CE 213 – ENGINEERING

ECONOMICS
 COURSE OUTLINE

1. Simple Interest
2. Compound Interest
3. Continuous compounding
4. Annuities
5. Ordinary Annuities
6. Annuity Due
7. Equivalent Annual Cost
8. Deferred Annuity
9. Rate of Return
10. Uniform Gradient Series
11. Bonds
12. Depreciation
13. Present Worth Method
14. Annual Cost analysis
15. Capitalized Cost
16. Break even analysis
17. Perpetuity
 INTRODUCTION

Engineering economy is the analysis and evaluation of

the factors that will affect the economic success of
engineering projects to the end that a recommendation
can be made which will insure the best use of capital.
 I. INTEREST AND MONEY-TIME
RELATIONSHIP

Interest
• is the amount of money paid for the use of borrowed capital or the
income produced by money that has been loaned.
• The amount of money paid for the use of money is called the capital
for a certain period of time.
 SIMPLE INTEREST

• the interest to be paid which is proportional to the length of time the

principal is used.
• In practice, simple interest is paid on short-term loans in which the
time of the loan is measured in days.
• Principal – the amount of money used on which interest is charge.
• Rate of Interest – the amount earned by one unit of principal during
a unit of time.
• Ordinary Simple Interest – computed on the basis of 12 months 0f
30 days each or 360 days a year.
• 1 interest period = 360 days
 SIMPLE INTEREST

• Exact Simple Interest – based on the exact number of days in a year,

365 days for ordinary year and 366 days for a leap year.
• 1 interest period = 365 or 366 days.
Other terms:
• Discount – is the difference between the future worth and its present
worth.
• Rate of Discount – the discount on one unit of principal per unit of time.
 SIMPLE INTEREST
• FORMULAS FOR SIMPLE INTEREST

• Where: = interest
• = principal
• = number of interest periods
• = rate of interest in decimal
• = total amount
 FORMULAS

RATE OF DISCOUNT EQUIVALENT RATE OF

•1 INTEREST

• Where: d = rate of discount

• Where: = rate of interest

 SAMPLE PROBLEMS

1. A man borrowed from a bank and promise to pay the amount in one year.
He received only the amount of after the bank collected an advance
interest of What was the rate of discount and the rate of interest that the
bank collected in advance?
2. A bank charges simple interest on a loan. How much will be repaired if the
load is paid back in one lump sum after three years?
3. A deposit of was made for 31 days. The net interest after deducting
withholding tax is . Find the rate of return annually.
4. is borrowed for 75 days at 16% per annum simple interest. How much will
be due at the end of 75 days?
5. An Engineer Promised to pay 36,000 pesos at the end of 90 days. He was
offer a 10% discount if he pays in 30 days. Find the rate of interest.
6. Eng’r. Paloma borrowed money from a bank. He received from the bank
P1,340 and promised to pay P1,500 at the end of nine months. Determine the
simple interest rate and the corresponding discount rate or often referred to as
the “Bankers discounts”.
 ASSIGNMENT
1. If you borrowed money from your friend with a simple interest of 12 %, find the present worth of which
is due at the end of 7 months.
2. A price tag of is payable in 60 days but if paid within 30 days it will have a discount. Find the rate of
interest.
3. It is the practice of almost all banks in the Philippines that when they grant a loan, the interest for one
year is automatically deducted from the principal amount upon release of money to a borrower. Let us,
therefore, assume that you applied for a loan with the bank and the was approved at an interest rate of of
which was deducted and you were given a check of Since you have to pay the amount of one year
after, what then will be the effective interest rate?
4. A businessman wishes to earn on his capital after the payment of taxes. If the income from an available
investment will be taxed at an average rate of , what minimum rate of return, before payment of taxes,
must the investment offer be justified?
5. A is borrowed for 75 days at per annum simple interest. How much will be due at the end of 75 days?
 ASSIGNMENT

6. Agnes Abanilla was granted a loan of by her employer CPM Industrial Fabricator and Construction
Corporation with an interest of for 180 days on the principal collected in advance. The corporation
would accept a promissory note for non-interest for 180 days. If discounted at once, find the proceeds
on the note.
7. Kathy buys a television set from a merchant who asks for at the end of 60 days (cash in 60 days). Kathy
wishes to pay immediately and the merchant offers to compute the cash price on the assumption that the
money is worth simple interest. What is the cash price today?
8. Find the amount due at the end of 15 months whose present value is at a simple discount.
9. What simple interest rate is equivalent to the simple discount rate of in discounting an amount of due
at the end of 3 months?
10. Mr. Almagro made a money market placement of for 30 days at per year. If the withholding tax is ,
what is the net interest that Mr. Almagro will receive at the end of the month?
• https://www.youtube.com/watch?v=mQq14QcJng4&t=1198s
• Please view this link it might help you fully understand simple interest