ending at t = n. (n – 1)G

3. Gradient Series Cash Flow 6G

5G
- Starts with a cash flow “G” at t = 2, and increases by “G” 3G
4G

each year until t = n, at which time the final cash flow is 2G

(n – 1)G. G

4. Exponential Gradient Cash Flow

t=2 t=n
Gradient Series

t=1 t=n
Exponential Gradient

II. Simple Interest

A. Ordinary Simple Interest
The simple interest computed based on a banker’s year.

I = Pin

▪ Future Worth, F:

F=P+I or F = P (1 + in)

Where:

I = Interested earned
𝑟
i= rate of interest per day
360
P = Present worth (capital)
F = Future worth
 n = Total number of interest periods in days
r = interest in one year

note:
For ordinary simple interest, the interest is computed based on one banker’s year.

1 banker’s year = 12 months = 360 days

Each month = 30 days

✓ Computation for “n” and “I” for ordinary simple interest:

Example:
An interest rate of 10% for a period of 9 months:
0.10
i= interest per day
360
n = 9 (30) = 270 days
An interest of 15% for 3 years:
0.15
i= interest per day
360
n = 3(12)(30)
= 1080 days
B. Exact Simple Interest
The simple interest computed based on the exact number of interest periods.

I = Pin

▪ Future worth, F:

F = P + I = P (1 + in)

Where:
𝑟
i= for ordinary year
365
𝑟
i= for a leap year
366

note:
A year is a leap year if it is divisible by 4 and divisible by 400 for a centennial year. (Centennial year are: 1800, 1900,
2000, etc.)

Example:
Determine the exact simple interest on P5,000 for the period from January 1 to March 28, 2006 at 9% interest.

Solution:
Given:
P = 5,000
i = 9%
solving for n:
January - 31 days
February - 28 days (Ordinary year)
March - 28 days

n = 87 days

Thus, solving for interest:

I = Pin
 0.09
I = 5,000 ( ) 87
365
I = P107.26

III. Discount
➢ Relationship between rate of interest and rate of discount

𝑑
i = 1−𝑑

Where:
i = rate of interest
d = rate of discount

➢ Successive Discount
Two successive discounts of p% and q% allowed on an item are equivalent to a single discount of:
𝑝𝑞
d = (p + q - 100 )%

Example:
Two discounts of 15% and 5% are equivalent to what single discount?
Solution:

(15)(5)
d = (15 + 5 - )%
100
d = 19.25%

IV. Compound Interest

1. Future Worth, F:
𝑟
F = P (1 + i)-n or F = P (1 + 𝑚 )mt

2. Present Worth, P:
𝑟
P = F (1 + i)-n or P = F (1 + 𝑚 )-mt

Where: (for both cases)

F = Future Worth
P = Present Worth
i = effective interest rate per interest period (per month, per quarter, per year, etc)
n = total number of compounding periods
m = mode of compounding
r = specified nominal rate
t = number of years
In compound interest formula, the quantity:
(1+i)n is known as the Single Payment Compound Amount Factor (SPCAF).
(1+i)-n is known as the Single Payment Present Worth Factor (SPPWF)

3. Continuous Compounding:
 F = Pert future worth

P = Fe-rt future worth

➢ Values of “n” and “i” for different modes of compounding:

✓ Annually – (every 12 months)

m=1 ; i=r ; n=t
✓ Semi – annually – (every 6 months)
𝑟
m=2 ; i= ; n = 2t
2
✓ Quarterly – (every 3 months)
𝑟
m=4 ; i= ; n = 4t
4
✓ Bimonthly – (every 2 months)
𝑟
m=6 ; i= ; n = 6t
6
✓ Semi – quarterly – (every 1.5 month)
𝑟
m=8 ; i= ; n = 8t
8
✓ Monthly – (every month)
𝑟
m = 12 ; i= ; n = 12t
12
✓ Semi – monthly – (every 0.5 month)
𝑟
m = 24 ; i= ; n = 24t
24

V. Rates of Interest

1. Nominal Rate of Interest (NRI):

Nominal rate of interest specifies the rate of interest and the number of interest periods per year.

r = im

Where:
r = nominal rate of interest
i = interest rate per period
m = number of periods

thus, a nominal rate of interest of 6% compounded monthly simply means that there are 12 interest periods each year.
The rate per interest period being:

𝑟 6%
i= = = 0.5%
𝑚 12
note:
for compound interest, the rate of interest usually quoted is the NRI. In order to accurately reflect time – value
considerations, NRI must be converted into ERI before applying the formulas for compound interest.

2. Effective rate of interest (ERI):

ERI = (1+i)m – 1

Where:
ER = Effective Rate of Interest
i = interest per interest period
 𝑟
=
𝑚
m = number of periods

3. Effective Interest Rate for Continuous Compounding:

ERI = er – 1

Where:
r = Nominal rate of interest

example: (Effective interest rate – Continuous compounding)

calculate the effective interest rate per month for an interest rate of 15% in a continuously compounded account

solution:
the nominal monthly rate, r is:
15
r = = 1.25%
12
i = e0.0125 – 1 = 0.012578
i = 1.2578%
4. Equivalent Nominal Rates

For two nominal rates to be equal, their effective rates

must be equal.
Example: (Equivalent Rates)
What nominal rate, which if converted, quarterly will have the same effect as 12% compounded semi – annually?

Solution:
Let:
r = the unknown nominal rate

for two nominal rates to have the same effect, their corresponding effective rates must be equal.

ERI quarterly = ERI semi – annually

𝑟 0.12 2
(1 + )4 – 1 = (1 + ) –1
4 4
𝑟 4
(1 + ) = 1.1236
4
r = 0.11825 or 11.825%

VI. ESTIMATING DOUBLING AND TRIPLING TIME OF AN INVESTMENT

1. Doubling Time:
The time required for an initial single amount to double in value with compound interest is:

log 2
n = log(1+𝑖)

Approximate formula: (Rule of 72)

The time required for an initial single amount to double in value with compound interest is approximately equal to:

72
Estimated n = 𝑖
Where:
i = effective interest in percent

for example, at a rate of 2% per year, it would take 72/2 = 36 years for a current amount to double in size.

2. Tripling Time:
The time required for an initial single amount to triple in value with compound interest is:

log 3
n = log(1+𝑖)

3. General Formula:
The time required for an initial single amount to become k times in value is:

log 𝑘
n = log(1+𝑖)

Where:
k = 2, 3, 4, … kn

VII. ANNUITIES
Annuity is a series of equal payments “A” made at equal intervals of time.

A. Ordinary Annuity
The type of annuity where the payments are made at the end of each period

▪ Future Worth:
(1+𝑖)𝑛 −1
F=A[ ]
𝑖

▪ Present Worth:

(1+𝑖)𝑛 −1
P=A[ ]
𝑖(1+𝑖)𝑛

B. DEFERRED ANNUITY

The type of annuity where the first payment is made later than the first or is made several periods after the beginning
of the annuity.

▪ Future Worth:

(1+𝑖)𝑛 −1
F=A[ ]
𝑖

▪ Present Worth:
 (1+𝑖)𝑛 −1
P=A[ ]
𝑖(1+𝑖)𝑚+𝑛

Where:
A = periodic equal payments
n = number of periods (equal to the number of deposits)
i = rate of interest per period (payment)
m = number of periods before the first annuity
C. ANNUITY DUE
The type of annuity where the payment is made at the beginning of each period.
▪ Future Worth:

(1+𝑖)𝑛 −1
F=A[ ] (1+i)
𝑖

▪ Present Worth:

(1+𝑖)𝑛 −1
P=A[ ]
𝑖(1+𝑖)𝑛−1

Where: (in both cases)

A = periodic equal payments
n = number of periods (equal to the number of deposits)
i = rate of interest per period (payment)

D. PERPETUITY
An annuity in which the periodic payments continue indefinitely.

▪ Present Worth of Perpetuity:

(for payments made at the end of each period)

𝐴
P= 𝑖

Where:
A = periodic payment
i = interest per payment

VIII. CAPITALIZED COST

Capitalized cost refers to the present worth of a property that is assumed to last forever. The capitalized cost of
any property is the “sum of the first cost and the present costs of perpetual replacement, operation and
maintenance”.

✓ CASE 1:
No replacement, only maintenance.
 𝐴
CC = FC + 𝑖

Where:
CC = Capitalized cost
FC = First cost or Original cost
A = Annual Maintenance cost
✓ CASE 2:
No maintenance, only replacement.

𝑃
CC = FC + (1+𝑖)𝑛−1

Where:
CC = Capitalized Cost
FC = First cost or Original cost
P = the amount needed to replace the property every n periods
✓ CASE 3:
Replacement and maintenance every period.

𝐴 𝑃
CC = FC + + (1+𝑖)𝑛−1
𝑖

Where:
CC = Capitalized Cost
FC = first cost or original cost
A = Annual Maintenance Cost
P = the amount needed to replace the property every n periods

IX. DEPRECIATION
Depreciation is the decrease in the value of physical property due to passage of time.

Symbols used and their meaning:

d = annual depreciation charge

dn = depreciation charge during the nth year
Dn = total depreciation after “n” years
FC = first cost/original cost
SV = estimated salvage value after “L” years
L = expected depreciable life of the property
n = number of years before L

A. STRAIGHT IN LINE METHOD

A method of calculating the depreciation which assumes the asset will lose an equal amount of value each year.

▪ Annual depreciation:
𝐹𝐶−𝑆𝑉
d= 𝐿

▪ Depreciation after “n” years:

𝐹𝐶−𝑆𝑉
Dn = ( )n
𝐿

Dn = d x n
 ▪ Book value after “n” years:

BVn = FC – Dn

B. SINKING FUND METHOD

A method of depreciation which assumes that there is a savings account set up to replace an asset at the end of its
life.

▪ Annual Depreciation:

(𝐹𝐶−𝑆𝑉)𝑖
d= (1+𝑖)𝐿 −1

Where:
𝑖
Uniform Series Sinking Fund Factor
[(1+𝑖)𝐿 −1]

▪ Depreciation after “n” years:

𝑑[(1+𝑖)𝑛 −1]
Dn = 𝑖

▪ Book value after “n” years:

BVn = FC – Dn

C. DECLINING BALANCE METHOD: (Mateson Formula)

A method of depreciation which assumes that annual depreciation is a fixed percentage of the BOOK VALUE of the
property per year.

▪ Depreciation during the nth year:

dn = k (FC) (1 – k)n – 1

▪ Salvage Value at the end of its useful life:

SV = FC (1 – k)L
▪ Book Value at the end of the n years:

BV = FC (1 – k)n
𝑛
𝑆𝑉 𝐿
BV = FC (𝐹𝐶 )

▪ Rate of depreciation:
 𝑛 𝐵𝑉 𝐿 𝑆𝑉
k = 1 - √( 𝐹𝐶𝑛) = 1 - √(𝐹𝐶 )

✓ Double Declining Balance Method (DDBM)

▪ Depreciation during the nth year:

2 (𝐹𝐶)(1−𝑘)𝑛−1
dn = 𝐿

▪ Salvage Value at the end of its useful life:

2 𝐿
SV = FC (1 − )
𝐿

▪ Book of Value at the end of n years:

2 𝑛
BV = FC (1 − 𝐿)

Note that the formulas for DDB method are obtained form the formulas for declining balance method by simply
replacing k with 2⁄𝐿.

D. SUM OF THE YEAR’S – DIGITS (SYD) METHOD

▪ Depreciation charge during the nth year:
𝐿−𝑛+1
dn = (FC – SV) 𝑆𝑌𝐷

▪ Total depreciation after n years:

𝑛(2𝐿−𝑛+1)
dn = (FC – SV) 𝑆𝑌𝐷

Where:
SYD = sum of the year’s digit
𝐿
SYD = (L + 1)
2

X. DISCRETE COMPOUNDING DISCOUNT FACTORS

𝑖(1+𝑖)𝑛 Capital Recovery Factor

CR = (1+𝑖)𝑛
−1
SPCAF = (1 + i)-n Single Payment Compound Amount Factor
SPPWF = (1 + i)-n Single Payment Present Worth Factor
(1+𝑖)𝑛 −1 𝑛 Uniform Gradient Future Worth Factor
UGFWF = −
𝑖2 𝑖
(1+𝑖)𝑛 −1 𝑛 Uniform Gradient Present Worth Factor
UGPWF = −
𝑖 2 (1+𝑖)2 𝑖(1+𝑖)𝑛
1 𝑛
UGUSF = − Uniform Gradient Uniform Series Factor
𝑖 (1+𝑖)𝑛−1
(1+𝑖)𝑛 −1 Uniform Series Compound Amount Factor
USCAF =
𝑖
 (1+𝑖)𝑛 −1 Uniform Series Present Worth Factor
USPWF =
𝑖(1+𝑖)𝑛
𝑖 Uniform Series Sinking Fund Factor
USSFF =
(1+𝑖)𝑛 −1

EXAMPLE PROBLEM SOLVING

1. A man expects to receive P20,000 in 10 years. How much is that money worth now considering interest at 6%
compounded quarterly?

A. 11,025.25
B. 10,115.55
C. 12,225.15
D. 15,322.35

Solution:
Given:
F = 20,000 ; t = 10 yrs
r = 6% ; compounded quarterly (m = 4)

Formula: F = (1 + i)n
𝑟
Where: i = , n = mt
𝑚

Substitute the given values:

.06
20,000 = P (1 + )4(10)
4
P = 11,025.25

2. What is the effective rate corresponding to 16% compounded daily?

A. 12.65%
B. 17.35%
C. 25.25%
D. 18.26%

Take 1 year = 360 days.

Solution:
Given:
r = 16% ; m = 360 (daily)

Formula: (Effective Rate)

𝑟
ERI = (1 + )𝑚 − 1
𝑚

Where:
r = nominal rate
m = mode of compounding

substitute:
0.16 360
ERI = (1 + ) −1
360
ERI = 0.1735
 = 17.35%

3. Find the nominal rate compounded annually equivalent to the rate of interest of 8% compounded quarterly.

A. 7.56%
B. 8.24%
C. 8.42%
D. 7.65%

Solution:
Given:
r = 8%
m=4
note: For two or more rates to be equivalent, their corresponding effective rate must be equal.

Let:
x = unknown rate
ERI annually = ERI quarterly
0.08 4
(1 + x)1 – 1 = (1 + ) –1
4
x = 0.0824
x = 8.24%

4. In order to prepare for the college education of his son, Alex promises to give his son P500,000.00 in ten years.
What amount should he invest now if money will earn interest of 12% compounded annually during the first 5
years and 15% compounded quarterly during the next five years?

A. 135,868.19
B. 153,868.19
C. 315,868.19
D. 235,168.19

Solution:
Given:
F = 500,000
r = 12%
m = 1 (annually)
from:
F = (1+i)n
For the first five years:
r = 12% ; m = 1 (annually)
F5 = P(1.12)5
F5 = 1.76P
For the next 5 years:
F10 = 500,000
r = 15% ; m = 4 (annually)
0.15 20
F10 = F5 (1 + )
4
500,000 = (1.12)5 P(1.0375)20
P = 135,868.19
5. By the condition of a will, the sum of P20,000 is left to a girl to be held in trust fund by her guardian until it amounts
to P50,000. When will the girl receive the money if the fund is invested at 8% compounded quarterly?

A. 14 years
B. 11 years
C. 12 years
D. 19 years

Solution:
Given:
P = 20,000 F = 50,000
r = 8% m = 4 (quarterly)

formula – (Compound Interest)

𝑟
F = P(1+i)n = P(1 + )𝑚𝑡
𝑚

substitute given values:

.08 4t
50,000 = 20,000 (1 + )
4
2.5 = (1.02)4t
Take in both sides:
In 2.5 = 4t(In 1.02)
t = 11.57 years

6. How much money must be deposited today I order to withdraw P2000 annually for 10 years if the interest rate is
9%?

A. 11,285.32
B. 12,835.32
C. 14,355.67
D. 12,945.23

Solution:
Given:
A = 2000
t = 10 years
r = 9%
m = 1 (annually)
P=?

Formula: (Annuity)

(1+𝑖)𝑛 −1
P=A[ ]
𝑖(1+𝑖)𝑛

Where:
A = annual payment/withdrawal
P = present worth
 n = number of payment/withdrawals

substitute the given values:

(1.09)10 −1
P = 2000[ ]
0.09(1.09)10
P = 12,835.32

7. What is the accumulated amount of the five – year annuity paying P6,000 at the end of each year with interest at
15% compounded annually?
A. 40,454.29
B. 45,726.23
C. 25,927.23
D. 30,827.12

Solution:
Given:
A = 6000
r = 15%
m = 1 (annually)
t = 5 years
F=?
Formula: (Future worth – Annuity)
(1+𝑖)𝑛 −1
F=A[ ]
𝑖

Substitute:

(1.15)5 −1
F = 6000 [ ]
0.15
F = 40,454.29

8. At an interest rate of 10% compounded bi – monthly, how much will a deposit of P1500 in 5 years and 7 months?
A. 2,609.60
B. 6,509.67
C. 3,709.56
D. 4,609.89
Solution:
Given:
r = 10%
m = 6 (bi – monthly)
P = 1500
7
n = 6(5) + = 33.5 bi – monthly periods
2
F=?

From:
F = P (1+i)n

Substitute:

.10 33.5
F = 1500 (1 + )
6
F = 2,609.60

9. If you borrowed money from your friend with simple interest of 12%, find the principal if you have to pay P50,000
which is due at the end of 7 months.
 A. 40,454.29
B. 45,726.23
C. 25,927.23
D. 46,728.97

Solution:
Given:
r = 12%
0.12
i=
360
F = 50,000
n = 7(30) = 210 days

formula: (Ordinary Simple Interest)

F = P (1+in)
1 month = 30 days
Where:
P = present worth
i = rate of interest/day
n = no. of interest periods

substitute to the formula:

0.12
50,000 = P [1 + ( ) 210]
360
P = 46,728.97

10. You borrow money from a loan firm an amount of P100,000 with the rate of simple interest of 20%, but 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?
A. 22%
B. 21%
C. 25%
D. 24%
Solution:
Given:
n = 1 year
P = 100,000 – 20% advance interest
P = 100,000 – 0.20 (100,000)
P = 80,000
F = 100,000 (to be paid at the end of 1 year)

From:
F = P (1+in)

Substitute:
100,000 = 80,000 [1 + 𝑖(1)]
i = 0.25
i = 25%

alternative solution:

think of the 20% advance interest as a rate of discount:

relationship between rate of interest i and rate of discount d:

𝑑
i=
1−𝑑
then,

0.20
i= = 0.25 = 25%
1−0.20

CHAPTER TEST
TEST 1 (OBJECTIVES)

1. It is defined to be the capacity of a commodity to satisfy human want

A. Necessity
B. Utility
C. Luxuries
D. Discount

2. A market situation whereby there is only one buyer of an item for which there is no goods substitute?

A. Monopsony
B. Monopoly
C. Oligopoly
D. Oligopsony

3. It is a amount which a willing buyer will pay to a willing seller for the property where each has equal advantage
and is under no compulsion to buy or sell.

A. Book value
B. Market value
C. Use value
D. Fair value

4. _____________ is the loss of value of the equipment with use over a period of time. it could mean a difference in
value between a new asset and the use asset currently in a service.

A. Loss
B. Depreciation
C. Extracted
D. Gain

5. An economic condition in which there are so few suppliers of a particular product that one supplier’s action
significantly affect prices and supply.

A. Oligopoly
B. Monopsony
C. Monopoly
D. Perfect competition

6. What is another term for “acid test ratio”?

A. Current ratio
B. Quick ratio
C. Profit margin ratio
D. Price - earnings ratio
7. It is the worth of a property as recorded in the book of an enterprise.

A. Salvage value
B. Price
C. Book value
D. Scrap value

8. The common ratio is the ratio of:

A. Net credit sales to average net receivables

B. Current assets to current liabilities
C. Gross profit to net sales
D. Net income to owner’s equity

9. What is normally used to compare alternatives that accomplish the same purpose but have unequal lives?

A. Capitalized cost method

B. Present worth method
C. Annual cost method
D. MARR

10. A market situation where there is only one seller with many buyers.

A. Monopoly
B. Monophony
C. Oligopoly
D. Perfect competition

11. A market situation where there is one seller and one buyer.

A. Bilateral monopoly
B. Monopoly
C. Oligopoly
D. Bilateral monopoly

12. Declining balance method of computing depreciation is also known as

A. Maxwell formula
B. Mateson formula
C. Bateson formula
D. Gauss formula

13. A series of equal payments made at equal interval of time.

A. Annuity
B. Amortization
C. Depreciation
D. Bonds

14. The money paid for the use of borrowed capital

A. Interest
B. Amortization
C. Annuity
D. Bonds
15. The place where buyers and sellers come together.

A. Market
B. Store
C. Bargain center
D. Port

16. The value of the stock as stated on the stock certificate

A. Stock value
B. Par value
C. Interest
D. Maturity value

17. A market situation in which two competing buyers exert controlling influence over many sellers.

A. Bilateral monopoly
B. Oligopoly
C. Duopsony
D. Duopoly

18. A market situation in which two powerful groups or organizations dominate commerce in one business market or
commodity.

A. Oligopoly
B. Duopoly
C. Bilateral oligopoly
D. Bilateral oligopsony

19. The type of annuity where the first payment is made after several periods, after the beginning of the payment.

A. Perpetuity
B. Ordinary annuity
C. Annuity due
D. Deferred annuity

20. The condition in which the total income equals the total operating expenses.

A. Tally
B. Par value
C. Check and Balance
D. Break even

21. The amount which has been spend or capital invested which for some reasons cannot be retrieved.

A. Sunk cost
B. Fixed costs
C. Depletion cost
D. Construction cost

22. An obligation with no condition attached is called

A. Personal
B. Gratuitous
 C. Concealed
D. Private

23. The sum of all the cost necessary to prepare a construction project operation.

A. Operation cost
B. Construction cost
C. Depletion cost
D. Production cost

24. The amount received from the sale of an additional unit of a product.

A. Marginal cost
B. Marginal revenue
C. Extra profit
D. Prime cost

25. The amount that the property would give if sold for junk.

A. Scrap value
B. Salvage value
C. Book value
D. Market value
 TEST 2
PROBLEM SOLVING

1. A man expects to receive P20,000 in 10 years. How much is that money worth now considering interest at 6%
compounded quarterly?

E. 11,025.25
F. 10,115.55
G. 12,225.15
H. 15,322.35

2. Junsel obtained a loan of P10,000 at the rate of 6% compounded annually in order to repair his house. How much
must he pay monthly to amortize the loan within a period of 10 years?

A. 111.25
B. 110.22
C. 125.55
D. 158.35

3. What is the effective rate corresponding to 16% compounded daily?

E. 12.65%
F. 17.35%
G. 25.25%
H. 18.26%

4. What is the accumulated amount after 3 years of P6,500.00 invested at the rate of 12% per year compounded semi
– annually?

A. 8,768.22
B. 9,220.37
C. 7,872.33
D. 5,566.23

5. Find the nominal rate compounded annually equivalent to the rate of interest of 8% compounded quarterly.

E. 7.56%
F. 8.24%
G. 8.42%
H. 7.65%

6. How long will it take the money to triple itself if invested at 10% compounded semi – annually?

A. 10 years
B. 11 years
C. 12 years
D. 9 years
7. In order to prepare for the college education of his son, Alex promises to give his son P500,000.00 in ten years.
What amount should he invest now if money will earn interest of 12% compounded annually during the first 5
years and 15% compounded quarterly during the next five years?

E. 135,868.19
F. 153,868.19
G. 315,868.19
H. 235,168.19

8. A machine cost P8,000.00 and an estimated life of 10 years with a salvage value of P500.00. what is its book value
after 8 years using straight – line method?

A. 2000
B. 5000
C. 3000
D. 6000

9. By the condition of a will, the sum of P20,000 is left to a girl to be held in trust fund by her guardian until it amounts
to P50,000. When will the girl receive the money if the fund is invested at 8% compounded quarterly?

E. 14 years
F. 11 years
G. 12 years
H. 19 years

10. The amount of P12,800 in 4 years at 5% compounded quarterly is

A. 25,614.59
B. 14,614.59
C. 18,614.95
D. 15,614.59

11. How much money must be deposited today I order to withdraw P2000 annually for 10 years if the interest rate is
9%?

E. 11,285.32
F. 12,835.32
G. 14,355.67
H. 12,945.23

12. Money borrowed today to be paid in 6 equal payments at the end of 18 months. If the interest is 12% compounded
quarterly, how much was initially borrowed if quarterly payments is P2,000.00?

A. 11,285.32
B. 12,835.22
C. 10,834.38
D. 11,945.23

13. What is the accumulated amount of the five – year annuity paying P6,000 at the end of each year with interest at
15% compounded annually?

E. 40,454.29
F. 45,726.23
G. 25,927.23
H. 30,827.12
14. RF Corporation makes its policy that for every new equipment purchased, the annual depreciation cost should not
exceed 20% of the first cost at any time without salvage value. Determine the length of service life necessary if the
depreciation used is the SYD method.

A. 4 years
B. 7 years
C. 9 years
D. 8 years

15. At an interest rate of 10% compounded bi – monthly, how much will a deposit of P1500 in 5 years and 7 months?

E. 2,609.60
F. 6,509.67
G. 3,709.56
H. 4,609.89

16. A debt of P10,000 with 10% interest compounded semi – annually is to be amortized by semi – annual payments
over the next 5 years. If the first due is in 6 months, determine the semi – annual payments.

A. 2,609.60
B. 6,509.67
C. 3,709.56
D. 4,609.89

17. If you borrowed money from your friend with simple interest of 12%, find the principal if you have to pay P50,000
which is due at the end of 7 months.

E. 40,454.29
F. 45,726.23
G. 25,927.23
H. 46,728.97

18. What is the corresponding effective rate of 18% compounded semi – quarterly?

A. 17.15%
B. 19.48%
C. 15.69%
D. 18.65%

19. You borrow money from a loan firm an amount of P100,000 with the rate of simple interest of 20%, but 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?

E. 22%
F. 21%
G. 25%
H. 24%

20. What is the present worth of a P500 annuity starting at the end of the third year and continuing to the end of
fourth year, if the annual interest rate is 10%.

A. 717.17
B. 818.81
C. 617.78
 D. 817.71

21. Equipment has a useful life of 3 years and a salvage value of P20,000 was bought for P135,000. If the owner decides
to sell after using it for 2 years, how much should the selling price be so that he will not lose or gain if the interest
is 5%. (Hint: apply the Sinking Fund method)

A. 60,218
B. 81,810
C. 61,778
D. 50,315

22. A telecommunications company purchased a microwave radio equipment for P6 million. Freight and installation
charges amounted to 4% of the purchased price. If the equipment will be depreciated over a period of 10 years
with a salvage value of 8%, determine the depreciated cost during the 5th year using SYD.

A. 526,782.20
B. 626,269.10
C. 467,300.50
D. 726,234.64

23. A VOM has a current selling price of P400. If its selling price is expected to decline at a rate of 10% per annum due
to obsolence, what will be its selling price after 5 years?

A. 125.67
B. 327.13
C. 236.20
D. 167.23

24. Find the nominal rate which if converted quarterly could be used instead of 12% compounded semi – annually.
A. 10.11%
B. 11.83%
C. 12.54%
D. 11.39%

25. A loan of P5,000 is made for a period of 15 months at a simple interest rate of 15%. What future amount is due at
the end of a loan period?

A. 5,937.5
B. 8,367.4
C. 6,872.3
D. 7,135.3

26. A man borrowed money from a bank. He received from the bank P1,842 and promise to repay P2,000 at the end
of 10 months. Determine the simple interest.

A. 10.29%
B. 11.83%
C. 12.54%
D. 11.39%

27. What annuity is required over 12 years to equate with a future amount of P20,000? Assume i = 6% annually.

A. 1,185.54
B. 1,815.54
C. 1,518.45
 D. 1,158.45

28. Find the present worth of a future payment of 80,000 to be made in six years with an interest of 12% compounded
annually.

A. 54,683.48
B. 40,530.48
C. 34,153.84
D. 35,568.45

29. The amount of P20,000 was deposited in a bank earning an interest of 6.5% per annum. Determine the total
amount at the end of 7 years if the principal and interest were not withdrawn during this period.

A. 31,079.70
B. 25,526.12
C. 34,812.11
D. 10,179.07

30. Today a businessman barrowed money to be paid in 10 equal payments for ten quarters. If the interest rate is 10%
compounded quarterly and the quarterly payment is 2,000 pesos, how much did he borrow?

A. 15,172.53
B. 18,981.23
C. 14,762.12
D. 17,504.13

31. A loan of P50,000 is to be paid in 3 years at the amount of P65,000. What is the effective rate of money?
A. 10%
B. 11%
C. 12%
D. 9%

32. John invested part of P20,000 at 18% and the rest at 16%. The annual income from 16% investment was P620 less
than three times the annual income from 18% investment. How much did he invest at 18%?

A. 6,172.53
B. 9,220.37
C. 8,762.12
D. 7,504.13

33. What is the accumulated amount after three (3) years of P6,500 invested at the rate of 12% per year compounded
semi – annually?

A. 15,172.53
B. 18,981.23
C. 14,762.12
D. 17,504.13

34. If the authorize capital stock of corporation is P2,000,000 how much must the paid-up capital be?

A. 125,000
B. 150,000
C. 500,000
D. 325,000
35. In how many years will the amount of P10,000 triple if invested at an interest of 10% compounded per year?

A. 10 years
B. 11 years
C. 12 years
D. 20 years

36. What is the amount of an annuity of P5000 per year at the end of each year for 7 years at 5% interest compounded
annually?

A. 15,172
B. 18,985
C. 14,766
D. 40,710

37. What is the book value of an equipment purchased three years ago for P15,000 if it is depreciated using the sum
of the years digit method? The expected life is 5 years.

A. 2000
B. 3000
C. 4000
D. 5000

38. The parents planned for their son to receive P50,000 ten years from now. What amount in pesos should they invest
now if it will earn interest of 12% compounded annually for the first five years and 15% compounded quarterly
during the next five years?

A. 13,586.82
B. 10,686.25
C. 11,239.24
D. 14,762.32

39. A customer buys a rice cooker from a store that charges P1,500 at the end of 90 days. the costumer wishes to pay
cash. What is the cash price if the money is worth 10% simple interest?

A. 1,235.12
B. 1,153.56
C. 1,463.41
D. 1,356.13

40. In how many years will P1000 double if interest is 10% compounded quarterly?

A. 6 years
B. 5 years
C. 7 years
D. 9 years

41. Sir Junsel borrowed money from lending firm. He received P1842 and promised to pay P2,000 at the end of 10
months. Determine the simple interest rate.

A. 11.57%
B. 10.29%
C. 9.5%
D. 12.25%
42. In how many years will it take money to quadruple if invested at 8% compounded semi – annually?

A. 16 years
B. 15 years
C. 17 years
D. 18 years

43. A brand-new oscilloscope is estimated to have a salvage value of P10,000 after ten years and a book value of
P30,000 after 5 years, what is the initial cost of machine? (assume straight line depreciation).

A. 60,000
B. 50,000
C. 70,000
D. 90,000

44. A machine was brought for P50,000 with an estimated useful life of 10 years and a salvage value of P5,000. What
is its annual depreciation using straight line method?

A. 6,500
B. 4,500
C. 2,700
D. 1,900

45. What annuity is required over 10 years to equate with a future amount of P20,000. Assume i = 8% per year.

A. 1,680.78
B. 1,540.29
C. 1,780.67
D. 1,380.59

46. A merchant loaned P500,000 payable in 10 years at an interest rate of 12 percent compounded annually. What is
the monthly amortization for 10 years?

A. 6,997.43
B. 5,799.12
C. 7,677.12
D. 4,569.42

47. A decade ago a businessman purchased a machine for P50,000 with an expected life of 20 years based on a straight
line depreciation. Today, he decided to replace it with a modern one that costs P120,000. If the salvage value of
the old unit is P20,000, how much more will he raised to buy the new machine?

A. 60,000
B. 55,000
C. 45,000
D. 85,000

48. A color laser printer was produced for P100,000 with an estimated salvage value of P10,000 after 10 years. What
is the book value after 5 years? (Assume straight line depreciation).

A. 60,000
B. 55,000
C. 45,000
D. 75,000
49. Based on its purchased price a machine is expected to depreciate at a uniform rate of 18 percent annually until it
has zero salvage value. Approximate the useful life of the machine in years using the SYD method?

A. 8 years
B. 9 years
C. 10 years
D. 12 years

50. A man deposited P5,000 on the date his son celebrated his 1 st birthday. If the money is worth 10% compounded
semi – annually, what is the maximum amount the son can withdraw on his 21 st birthday?

A. 40,355
B. 35,200
C. 55,250
D. 30,400

51. What will be the value of P6,000 four and one – half years from now if invested at 15% compounded quarterly?

A. 11,640
B. 12,520
C. 10,250
D. 15,400

52. A machine is purchased at a price of P1 million. Freight and installation charges amounted to 3% of the purchased
price. If the machine shall be depreciated over a period of 8 years with a salvage value of 12%, find the depreciation
charge during the 5th year using the sum of the year’s digit method.

A. P 101,107.11
B. P 107,110.11
C. P 170, 110.11
D. P 100,711.11

53. Compute the present worth of a P500 annuity starting at the end of the third year and continuing to the end of
the fourth year. The annual interest rate is 10%.

A. P 727.17
B. P 714.71
C. P 717.17
D. P 731.17

54. Rich bank advertises 9.5% account that yields 9.84% annually. Determine how often the interest is compounded.

A. Monthly
B. Quarterly
C. Bimonthly
D. Annually

55. Compute the rate of interest if the exact simple interest of P 5,000 invested from June 21, 1995 to December 25,
1995 is P 100.

A. 3.90%
B. 3.93%
C. 3.95%
D. 3.97%
56. A man invested P 110,000 for 31 days and the net interest after deducting 20% withholding tax is P 890.36.
Compute the rate of return annually.

A. 11.50%
B. 11.75%
C. 11.15%
D. 12.11%

57. Mr. Benjamin made a loan of P5,000 for a period of 15 months, at a simple interest rate of 15%, compute future
amount due at the end of the loan period.

A. P 5, 937.50
B. P 5,712.40
C. P 5,873.20
D. P 5,690.12

58. Find the ordinary interest on P 1,500.50 for 182 days at 5.2%.

A. P 39.01
B. P 39.45
C. P 39.82
D. P 39.99

59. A man who won P300,000 in a raffle draw decided to place 50% of his winning in a trust fund for the college
education of his son. How much will the man have at the end of 10 years when his son will be starting his college
education, if the money will earn 14% per year compounded quarterly?

A. 593,888.96
B. 398,555.78
C. 495,999.56
D. 649,888.23

60. What is the capitalized cost of a building that requires an initial investment of P 1,500,000 and an annual
maintenance cost of P 150,000 with interest of 15%?

A. P 1,000,000
B. P 1,500,000
C. P 2,400,000
D. P 2,500,000

61. If invested at 5% compounded annually, how long will it take to double the money?

A. 14.7 years
B. 14.2 years
C. 15.3 years
D. 13.8 years

62. A man borrowed P 5000 from a bank and agreed to pay the loan and gave him P4000 cash, what was the rate of
discount?

A. 20%
B. 25%
C. 33.33%
D. 15%
63. A man deposited P 1,500.00 in a bank account 20 years ago. Today it is worth P 3,000.00. If the interest is paid
semi – annually, calculate the interest rate paid on this account?

A. 3.49%
B. 2.42%
C. 2.5%
D. 3.1%

64. Rafael invested P 2,000 in a business that yields an annual interest rate of 10% compounded continuously. How
much would he get approximately at the end of 5 years from his investment? Round off to nearest 10 pesos.

A. P 2200
B. P 3300
C. P 4400
D. P 6600

65. A device costs P720,000 is estimated to have a life of 10 years. If the annual rate of depreciation is 25%, find the
salvage value using declining balance method.

A. P 34,454
B. P 40,545
C. P 54,456
D. P 54,432

66. A device is purchased for P 9,000.00. its estimated life is 10 years after which it will be sold for P 1,000.00. compute
the book value during the first year using if sum of the years digit (SYD) depreciation.

A. P 8 000.00
B. P 7 545.00
C. P 6 500.00
D. P 1 454.00

67. A machine costing P 12 000 is estimated to have a life of 5 years with a salvage value at the end of 3 years?

A. P 5,400
B. P 3,400
C. P 7,500
D. P 8,500

68. A certain project has an initial cost of P 1 00 000 benefits with a present worth of P 1, 500,000.00 and disbenefits
with a present worth P 300, 000.00. Calculate the benefits cost ratio.

A. 1.2
B. 2.1
C. 3.2
D. 4.1

69. A man barrowed P 4000 for 75 days at 16% per annum simple interest. How much will be due at the end of 75
days?

A. P 4321
B. P 4133
C. P 4333
D. P 4322
70. A piece of equipment has an original cost of P 150,000 and it is depreciated by 10% sinking fund method. The book
value of the equipment after 10 years is the same as if it had been depreciated at P 14,000.00 each year by straight
line formula. Find the book value of the equipment at the end of 5 years.

A. P 96370.6
B. P 87650.4
C. P 5645.57
D. P 3484.23

71. A bank charges 12% simple interest on a P 300.00 loan. How much will be repaid if the loan is paid back in one
lump sum after three years?

A. P 408.00
B. P 551.00
C. P 415.00
D. P 450.00

72. A machine can be bought for P 10,000 cash or for P 2000 down payment and payments of P 750 per year for 15
years. Find the annual interest rate for the time payments.

A. 1.51%
B. 4.61%
C. 7.71%
D. 12.0%

73. A debt of P 10 000 with interest at the rate of 20% compounded semi – annually is to be amortized by 5 equal
payments at the end of each 6 months. What is the amortization if the first payment is to be made after 3 years?

A. P 3,511.14
B. P 5,345.50
C. P 3,456.40
D. P 4,204.70

74. The maintenance expense on a machine is P 1000 at the end of the first year and increasing at a constant rate of
P 500 each year for the next four years. What is the present worth of the said expenses if the interest is 5%?

A. P 5,456.40
B. P 9,345.70
C. P 8,447.94
D. P 8,204.70

75. Mr. Reyes wants to make 14% nominal interest compounded semi – annually on a bond – investment. How much
should he be willing to pay now for 12%, P10,000 bond that will mature in ten years and pays interest semi –
annually?

A. P 8950.00
B. P 7850.00
C. P 9850.00
D. P 10,540.00

76. A computerized machine shop will require a fix capital investment of P 8 million and an estimated working capital
of P 1.5 million. Upon evaluation, the annual depreciation is estimated to be 8% of the fixed capital investment. If
annual profit is P 2 million, determine the rate of return on the total investment.

A. 14.31%
 B. 10.23%
C. 12.24%
D. 11.24%

77. Compute the interest on P5000 for the period from January 10 to October 28,2004 at 16% interest.

A. P 638.25
B. P 543.34
C. P 546.45
D. P 874.54

78. Compute the effective rate of 14% compounded semi – annually.

A. 14.49%
B. 14.94%
C. 12.36%
D. 14.88%

79. If P5000.00 shall accumulate for 10 years at 8% compounded quarterly. Determine the compounded interest at
the end of 10 years.

A. P 6,005.30
B. P 6,040.20
C. P 6,000.00
D. P 6,010.20

80. Calculate the nominal rate which, if converted quarterly, could be used instead of 12% compounded monthly.

A. 12.12%
B. 12.45%
C. 11.43%
D. 11.12%

81. Compute the accumulated amount of P10,000 at the end of each year after 10 years if the interest rate is 15%
compounded annually.

A. P 203,037.00
B. P 205,456.00
C. P 230,456.00
D. P 340,654.00

82. A man bought a property worth P 1,000,000 if paid in cash. On the installment basis, he paid a down payment of
P20,000; P300,000 at the end of one year; P400,000 at the end of 3 years and a final payment at the end of five
years. Compute final payment if interest was 20%.

A. P 792,560.00
B. P 952,345.00
C. P 873,560.00
D. P 654,432.00

83. A loan was amortized by group of four – year – of – end payments forming ascending arithmetic progression. The
initial payment was to be P5000 and the difference between successive payments was to be 400. But loan was
renegotiated to provide for the payments of equal rather than varying sums. Find the annual payment if the
interest rate of the loan was 15%?
 A. P 5,530.51
B. P 5,679.54
C. P 7,789.67
D. P 8,987.89

84. Rogelio barrows P 10,000 today at 10% interest compounded annually. Four years later, he makes the first payment
of P3000. What approximate amount will he still owe on the loan after the first payment.

A. P 7700
B. P 11000
C. P 8300
D. P 11700

85. Suppose Alex receives an initial annual salary of P60,000 increasing at the rate of P5000 a year. Compute the
equivalent uniform salary for a period of 8 years, if the money is worth at 10%.

A. P 85,679.47
B. P 75,022.39
C. P 75,483.45
D. P 84,098.35

86. A Diesel – Electric generator unit is sed to provide power to a remote transmitting station. The original cost of the
unit is P 65,000.00. The cost to ship the unit to the job site is P2000 and an additional cost of P3000 was incurred
for installation. The salvage value of the unit at the end of its life was estimated at P5,000.00. If the unit has
expected life of 10 years, compute the annual depreciation cost by straight line method.

A. P 6,500.00
B. P 5,600.00
C. P 5,400.00
D. P 3,500.00

87. In order to maintain a structure with a life of 20 years, it is necessary to provide the following repairs P20,000.00
at the end of 5th year. Calculate the equivalent uniform annual maintenance cost to the 20-year period, if the
money worth 10% compounded annually.

A. P 3,942.00
B. P 4,309.00
C. P 4,597.00
D. P 2,678.00

88. The cash price of an electric motor is 8000. It can also be bought on installment basis with a down payment of P
2000 and with periodic equal payment at the end of every 6 months for 5 years. What is the amount of each
periodic payment, if interest is fixed at 8% compounded semi – annually?

A. P 730.50
B. P 730.00
C. P 739.75
D. P 750.20

89. 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% compounded annually in order to withdraw P20,000.00 each on the child’s 18 th, 19th, 20th,
and 21st birthdays.

A. P 35,941.73
B. P 30,941.73
 C. P 33,941.73
D. P 25,941.73

90. Calculate the effective rate of 15% compounded semi – annually.

A. 11,025.25
B. 10,115.55
C. 12,225.15
D. 15,322.35

91. What interest rate compounded monthly is equivalent to 10% effective rate?

A. 9.57%
B. 8.45%
C. 6.43%
D. 7.12%

92. The effective rate of 14% compounded semi – annually is

A. 19.57%
B. 11.45%
C. 14.49%
D. 17.12%

93. A man expects to receives P25,000 in 8 years. How much is that money worth now considering interest at 8%
compounded quarterly?

A. P 13 262.83
B. P 15 600.57
C. P 12 400.45
D. P 13 500.35

94. The amount of P50,000 was deposited in the bank earning an interest of 7.5% per annum. Determine the total
amount at the end of 5 years if the principal and interest were not withdrawn during the period.

A. P 71,781.47
B. P 55,600.57
C. P 62,400.45
D. P 73,500.35

95. In how many years is required for P2,000 to increase by P3,000 if interest rate at 12% is compounded semi -
annually?

A. 7 years
B. 8 years
C. 9 years
D. 6 years

96. Find the present worth of a future payment of a P100,000 to be made in 10 years with an interest of 12%
compounded quarterly.

A. P 41,781.47
B. P 50,600.57
C. P 22,400.45
D. P 30,655.68
97. What nominal rate, compounded semi – annually, yields the same amount as 16% compounded quarterly?

A. 15.57%
B. 11.45%
C. 16.32%
D. 17.12%

98. What rate of interest compounded annually is the same as the rate of interest of 8% compounded quarterly?

A. 5.57%
B. 9.45%
C. 6.32%
D. 8.24%

99. What is the effective rate corresponding to 18% compounded daily? Take 1 year is equal to 360 days.

A. 15.72%
B. 19.72%
C. 16.27%
D. 18.24%

100. Find the annual payment to extinguish a debt of P 10,000 payable for 6 years at 12% interest annually.

A. 2,432.26
B. 4,255.27
C. 3,982.45
D. 1,283.67