EE40 interest of 12% compounded quarterly.
ANS: P 30, 655.68
1. If P 1,000 accumulates to P 1500 when
invested at a simple interest for three years,
what is the rate of interest?
ANS: 16.67%
2. What rate of interest compounded annually
is the same as the rate of interest of 8%
compounded quarterly? ANS: 8.24%
3. You deposit P 1000 into a 9% account today.
At the end of two years, you will deposit
another P 3000. In five years, you plan to
withdraw an amount of P 4000. How much is
left in the account one year after the purchase?
ANS: P 1552
4. A telephone company purchased microwave
radio equipment for P 6 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.
ANS: P626, 269. 10
5. Find the present value of perpetuity of P
15000 payable semi-annually if money is worth
8%, compounded quarterly. ANS: P 371, 287
6. Jeffrey borrowed money from a bank. He
receives from the bank P 1, 340, 000 and
promised to pay P 1,500. 00 at the end of 9
months. Determine the simple interest rate.
ANS: 15.92%
8. Mr. J. Reyes borrowed money from a bank.
He received from the bank P 1842 and
promised to repay P 2000 at the end of 10
months. Determine the rate of simple interest.
ANS: 10.29%
10. If the authorized capital stock of a
corporation is P2, 000, 000. How much must the
paid-capital be? ANS: P 125, 000
11. Find the present worth of a future payment
of P 100, 000 to be made in 10 years with an
12. A local factory assembling calculators
produces 400 units per month and sells them at
P 1800 each. Dividends are 8% on the 8000
shares with a par value of P 250 each. The fixed
operating cost per month is P 25000. Other
costs are P 1000 per unit. Determine the break-
even. ANS: 48
13. A firm borrows P 2000 for 6 years at 8%. At
the end of 6 years, it renews the loan for the
amount plus P 2000 more for 2 years at 8%.
What is the lump sum due? ANS: P 6, 035
14. A unit of welding machine cost P 45 000
with an estimated life of 5 years. Its salvage
value is P 2500. Find its depreciation rate by
straight line method. ANS: 18.89%
15. at an interest rate of 10% compounded
annually, how much will a deposit of P 1500 be
in 15 years? ANS: P 6, 265.87
16. By the condition of a will, the sum of P 20
000 is left to a girl to be held in trust fund by
her guardian until it amounts to P 50 000. When
will the girl receive the money if the fund is
invested at 8% compounded quarterly?
ANS: 11.57 years
17. What amount of money would have to be
invested to have P 40 000 at the end of three
years at a 10% compounded interest rate?
ANS: P30, 052.59
18. What nominal rate converted quarterly
could be used instead of 12% compounded
semi-annually? ANS: 11.82%
19. What do you call the increase in the value of
a capital asset? ANS: Bond
20. The purchase of a motor for P 6000 and a
generator for P 4000 will allow a company to
produce its own energy. The configuration can
be assembled for P 500. The service will operate
for 1600 hours per year for 10 years. The
maintenance cost is P 300 per year and the cost
to operate is P 0.85 per hour for fuel and other
related cost. Using straight line depreciation,
what is the annual cost for the operation? There
is P 400 in salvage value for the system at the
end of 10 years. ANS: P 2, 670
22. What is the effective rate corresponding to
16% compounded daily? Take 1 year = 360
days. ANS: 17.35%
23. A time deposit of P 110, 000 was made for
31 days. The net interest after deducting 20%
withholding tax is P 890.36. Find the rate of
return annually. ANS: 11.75%
24. It is series of payments occurring at equal
intervals of time where the first payment is
made after several periods after the beginning
of the payment. ANS: Deferred Annuity
25. The amount of P 20 000 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 this period. ANS: P 31, 080
26. In year zero, you invest P 10 000 in a 15%
security for 5 years. During that time, the
average inflation rate is 6%. How much, in
terms, zero pesos will be in the account at
maturity? ANS: P 15, 030
28. A savings association pays 4% interest
quarterly. What is the effective annual interest
rate? ANS: 16.985%
29. The annual maintenance cost of a machine
is P 70 000. If the cost of making a forging is P
56 and its selling price is P 125 per forged unit.
Find the number of units to be forged to break
even. ANS: 1015 units
31. 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
using the SYD method? ANS: 10 years
32. Which of the following gives the lowest
effective rate of interest? ANS: 11.60%
compounded monthly
33. A company purchased an asset for P 10 000
and plans to keep it for 20 years. The salvage
value is zero at the end of 20th year, what is the
depreciation in the third year? Use SYD method.
ANS: P 857
35. The effective rate of 14% compounded
semi-annually is. ANS: 14.49
36. A company issued 50 bonds of P 1 000.00
face value each, redeemable at par at the end
of 15 years to accumulate the funds required
for redemption, the firm established a sinking
fund consisting of annual deposits, the interest
rate of the fund being 4%. What was the
principal in the fund at the end of the 12th year?
ANS: P 37, 520. 00
37. A man deposited P 5000 on the date his son
celebrated his 1st birthday. If the money is
worth 10% compounded semi-annually, what is
the maximum amount the son can withdraw on
his 21st birthday? ANS: P 35, 200
38. What is the present worth of P 54 00 due in
five years if money is worth 11% compounded
semi-annually? ANS: P 31, 613.25
39. The interest on an account is 13%
compounded annually. How many years
approximately will it take to triple the amount?
ANS: 9 years
40. What refers to the value of an intangible
item which arises from the exclusive right of a
company to provide a specific product and
service in a certain region of the country?
ANS: Franchise Value
41. The amount of P 1500 was deposited in a
bank account, 20 years ago. Today it is worth P
3000. Interest is paid semi-annually. Determine
the interest rate paid on his account. ANS: 3.5%
43. A man loans P 187 400 from a bank with
interest at 5% compounded annually. He agrees
to pay his obligations by paying 8 equal
payments, the first being due at the end of 10
years. Find the annual payments.
ANS: P 44, 982.04
44. It is a stock that has prior rights to
dividends. It usually does not bring voting rights
to the difference in value between a net asset
and the used asset currently in service. ANS:
Preferred stock
45. The effective rate of 14% compounded
semi-annually is. ANS: 14.49%
46. Agnes Abanilla was granted a loan of P 20
000 by her employee CPM Industrial Fabricator
and Construction Corporation with an interest
of 6% for 180 days on the principal collected in
advance. The corporation would accept a
promissory note for P 20 000 non-interest for
180 days. If discounted once, find the proceeds
of the note. ANS: P 18, 000
47. A motorcycle costs P 50 000 and has an
expected life of 10 years. The salvage value is
estimated to be P 2000 and annual operating
cost is estimated at P 1000. What is the
appropriate rate of return on the investment if
the annual revenue is P 10 000? ANS: 12.72%
48. A P 100 000, 6% bond, pays dividend semi-
annually and will be redeemed at 110% on July
1, 1999. Find its price bought on July 1, 1996 to
yield an investor 4%, compounded semi-
annually. ANS: P 114, 481. 14
49. It is the price a buyer is willing to pay a
willing seller for the stock. ANS: Market Value
50. An interest rate is quoted as being 7.5%
compounded quarterly. What is the effective
annual interest rate? ANS: 7.71%
51. Today an investor withdraws P 50 000
representing the accrued amount of his
investment that matured. If he invested at 10%
compounded semi-annually for 10 years, how
much did he invest? ANS: P 18, 844
52. A type of capital that is supplied and used
only by the owner of an enterprise in the
expectation that a profit will be earned. ANS:
Equity capital
53. Determine the ordinary simple interest on P
700 for 8 months and 15 days if the rate of
interest is 15%? ANS: P 74.38
54. A shoes factory has a production capacity of
9000 units per month. The fixed and variable
costs are as follows: Fixed monthly operating
cost = P 800, 000; Material and labor cost = P
200 per unit; Selling price per unit = P 500 000.
What is the profit per month if the factory has
an efficiency of 80%? ANS: P 1, 360, 000
55. at an interest rate of 10% compounded
annually, how much will a deposit of P 1500 be
in 15 years? ANS: P 6, 265.87
56. A corporation uses a type of truck which
costs P 2 million, with life of 3 years and final
salvage value of P 320 000. How much could the
corporation afford to pay for another truck of
the same purpose whose life is 4 years with a
final salvage value of P 400 000? Money is
worth 4%. ANS: P 2, 585, 964.73
57. 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 a bank and the
P 80 000 was approved at an interest rate of
.14% of which P 11 200 was deducted and you
were given a check of P 68 000. Since you have
to pay the amount of P 80 000 one year after,
what then will be the effective interest rate?
ANS: 16.28%
58. Estimated value at the end of the useful life.
ANS: Salvage Value
59. What is defined as the future value minus
the present value? ANS: Discount
60. What annuity is required over 12 years to
equate with a future amount of P 20 000.
Assume i =6% annually. ANS: P 1, 185.54
61. Pressure Systems, Inc., manufactures high-
accuracy liquid-level transducers. It is
investigating whether it should update certain
equipment now or wait to do it later. If the cost
now is $200,000, what will the equivalent
amount be 3 years from now at an interest rate
of 10% per year? ANS: $266,200
62. Thompson Mechanical Products is planning
to set aside $150,000 now for possibly replacing
its large synchronous refiner motors whenever
it becomes necessary. If the replacement isnt
needed for 7 years, how much will the company
have in its investment set-aside account if it
achieves a rate of return of 18% per year?
ANS: $477,825
63. What is the present worth of a future cost
of $162,000 to Corning, Inc., 6 years from now
at an interest rate of 12% per year?
ANS: $82,069
64. The current cost of liability insurance for a
certain consulting firm is $65,000. If the
insurance cost is expected to increase by 4%
each year, what will be the cost 5 years from
now? ANS: $79,086
65. How much money could RTT Environmental
Services borrow to finance a site reclamation
project if it expects revenues of $280,000 per
year over a 5-year cleanup period? Expenses
associated with the project are expected to be
$90,000 per year. Assume the interest rate is
10% per year. ANS: $720,252
66. A cash flow sequence starts in year 1 at
$3000 and decreases by $200 each year
through year 10. (a) Determine the value of the
gradient G; (b) determine the amount of cash
flow in year 8; and (c) determine the value of n
for the gradient. ANS: (a) G = $200 (b) CF8 =
$1600 (c) n = 10
67. A start-up direct marketer of car parts
expects to spend $1 million the first year for
advertising, with amounts decreasing by
$100,000 each year. Income is expected to be
$4 million the first year, increasing by $500,000
each year. Determine the equivalent annual
worth in years 1 through 5 of the companys net
cash flow at an interest rate of 16% per year.
ANS: $4,023,600
68. A chemical engineer planning for her
retirement will deposit 10% of her salary each
year into a high-technology stock fund. If her
salary this year is $60,000 (i.e., end of year 1)
and she expects her salary to increase by 4%
each year, what will be the present worth of the
fund after 15 years if it earns 4% per year?
ANS: $86,538
69. A northern California consulting firm wants
to start saving money for replacement of
network servers. If the company invests $3000
at the end of year 1 and increases the amount
invested by 5% each year, how much will be in
the account 4 years from now if it earns interest
at a rate of 8% per year?
ANS: P= $10,657, F = $14,498
70. What compound interest rate per year is
equivalent to a 12% per year simple interest
rate over a 15-year period? ANS: i = 7.11%
71. An investment of $600,000 increased to
$1,000,000 over a 5-year period. What was the
rate of return on the investment?
ANS: i = 10.8%
72. A new company that makes medium-
voltage soft starters spent $85,000 to build a
new website. Net income was $30,000 the first
year, increasing by $15,000 each year. What
rate of return did the company make in its first
5 years? ANS: i = 50%
73. An engineer who invested very well plans to
retire now because she has $2,000,000 in her
ORP account. How long will she be able to
withdraw $100,000 per year (beginning 1 year
from now) if her account earns interest at a rate
of 4% per year? ANS: n = 41 years
74. How many years will it take for a uniform
annual deposit of size A to accumulate to 10
times the size of a single deposit if the rate of
return is 10% per year? ANS: n = 8 years
75. The winner of a multistate megamillions
lottery jackpot worth $175 million was given
the option of taking payments of $7 million per
year for 25 years, beginning 1 year now, or
taking $109.355 million now. At what interest
rate are the two options equivalent to each
other? ANS: 4%
76. An engineer deposits $8000 in year 1, $8500
in year 2, and amounts increasing by $500 per
year through year 10. At an interest rate of 10%
per year, the present worth in year 0 is closest
to. ANS: $60,600
77. Simpson Electronics wants to have $100,000
available in 3 years to replace a production line.
The amount of money that would have to be
deposited each year at an interest rate of 12%
per year would be closest to. ANS: $29,640
78. A civil engineer deposits $10,000 per year
into a retirement account that achieves a rate
of return of 12% per year. The amount of
money in the account at the end of 25 years is
closest to. ANS: $1,333,300
79. Maintenance costs for a regenerative
thermal oxidizer have been increasing uniformly
for 5 years. If the cost in year 1 was $8000 and
it increased by $900 per year through year 5,
the present worth of the costs at an interest
rate of 10% per year is closest to. ANS: Over
$36,000
80. You will receive $1000 seven years from
today. Assuming an interest rate of 12%, what
is its present value? ANS: P=$452
81. You invest $1000 for seven years at 12%
interest. What is its value at maturity? ANS:
F=$2211
82. You wish to make annual payments of
$1000 per year for seven years. What amount
must be invested if interest is 12%?
ANS: P = $4563
83. You invest $1000 per year for seven years at
12% interest. What is its total value at the end
of that time? ANS: F = $10089
84. Investment A costs $10,000 today and pays
back $11,500 two years from now. Investment
B costs $8000 today and pays back $4500 each
year for two years. If an interest rate of 5% is
used, which alternative is superior?
ANS: P(A) = 431, P(B) = 367
85. How much should you put into a 10%
savings account in order to have $10,000 in 5
years? This problem could also be stated: What
is the equivalent present worth of $10,000 5
years from now if money is worth 10%?
ANS: P = 6209
86. Maintenance costs for a machine are $250
each year. What is the present worth of these
maintenance costs over a 12 year period if the
interest rate is 8%? ANS: P = -1884
87. Maintenance on an old machine is $100 this
year but is expected to increase by $25 each
year thereafter. What is the present worth of 5
years of maintenance? Use an interest rate of
10%. ANS: P= -551
88. In their will a person wishes to establish a
perpetual trust to provide for the maintenance
of a small local park. If annual maintenance is
$750 per year and the trust account can earn
5%, how much money must be set aside?
ANS: P = $15000
89. A savings and loan offers 5.25%
compounded daily. What is the annual
effective rate? ANS: i = .0539
90. An asset is purchased for $9000. Its
estimated economic life is 10 years, after which
it will be sold for $1000. Find the depreciation
in the first three years using SL and DDB.
ANS: SL = 800 each year, DB1 = 1800, DB2 =
1440, DB3 = 1152.
91. For the asset described in example 2.9,
calculate the after-tax depreciation recovery
(present worth of all depreciation over the
economic life) with SL and SOYD depreciation
methods. Use 6% interest with 48% income
taxes. ANS: SL= 2826, SOYD D.R = 3076
92. A corporation which pays 53% of its revenue
in income taxes invests $10,000 in a project
which will result in $3000 annual revenue for 8
years. If the annual expenses are $700, salvage
after 8 years is $500, and 9% interest is used,
what is the after-tax present worth? Disregard
depreciation. ANS: P = -3766
93. If you borrow $3,000 at 6% simple interest
per year for seven years, how much will you
have to repay at the end of seven years?
ANS: $4,260
94. When you were born, your grandfather
established a trust fund for you in the Cayman
islands. The account has been earning interest
at the rate of 10% per year. If this account will
be worth $100,000 on your 25th birthday, how
much did your grandfather deposit on the day
you were born? ANS: $9,230
95. Every year you deposit $2,000 into an
account that earns 2% interest per year. What
will be the balance of your account immediately
after the 30th deposit? ANS: $81,136
96. Your monthly mortage payment (principal
plus interest) is $1,500. if you have a 30-year
loan with a fixed interest rate of 6%
compounded monthly, how much did you
borrow from the bank to purchase your house?
Select the closest answer. ANS: $250, 000
97. A cash flow at time zero (now) of $9,982 is
equivalent to another cash flow that is an end-
of-year annuity of $2,500 over five years. Each
of these two cash flows series is equivalent to a
third series, which is a uniform gradient series.
What is the value of G for this third series over
the same five year time interval? ANS: $1,354
98. What is the monthly payment on a loan of
$30,000 for seven years at a nominal interest
rate of 9% compounded monthly? ANS: $483
99. A bank advertises mortgages at 12%
compounded continuously. What is the
effective annual interest? ANS: 12.75%
100. If you borrow $5,000 to buy a car at 12%
compounded monthly, to be repaid over the
next four years, what is your monthly payment?
ANS: $131
101. If you invest $7,000 at 12% compounded
continuously, how much would it be worth in
three years? ANS: $10,033
102. An investment of $10,000 nine years ago
has accumulated to $20,000 now. The
compound rate of return earned on the
investment is closest to
A. 6%
B. 8%
C. 10%
D. 12%
103. The present worth of an increasing
geometric gradient is $23,632. The interest rate
is 6% per year, and the rate of change is 4% per
year. If the cash flow amount in year 1 is $3000,
the year in which the gradient ends is year
A. 7
B. 9
C. 11
D. 12
104. Rubbermaid Plastics Corp. invested
$10,000,000 in manufacturing equipment for
producing small wastebaskets. If the company
uses an interest rate of 15% per year, how
much money would it have to earn each year if
it wanted to recover its investment in 7 years?
A. $2,403,600
B. $3,530,800
C. $3,941,800 109. If the interest rate is 5 %, the discount
D. Over $4,000,000 factor is closest to the value
A. .05
105. An engineer deposits $8000 in year 1, B. .75
$8500 in year 2, and amounts increasing by C. .95
$500 per year through year 10. At an interest D. 1.05
rate of 10% per year, the present worth in year E. None of the above.
0 is closest to
A. $60,600 110. The factor (A/P,i , n) can be interpreted as
B. $98,300 A. the present value of an annuity that pays one
C. $157,200 dollar in each period.
D. $173,400 B. the future value of an annuity with present
value equal to one dollar.
106. Income from sales of an injector-cleaning C. the constant payment in an annuity
gasoline additive has been averaging $100,000 with present value equal to one dollar.
per year. At an interest rate of 18% per year, D. the Arithmetic Gradient series equivalent to
the future worth of the income in years 1 a present amount P.
through 5 is closest to E. None of the other choices given is correct.
A. $496,100
111. Suppose Liza borrowed 230 dollars from
B. $652,200
Maggy today and paid her back using 10 yearly
C. $715,420 instalments of 23 dollars each, starting with the
D. Over $720,000 first installment in year 1. The present value of
the "gift" Maggy gave Liza if the prevailing
107. A manufacturing company borrows annual rate of interest is 5% is closest to
$100,000 with a promise to repay the loan with A. 52
equal annual payments over a 5-year period. At
B. 23
an interest rate of 12% per year, the annual
C. 114
payment will be closest to
D. 84
A. $23,620
E. 0
B. $27,740
C. $29,700 112. According to the discussion in class, how
D. $31,800 many of the following terms can be used as
reasons why the value of money is likely to
108. If a person begins saving money by decrease with time? Terms: (1) inflation, (2)
depositing $1000 now and then increases the impatience in consumption, (3) exchange rate
deposit by $500 each year through year 10, the fluctuations, (4) demographics, (5) money
amount that will be in the account in year 10 at supply reductions
an interest rate of 10% per year is closest to A. one of the above terms can be used.
A. $21,662 B. two of the above terms can be used.
B. $35,687 C. three of the above terms can be used.
C. $43,872 D. four of the above terms can be used.
D. $56,186 E. all of the above terms can be used.

113. Suppose Jerry borrows 2000 dollars from

Tom today and pays Tom back 3 years later an
amount
equal to 2000. If the interest rate is 4% per year,
which of the following expressions gives the gift
that
Tom gave Jerry in terms of today's dollars?
A. 2000*(P/F,4%,3)
B. 2000-800*(P/F,4%,3)
C. 2000-2000*(P/F,4%,2)
D. 80*(P/A,4%,3)
E. None of the expressions given is correct.
114. If Mary lends 2.22 million dollars to John
today and in return John pays her back 3.67
million dollars one month later, what is the
interest rate per month that John will pay to
Mary?
A. approximately equal to 39.5%
B. approximately equal to 15.45%
C. approximately equal to 65.31%
D. None of the other choices given is correct.
115. Trucking giant Yellow Corp agreed to
purchase rival Roadway for $ 310 million in
order to reduce so-called back-office costs (e.g.,
payroll and insurance) by $45 million per year. If
the savings were realized as planned, what
would be the annual rate of return on the
investment?
A. approximately equal to 14.51%
B. approximately equal to 688.9%
C. approximately equal to 20%
D. None of the other choices given is correct.
116. Companies frequently borrow money
under an arrangement that requires them to
make periodic payments of only interest and
then pay the principal of the loan all at once. A
company that manufactures odour control
chemicals borrowed 567 dollars for 10 years at
6% per year compound interest under such an
arrangement. The difference in the total
amount paid between this arrangement
(identified as plan 1) and plan 2, in which the
company makes no interest payments until the
loan is due and then pays it off in one lump sum
is closest to... (Here the difference refers to
"Amount under Plan 2" - "Amount under Plan
1".)
A. 108.21
117. Given compound interest and an annual
interest rate of 21%, how long (in years) will it
take for
money invested today to grow into 5 times the
invested amount?
A. approximately 5 years.
B. approximately 6.3 years.
C. approximately 7.1 years.
D. approximately 8.4 years.
E. None of the other choices given is correct.
118. In the Student Loan Example discussed in
class, suppose the student borrows 312 dollars
today, the annual interest rate on the loan is
12% and the annual interest rate on deposits is
8%. The student can pay back with either Plan A
or Plan B which are described below Plan A: 8
equal annual payments, starting in year 1 Plan
B: 12 equal annual payments, starting in year 1
If the student chooses Plan A instead of Plan B,
what will be the student's additional savings in
"year 12" dollars?
A. approximately equal to 12.56 dollars.
B. approximately equal to 38 dollars.
C. approximately equal to 47 dollars.
D. approximately equal to 59 dollars.
E. None of the other choices given is correct.
119. Today Tom bought a "growing perpetuity"
bond. The bond will pay 245 dollars at the end
of year 1 and the payment will increase by 5
percent each year forever thereafter. This is
known as a growing perpetuity bond. Assuming
the interest rate is 16% (forever), the maximum
amount that Tom will be able to charge for this
bond if he put it on sale at the end of year 34 is
approximately equal to
A. 9716.2
B. 11363.04
C. 8069.4
D. None of the other choices given is correct.
120. Suppose Murat invests P dollars today in a
firm. In return, the company will pay him 357
dollars per year starting with year 15 and up to
and including year 35. In addition, at the end of
the last year (year 35) the company will pay
Murrat a lump-sum (or single) amount equal to
2234 dollars. The P amount such that Murat
achieves an annual rate of return equal to
357/2234 is approximately equal to
A. 300.09
B. 405.85
C. 154.86
D. 280.35
E. None of the other choices given is correct.

121. Consider a student who takes a 1055 dollar

loan today from a bank charges that charges
12% interest pay year. If the student pays back
by making 20 equal payments starting with year
1, the total interest amount the student will pay
up to and including year 15 is approximately
equal to
A. 3063.56
B. 1572.78
C. 4554.35
D. None of the other choices given is correct.

122.