GABANO, JAYSON

TCPE 2-1

TCCB 421 - ENGINEERING ECONOMICS

Final Homework 01

Questions:

1. What is the current value of a $50 payment to be made at the beginning of each
year, for three years if the prevailing rate of interest is 7% compounded annually?

Given:

𝐴 = 50 𝑖 = 0. 07 𝑛= 3

Solution:

−𝑛
𝑃 = 𝐴[ 1−(1+𝑖)
𝑖
](1 + 𝑖)

−3

𝑃 = 50[ 1−(1+(0.07))
0.07
](1 + 0. 07)

−3
𝑃 = 50[ 1−(1.07)
0.07
](1. 07)

𝑃 = 140. 40
2. What is the accumulated value of a $25 payment to be made at the beginning of
each of the next three years if the prevailing rate of interest is 9% compounded annually?

Given:

𝐴 = 25 𝑖 = 0. 09 𝑛= 3

Solution

𝑛
𝐹 = 𝐴[ (1+𝑖)𝑖 −1 ](1 + 𝑖)

3
𝐹 = 25[ (1+0.09) −1
0.09
](1 + 0. 09)

3
𝐹 = 25[ (1.09) −1
0.09
](1. 09)

𝐹 = 89. 33

3. How much should Mr. Sy invest on a bank that offers 10% interest so that he
would earn Php1,000 each year in perpetuity?

Given:

𝑖 = 0. 1 𝐴 = 1000 𝑛 = 𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦

Solution:

𝐴
𝑃 = 𝑖

1000
𝑃 = 0.1

𝑃 = 10,000
4. Don Jose deposited Php5,000,000 on a bank that earns 10% compounded
annually. Five years later he died. His will states that his beneficiary is an orphanage
which will be receiving the money in perpetuity a year after he died. How much is the
yearly fund the orphanage will be receiving?

Given:

𝑃 = 5 000 000 𝑖 = 0. 1 𝑛 = 5, 𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦

Solution:

𝑘
𝐴 = 𝑖𝑃(1 + 𝑖)
5
𝐴 = (0. 1)(5, 000, 000)(1 + 0. 1)

𝐴 = 805,255

If money is worth 8% compounded quarterly, compute the present value of the

perpetuity of Php1,000 payable quarterly.

Given:

𝑖 = 𝑟 = 0.08 = 0. 02 𝐴 = 1000
𝑚 4

Solution:

𝐴
𝑃 = 𝑖

1000
𝑃 = 0.02

𝑃 = 50,000