ALCORCON ENGINEERING REVIEW CENTER Cebu Main: 4" floor Coast Pacific Downtown Center, Sanciangko St, Cebu City Tol #(032) 254.33-84 Manila: 3° floor JPD Bldg. 1955, C M Recto Comer N. Reyes St, Sampaloc, Manila Tel # (02) 736-4498 DAY 13 - MATHEMATICS SAMPLE PROBLEMS ORDINARY ANNUITY PROBLEM 1 ‘piece of machinery can be bought for P10,000 cash, of for P2000 down and payments of P750 per year for 15 years. What is the annual interest rate forthe time payments? A 461% B. 3.81% ©. 5.71% D. 11.00% SOLUTION: 750 750 750 780 750 aaa eee ears) TT rg = 10,000 - 2,000 P=P8,000 pe Rei 9 (tei 7501 + iy (1) 8,000 = Ty: 4.81% 750{(1 + 0.0464)" ~ 4] (1 + 0.0461)'°(0.0461) 8,000 = 6,000 8,00 Therefore: i= 4.61% PROBLEM 2 ‘An instructor plans to retire in exacly one year and want an account that will pay him P25,000 a year for the next 15 years. Assuming a 6% annual effective interest rate, what is the amount he would need to deposit naw? (The fund will be deposited after 15 years) ‘A. P249,000.00 B. P242,806.00 C. 258,500.00 D. P250,400.00 SOLUTION: sr 2st 2st ast 2s yyy yy ---4 oT? 4 44s stg pe Rute (tei25000(1 + 0.06)"* P (1+ 0.06)"°(0.06) PROBLEM 3 ‘A manufacturing firm wishes to give each employee a holiday bonus. How much is needed to invest monthly fora year at 12% nominal interest rate compounded ‘monthly, so that each employee will receive a P2,000 bonus? ‘A. P12,608.00 B. P12,610.00 C. P12,600.00 D. P12,300.00 SOLUTION: o.12112= 0.01 p= R41 F = 6042000) = 160,000 160,000 = Rid 0.00) — 9 O01 R=P 1261560 PROBLEM 4 What isthe size of 10 equal annual payments to repay a loan of P100,000 if money earns 10%4? First payment is one year after receiving the loan ‘A P18,034.45 B. P16,274.54 C. P17,946.35 D. P15,927.45 SOLUTION: R RR ‘ cand ane % peRiitit-4 iri 100,000 = R {C.0 —1 (1.4)°(0.1) R= PI6274.54 PROBLEM 5 A hand tool costs P200 and requires P1.21 labor cost per unit. A machine tool costs P3600 and reduces labor to PO.7S. What isthe break-even point (in years) at 5% for an annual production of 4000 units? A1ssy B.t76yr | C.234yr OD. 1.56yr SOLUTION: e a ¥ ¥ oe [roses . P = present cost = 3600-200 = 3400.00 R= annual savings(1.21 -0.75)(4000) = P1840 p= pts ii 3400 = 1aq0llt+ 005" — 1. (1+ 0.05)"(0.05) 0.09239(7.05)' = (1.05y'- 4 o.90761(1.057 = 1 (105y' = 1.10179) Int.10178 Tn.05 1.986 years, PROBLEM 6 A sinking fund consists of 15 annual deposits of P1,000.00 each, with interest earned at the rate of 4% compounded annually. What isthe principal in the fund at its terminal dato? ‘A P25,115.00 B. P29,546.37 C. P20,02359 D. P28,105.00 SOLUTION: tr SS PEE SS yyy ey Yy OTT ttt as ; ‘A P10,000.00 loan isto be paid off in 10 equal annual payments. The annual interest rate is 15%. How much interest will be paid inthe frst two (2) years? ‘A. P3,005.10B, P2,940.20 C. P2,970.20 D. P2,926.10 souumion: RRR RR BR seeded dG P= 12,000 10924 . E ‘Solving forthe annual payment R [* “ip ‘ (iyi P (140.15) (1+ 0.15)(0.15), 1,992.52 10,000 = [ R2,291.40 2,695.11 Ifno interest, R'= 10,000/10 Interest paid inthe first two years: (2,291 40 + 2,635.11) - 21,000.00) 2,926.51 (000 PROBLEM 8 A steel mill estimates that one ofits furnaces will require maintenance of P20,000.00 at the end of 2 years, P40, 000.00 at the end of 4 years and P80,000.00 atthe end of 8 years. What uniform semi-annual amounts could it set aside over the next eight years at the end of each period to meet these requirements of maintenance cost if ll the funds would learn interest a the rate of 6% compounded semi-annually? ‘A P7,897.35 B. P6897.35 C. PI397.35 DO. P8,897.95 SOLUTION: ‘Solving for the effective interest per year: 0.0612 = 0.03 (semi-annual) 20000 (1.03)? 40,000 80000 = p9a,199.46 P aoe G03 * G03? p= Rilsi=9 ai n= 8(2)=16 99,199.46 = Rltt.03)"° — 4) 0.03(1.03)% R= 7,897.35 PROBLEM 9 ‘car was bought on installment of 10,000.00 for 60 months. If the interest is 12% compounded annually, calculate the cash price ofthe car. ‘A. P456,538.75 B. P345,599.75 C. P5G7,539.75 D. PE78,539.75 SOLUTION: Solving for equivalent monthly interest: (tip 0.0084888 (monthly) P = cash price of car pe pitei-9 (i 10,000((1.0094888)” - 4] P 0.0094888(1.0094888)" P= P455,874.01PROBLEM 10 ‘A company puts P25,000.00 down and wil pay P5,000.00 every year forthe fe of a machine, 10 years. Ifthe salvage value is zero and the interest rate is 10% compounded annually, what is the present valu of the machine? ‘A. P56,2000.00 B. PS5,100.00 C. P55,723.00 D. P55,300.00 SOLUTION: ast t ST ST ST ST ST eevee oma Sreaaae P perc+ alitit—t (+ ifi a P= 25.00. spools 010)" = (1 0.10)"(0.10) P= P55,72283 PROBLEM 11 ‘A motorcycle cost P50,000 and has an expected life of ten years. The salvage value is estimated to be P2,000 and annual operation costs are estimated at P1,000. What isthe appropriate rate of return on the investment if the annual revenue is P10,000.007 A 12% 8.11% ©. 13% D. 14% SOLUTION: tsv-2000 TET TT Se oT? sas 3 i }P= 20.000 pe gltei-9 sv cain GeiP = 10,000 1000 = P8000 0,000 = (goo0} {t+ =) _ _2000 ao | ay? Ty i= 0.127 {50,000 ~ 50,032.43 ‘Therefore choose i= 13% PROBLEM 12 Mr. Robles plans a deposit P500.00 a the end of each month for 10 years at 12% annual interest, compounded monthly ‘The amount that will be available in two years is: ‘A P13,987.00 B. P13,678.00 C. P13.875.00 D. P13,487.00 SOLUTION: te s ' 3 2 —% FF 4 23 —% %F = soollt + 0.01 = 1 _ p13.487.00 0.01 PROBLEM 13 ‘he president of a growing engineering firm wishes to give each of 50 employees a holiday bonus. How much is needed to invest monthly for a year at 12% nominal interest rate, compounded monthly, so that each employee will receive a P'1,000 bonus? ‘A P2,760.00 B. P3,940.00C. P4,311.00 _D. P3,890.00 SOLUTION: fte=1,000 RRR RR R Naoveay vn, ¥ et att % or212=001 (12) Fe pli =4 1000 = pllt+ 0.010) - 4) 0.01 R= P78.648 per employee For 50 employees: R= 78.848(60) = P3,942.00 PROBLEM 14 Mr. Ramirez borrowed P'16,000 two years ago. The terms ofthe loan are 10% interest for 10 years with uniform payments. He just made his second annual payment. How much principal does he still owe? ‘A P12,000.00 8. P13,024.00 C. P10,117.00 D. P11,700.00 SOLUTION: vey ae (+ iP = 4) 0 23 4 8 ipl P= 15,000 0 15,000 = pit 0:10)" = we (1 0.10)%(0.10) aah R=P2,441.18 vv yyy a mTTttTt 7% Pp Principal he sti ove e Pea REDD a gay gal L's 0.109" — 9 ei (1+ 0.10)°(0.10). Pr=P 13,023.82PROBLEM 15 ‘An employee is about to receive the sum of P300,00 at the end of each year for 5 years. One year prior tothe receipt ofthe first sum, he decides to discount all § sums. Ifthe interest rate is 6%, what proceeds will he obtain? ‘A P1875.35 B. P2,287.03 C. P1,263.71 D. P1,450.72 SOLUTION: f SPSS Pp wi cst pe ool 000) 1 yaar YP (1+ 0.06)° (0.06) PROBLEM 16 ‘Company purchases 200,000 of equipment in year zero. It decides to use straight line depreciation over the expected 20 years life of the equipment. The interest rate is 14%. Ifits average tax rate Is 40%, what isthe present worth ofthe ‘depreciation tax held? ‘A P3,500.00 B. P26,500.00 C. 39,700.00 D. 4,000.00 souumoN: SPPPS pitti oTr2s 4s yr Using straight line depreciation method: = 200,000-0 20 Depreciation Tax = 10,000 x 0.40 = P4,000.00 I lee 10,000.00 Solving fr the present worth of tax ats -4 oir p= apooit+0.14)" = 1) oP 0.14)7(0.44) PROBLEM 17 IT P50 was invested at 6% on January 1, year 1, what equal year-end withdrawals could be made each year for ten years, leaving nothing in the fund after the tenth withdrawal? ‘A P2.34 B. P9223 ©. P5.34 D. P6.80 SOLUTION: ard | Fie SOLUTION: ‘Amount at the end of 16th year:S = P(1 +i) = 5000(1 + 0.07)" = P14,760.62 P ase | oo 14,760.82 = 4000 orf -4 ous aontory | * (ore A= P1699.86 PROBLEM 6 ‘A mother borrowed P100,000 with 2% interest monthly and promised to pay the amount by 30 equal monthly instalments starting 1 year from naw. Determine the monthly payment. ‘A.P5,551.68 B.P8551.66 C. P7.551.66 0. P8.551.66 SOLUTION: RR RR n= 30 $e _ oTr?;s v2 43 ah a P = 100,000 Solving for P Pry = P( 141)" = 100000 ( 1.02)" Pix = 124,397.43 For the monthly payment: ait ro ape 124,997.43 = | (1-02) 1 (1.02}(0.02) R = P5.551.68 PROBLEM 7 Mr. Rankine bought a piace of property or P100,000 down payment and 10 deferred semiannual payments of P8,000 slarting 3 years from now. Ifthe interest rate is 12% compounded semiannwally, what is the present worth of the property? ‘A P143,999.08 B. P148,555.02 C. P152,444.05 D. P166,888.01 mn tte io JB Rec, fr i= 0.122 = 0.06, For the deferred semi-annual payments: n= 10 pe pp@it-t ci Ps won| 08°) [s05)" 606) 583860.69 (1.06)° ; 58,880.69 Pre 43999,08P; + down payment = 43999.08 + 100,000 143,999.08, ANNUITY DUE PROBLEM 1 ‘Mr. Ayala borrows P100,000.00 at 10% effective annual interest. He must pay back the loan over 30 years with uniform ‘monthly payments due on the first day of each month. What does Mr. Ayala pay each month? ‘A P870.00 —B. P846.00C. PB7B,00 —_—D. 839,00 SOLUTION: RR RERRRE ® I teeedy 4 P= 100,000 ‘Solving forthe equivalent monthiy interest = (HIP = 4 0.410 = (1 +iy~1 1-= 0.007974 (per month) For annuity due! p= nenitel 1 R al ie 100.000 = r+ r| (0079748 = 1 0.007974(1.007974)"9 R = Pe30.19 PROBLEM 2 ‘An employee borrowed P200,000 with 16% interest compounded semi-annually promised to pay every 6 months for 410 years starting today. What amount should. he pay every 6 months? AP18861.52 B.P1686152 C.P24.861.52 D.P26,861.52 SOLUTION: eoecee te ee a tot i = 0.16/2 = 0.08 {P= 200,000 a (10) = 20 po a[teit—t.8 aii 200,000 = p| 1987 -1 | 9 (1.08) (0.08) R = preg61.52 PROBLEM 3 A contractor bought a concrete mixer at P120,000 if paid in cash. The mixer may also be purchased by installment to be paid within 5 years. If money worth 8%, the amount of each annual payment, ill payments made at the beginning of each year, is: ‘A P27828 © B.PB97TB CC. P3105. P3,555SOLUTION: (ip 4 TTT 7 non ae | [Po sno n= (12)-1 = 59 120,000 = p+ p|—108) =! (.08)(0.08) 13.37 = 120000 R= P8975 UNIFORM GRADIENT PROBLEM 1 ‘The maintenance cost of a machine this year is expected to be P1,000, The cost will increase P200 each year forthe subsequent 9 years. The interest is 15% compounded annually. What is the approximate worth of maintenance for ‘the machine over the full 10 years? APA81467 —B. P4,481.76 ©. PBA14.67 —_D. 4,418.67 sous: 4 Sree eeteers + Tl T | Sea se es | pe (ait), foem-1 on] (sift (ie aii n=10 15% =P20000 R= Pi000.00 P= 1004. 2048)" 1), oy] 0.18) 1 10 (1+ 0.15)0.15 (1+ 0.15) (0.157 + 0.15)%(0.1! P = poatsas PROBLEM 2 ‘The maintenance of a car is said to be P500.00. The maintenance is said to increase of P50.00 each year and subsequent for 9 years. The money is estimated to 8% compounded annually. What is the present worth of ‘maintenance forthe full of 10 years? ‘A P4,378.00 B. P4,064.00 C. P4,658.00 D. 4,454.00 SOLUTION: 980 iP if so 7 | a+iP=41) fa+it-1__ on | P= + - Coat) Tt n= 10 — Tt 8% fr R= P500 G=Ps50 P= go 140.08) -1), gf _(1+0.08)—1 ___ 10 (1 0.08)"0.08 (1+ 0.08)"9(0.08)? (1 + 0.08)'°(0.08), P = P4653.89PROBLEM 3 ‘An car costs P6000. Annual costs are P400 the first year, P500 the second year, P00 the third year, and so on, increasing P100 each year. Use 10% to find the year in which the car should be replaced. A14 36 ©. 10 D. 19 SOLUTION: 400+(9-1)100 600 eo oor). (oot 8 ] a Sloane Guih 6,000 = «00 Ft) eo tes 8 | L101) 0.4 (1.10.1), Tyin=13 6,000 = ao a=) +100 [foes atl (1.00.1) ay o4? (1950.1), 6.000~6179.04 ‘Therefore the car should be replaced in year 14 since it started at year 1