UNIVERSITY OF CEBU-MAIN CAMPUS

COLLEGE OF ENGINEERING
ENGINEERING ECONOMY
COMPOUND INTEREST

Problem Set on Compound Interest.

1.If P5000 shall accumulate for 10 yrs at 8% compounded quarterly. Find the compound
interest at the end of 10 yrs?
a. P 6005.3 b. P6000.0 c. P6040.2 d. P6 010.2
2. A sum of P 1000 is invested now and left for 8yrs, at which time the principal is withdrawn.
The interest that has accrued is left for another eight years. If the effective annual interest
rate is 5%, what will be the withdrawal amount at the end of the 16th year?
a. P 706 b. P500 c. P774 d. P799
3. P 1500 was deposited in a bank account 20 yrs ago. Today it is worth P 3000. Interest is
paid semi-annually. Determine the interest rate paid on this account?
a. 3% b. 2.9% c. 3.5% d. 4%
4. If the nominal interest rate is 3%, how much is P 5000 worth in 10yrs in a continuous
compounded account?
a. P 5750 b. P 6750 c. P 7500 d. P 6350
5. A merchant puts his P 2000 to a small business for a period of six years. With a given
interest rate on investment of 15% per yr, compounded annually, how much will he collect at
the end of sixth year?
a. P 4400 b. P 4390 c. P 4200 d. P 4626
6. You are given the option to borrow P 7000 you need for one year. Which of this will you
pay lesser interest. To borrow from a friend at an interest rate of 1.5% month or a loan from a
bank at a rate of 18% per year?
a. You will pay P 108 more than if you borrow from a bank
b. You will pay P 108 less than if you borrow from a bank
c. You will save P 108 from borrowing from your friend
d. Borrowing from a bank will give P 108 less in interest
7. How much will be my P 5000 after 12 yrs in a bank with an interest rate of 8%.
a. P 12590.85 b. P 12320.85 c. P 12200 d. P 12400
8. How much do I have to put in a bank that given an interest rate of 10% so that I can have a
bank balance of P 100 000 after 10yrs?
a. P38554.4 b. P 38500 c. P38530.4 d. P 38540.5
9. How much money should be deposited now in a savings account to yield P 1000 in 6yrs?
The annual interest rate is 10% compounded semi-annually.
 a. P 556.85 b. P459.0 c. P 679.0 d. P577.0
10. Find the compound amount and interest if P 2500 is invested at 8% compounded
quarterly for 5yrs and 6 months?
a. P7200 b. P3600 c. P3864.95 d. P3925
11. Mr Ayala borrows P 1000. In 4yrs the money become P 1608.44 compounded bimonthly.
Find the nominal interest.
a. 12.62% b. 14.64% c. 12% d. 15%
12. A savings association pays 1.5% quarterly. What is the effective annual interest rate?
a. 7.85% b. 6.55% c. 8.55% d. 6.14%
13. A sum of money is deposited now in a savings account. The effective annual interest rate
is 12% and interest is compounded monthly. How much money must be deposited to yield P
500 at the end of 11 months?
a. P 153 b. P 446 c. P 144 d. P 451
14. A bank offers 0.5% effective monthly interest. What is the effective annual rate with
monthly compounding?
a. 6.2% b. 7.2% c. 6% d. 7%
15. Find the nominal rate which if converted quarterly could be used instead of 12%
compounded semi-annually.
a. 10.58% b. 11.28% c. 9. 38% d. 11.82%
16. A businessman need to have P 100 000 in five years. How much must he put into his 10%
savings account in the bank?
a. P 62092.5 b. P 71092.00 c. P 72088.00 d. P 61088.00
17. What is the worth of P 54000 due in 5 yrs if money is worth 11% and is compounded semi-
annually?
a. P 31613 b. P 27000 c. P 30613 d. P 32 612
18. A businessman need to have P 100 000 in 5 yrs. How much must he put into his 10%
savings account in the bank?
a. P 61088 b. P 62092.5 c. P 72088 d. P 71082
19. When will an investment of P 40000 double if the effective rate is 8% per month?
a. 8.4 b. 9.01 c. 8.3 d. 10.2
20. What amount of money would have to be invested to have P 40000 at the end of 3 yrs at
a 10% compounded interest rate?
a. P 30052.6 b. P 31000.6 c. P 32050.59 d. P 28502.6
21. A bank offers 1.2% effective monthly interest. What is the effective annual interest rate
with monthly compounding?
a. 15.4% b. 14.4% c. 8.9% d. 7.9%
22. What is the present worth of P27000 due in 6yrs if money is worth 13% and is
compounded semi-annually?
a. P 12681 b. P 15250 c. P 13500 d. P 21931
23. A savings association pays 4% interest, compounded quarterly. What is the effective
annual interest rate?
a. 18.045% b. 16. 98% c. 17.155% d. 17.23%
24. A student deposits P 1500 in a 9% account today. He intends to deposit another P 3000 at
the end of two years. He plans to purchase in five years his favorite shoes worth P 5000.
Calculate the money that will be left in his account one year after the purchase.
a. P 1280 b. P 1300 c. P 1250 d. P 1260
25. Funds are deposited in a savings account at an interest rate of 8% per annum. What is the
initial amount that must be deposited to yield a total of P10000 in 10 yrs?
a. P 4894 b. P 4530 c. P 6720 d. P 4632
26. A machine costs P 20000 today. If inflation rate is 6% per year and interest is 10% per year,
what will be the appropriate future value of the machine , adjusted for inflation, in five
years?
a. P 36300 b. P 42000 c. P28500 d. P 43100
27. A Mechanical Engineer wishes to accumulate a total of P 10 000 in a savings account at
the end of 10yrs. If the bank pays only 4% compounded quarterly, what should be the initial
deposit?
a. P 4876.94 b. P 4995.86 c. P 6716.53 d. P 5890.11
28. If P 500 is invested now, P 700 two years from now, and P 900 fours years from now, (all
at 4%), what will be the total amount in 10yrs?
a. P 1727 b. P 4523 c. P 3252 d. P 2837
29. What is the compound amount of P 550 left for eight years with interest at 6%
compounded semi-annually?
a. P893 b. P883 c. P 993 d. P 763
30. What is the present worth of a P100 annuity starting at the end of the third year and
continuing to the end of fourth year, if annual interest rate is 8%?
a. 122 b. 160 c. 153 d. 162
31. Consider a project which involves the investment of P 100000 at the end of one year.
Revenues of P150 000 will be generated at the end of years 1 and 2. What is the net present
value of this project if the effecting annual interest rate is 10%?
a. -P 150 000 b. P 0 c. P 43 270 d. P 169 420
32. At an annual rate of return of 8%, what is the future worth of P 100 at the end of four
years?
a. P 130 b. P 135 c. P 132d. P 136
33. You deposit P 1000 into 9% account today. At the end of two years, you will deposit
another P 3000. In five years, you plan a P 4000 purchase. How much is left in the account
one year after the purchase?
a. P 925 b. P 1552 c. P 1424 d. P 1691
34. The following schedule of funds is available to form a sinking fund.
Current year : n = P 5000
n=1 ; P4000
n=2; P 3000
n=3; P 2000
At the end of the fourth year, equipment costing P 25000 will have to be purchased as a
replacement for the old equipment. Money is valued at 20% by the company. At the time of
purchase, how much money will be needed to supplement the sinking fund?
a. P820 b. P 2000 c. P1000 d. P8200
35. If the money invested will earned P 200000 after 10yrs at 16% compounded annually,
what is the principal amount?
a. P 12 876.29 b. P 58 626.36 c. P 32900.76 d. P 45765.89
36. A man invested P 36000 at 12% interest compounded quarterly. In how many years will
the money earned P 200 000?
a. 12.4yrs b. 17.2yrs c. 13.9yrs d. 15.9yrs
37. If money will be triple itself after 8yrs, determine the nominal interest rate.
a. 12.56% b. 18.45% c. 14.72% d. 16.45%