SIMPLE INTEREST:

1. A 2-year loan of Php5000 is made with 5% simple interest. Find the interest
earned.
A. 400 B. 500 C. 600 D. 1000
2. A total $1,200 is invested at a simple interest rate of 6% for 4 months. How much
interest is earned on this investment?
A. 24 B. 26 C. 28 D. 30
3. A business takes out a simple interest loan of $10,000 at a rate of 7.5% . What is
the total amount the business will repay if the loan is for 8 years?
A. 10,000 B. 15,000 C. 16,000 D. 20,000
4. Cleopatra borrowed P2,000.00 from a bank and agreed to pay the loan at the end of
one year. The bank discounted the loan and give P1950 in cash. Determine the rate of
discount.
A. 3.75% B. 3.12% C. 2.5%D. 1.2%
COMPOUND INTEREST
1. Determine the accumulated value of P2000.00 in 5 years if it is invested at 11%
compounded quarterly.
A. P3,440.00 C. 3,044.00
B. P3,404.00 D. P4,304.00
2. You deposit $1000 into a 9% account today. At the end of two years, you will deposit
another $3000. In five years, you plan a $4000 purchase. How much is left in the
account one year after the purchase?
3. A machine costs P20,000 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?
4. Michael owes P25,000 due in 1 year and P75,000 due in 4 years. He agrees to pay
P50,000 today and the balance in 2 years. How much must he pay at the end of two
years if money is worth 5% compounded semi-annually?
Effective Interest
1. What is the effective rate equivalent of 12% compounded quarterly?
A. 12.55% B. 11.55% C.12.98% D. 13%
2. Find the nominal rate which if converted quarterly could be used instead of 12%
compounded semi-annually.

Problem 1
Find the interest on P6,800.00 for 3 years at 11% simple interest.
Ans. P2,244.00
Problem 2 (ECE Nov 1998)
What will be the future worth of money after 12 months, if the sum of P25,000 is
invested today
at simple interest rate of 1% per month?
Ans. P28,000.00
Problem 3
A man borrowed P10,000.00 from his friend and agrees to pay at the end of 90 days
under 8%
simple interest rate. What is the required amount?
Ans. P10,200.00
Problem 4
What is the principal amount if the amount of interest at the end of 2½ year is
P4,500 for a simple
interest of 6% per annum
Ans. P30,000.00
Problem 5
How long must a 40,000 note bearing 4% simple interest run to amount to
P41,350.00?
Ans. 303.75 days
Problem 6
If 16,000 earns P480 in 9 months, what is the annual rate of interest?
Ans. 4%
Problem 7 (CE May 1997)
A time deposit of P110,000 for 31 days earns P890.39 on maturity date after
deducting the 20%
withholding tax on interest income. Find the rate of interest per annum.
Ans. 11.75%
Problem 8 (ME April 1998)
A bank charges 12% simple interest on a P300.00 loan. How much will be repaid if
the loan is
paid back in one lump sum after three years? Ans. P408.00
Problem 9 (EE Oct. 1996)
Annie buys a television set from a merchant who offers P25,000.00 at the end of 60
days. Annie
wishes to pay immediately and the merchant offers to compute the required
amount on the
assumption that money is worth 14% simple interest. What is the required amount?
Ans. 24,429.97
Problem 10
A price tag of P1200 is specified if paid within 60 days but offers 3% discount for
cash in 30
days. Find the rate of interest.
Ans. 37.11%
If the nominal interest rate is 3%, how much is P5,000 worth in 10 years in a
continuously
compounded account?
Ans.P6,749.29
Problem 2 (EE Oct 1997)
A man borrowed P100,000 at the interest rate of 12% compounded quarterly. What
is the
effective rate?
Ans. 12.55%
Problem 3 (ECE April 1999)
What is the corresponding effective rate of 18% compounded semi-quarterly?
Ans. 19.48%
Problem 4 (ECE Nov 1995, Nov 1998)
By the condition of the will, the sum of P25,000 is left to a girl to be held in a trust
fund by her
guardian until it amount to P45,000. When will the girl receive the money if the fund
is invested
at 8% compounded quarterly
Ans. 7.42 years
Problem 5 (CE May 1996)
P200,000 was deposited on Jan. 1, 1988 at an interest rate of 24% compounded
semi-annually.
How much would the sum be on Jan. 1, 1993?
Ans. P621,169.64
Problem 6 (ME April 1996)
A firm borrows P2,000 for 6 years at 8%. At the end of 6 years, it renews the loan
for the amount
due plus P2,000 more for 2 years at 8%. What is the lump sum due?
Ans. P6034.66
Problem 7 (CE Nov. 1994)
P500,000 was deposited 20.15 years ago at an interest rate of 7% compounded
semi-annually.
How much is the sum now?
Ans. P2,000,166.28
Problem 8 (ME April 1996)
What is the present worth of two P100.00 payments at the end of the third year and
fourth year?
The annual interest rate is 8%.
Ans. P152.88
Problem 9
What rate of interest compounded annually must be received if an investment of
P54,000 made
now will result in a receipt of P72,000 5 years hence?
Ans. 5.92%
Problem 10
P500,000 was deposited at an interest of 6% compounded quarterly. Compute the
compound
interest after 4 years and 9 months.
Ans. P163,475.37
For a uniform series of payments what is the value of
1. (F/A, 8%, 6) if it is compounded quarterly
2. (P/A, 6%, 8) if it is compounded semi-annually.
3. (F/A, 8%, 4) if it is compounded continuously.
Ans. 1. 30.42186 2. 12.5611 3. 4.528047
Problem 2
In an ordinary annuity (uniform series of payments) if the nominal rate of interest is
8%
compounded quarterly for 6 years.
1. Compute the value of the capital recovery factor.
2. Compute the value of the sinking fund factor.
3. Compute the value of the present worth factor.
Ans. 1. 0.052871 2. 0.032871 3. 18.914
Problem 3
For some interest rate “i” and some number of interest periods “n” the uniform
series capital
recovery factor is 0.3091 and the sinking fund factor is 0.1941.
1. Compute the interest rate.
2. If the interest rate i = 12% compounded annually, compute the capital recovery
factor
for a period n = 5 years.
3. If the rate of interest i = 16% compounded quarterly what would be the sinking
fund
factor for a period of 6 years.
Ans. 1. 11.5% 2. 0.27741 3. 0.02559
Problem 4
A businessman wishes to have an amount of P2769.84 after 5 years. He deposited
P500 each year
into a savings bank that pays a nominal interest per annum compounded
continuously.
1. Compute the nominal rate of interest.
2. Compute the effective rate of interest.
3. Compute the sinking fund factor for this equal payment.
Ans. 1.5% 2. 5.127% 3. 0.180516
Problem 5
A man deposits P500 at the end of each year and expected to have an amount of
P2,769.84 at the
end of 5 years.
1. What is the nominal rate of interest if it is compounded annually?
2. What is the nominal rate of interest if it is compounded continuously?
3. Compute the equivalent compound amount factor if it is compounded
continuously
Ans. 1. 5.127% 2. 5% 3. 5.3968
Problem 1
A social worker deposits a uniform amount of P12,000 at the end of each year in
order to get a
lump sum of money by the time she will retire at the end of 20 years. If the
compound amount
factor for this annuity is equal to 36.78559.
1. Compute the nominal interest rate.
2. Determine how much will she receive at the end of 20 years.
3. Determine the worth of the sinking fund factor in this fund invested.
Ans. 1. 6% 2. P441,427.08 3. 0.027184557
Problem 2
A businessman is faced with the prospect of fluctuating future budget for the
maintenance of the
generator. During the first 5 years, P1,000 per year will be budgeted. During the
second five
years, the annual budget will be P1,500 per year. In addition, P3,500 will be
budgeted for an
overhaul of the machine at the end of the fourth year and another P3,500 for an
overhaul at the
end of 8th year. Assuming compound interest at 6% per annum, what is the
equivalent annual cost
of maintenance?
Ans. P1,888.87
Problem 3
The following terms of payment for an annuity are as follows:
Periodic payment = P20,000
Payment interval = 1 month
Interest rate = 18% compounded monthly
Terms = 15 years
1. Find the present worth paid of all the payments if it is paid at the end of each
month.
2. Find the difference between the sums of an annuity due and an ordinary annuity
on these
payments.
3. Find the difference between the present values of an annuity due and an ordinary
annuity
based on these payments.
Ans. 1. P1,214,911.246 2. P271,687.35 3. P18,628.67
Problem 4
An engineer is entitled to receive P25,000 at the beginning of each year for 18
years. If the rate of
interest is 4% compounded annually.
1. What is the present value of this annuity at the time he is supposed to receive
the first
payment?
2. What is the sum of this annuity at the end of the 18 th year?
3. Find the difference between the sum of this annuity which is paid at the
beginning of
each year and an annuity paid at the end of each year.
Ans. 1. P329,141.72 2. P666,780.73 3. P25,645.41
Problem 5
A student will receive P3,000 at the beginning of each 3 months for 4 years. What is
the sum of
this annuity at the end of the 4th year if the interest rate is 6% compounded
quarterly?
Ans. 54,604.07
Problem 1
What is the value of an asset after 8 years of use if it depreciates from its original
value of
P120,000.00 to its salvage value of 3% in 12 years?
Ans. P42,400
Problem 2
A man bought an equipment which cost P524,000.00. Freight and installation
expenses cost him
P31,000.00. If the life of the equipment is 15 years with an estimated salvage value
of
P120,000.00, find its book value after 8 years.
Ans. P292,000
Problem 3
An equipment costing P250,000 has an estimated life of 15 years with a book value
of P30,000 at
the end of the period. Compute the depreciation charge and its book value after 10
years using
straight-line method.
Ans. P24,336.26
Problem 4
An equipment costing P250,000 has an estimated life of 15 years with a book value
of P30,000 at
the end of the period. Compute the depreciation charge and its book value after 10
years using
sinking fund method assuming i = 8%
Ans. d = P14,666.67
BV = P103,333.33
Problem 5
An equipment costing P250,000 has an estimated life of 15 years with a book value
of P30,000 at
the end of the period. Compute the depreciation charge and its book value after 10
years using
declining balance method.
Ans. BV = P60,832.80
d = P9,234.93

Problem 1
An equipment costing P250,000 has an estimated life of 15 years with a book value
of P30,000 at
the end of the period. Compute the depreciation charge and its book value after 10
years using the
sum of years digit method.
Ans. d = P11,000
BV = P57,500
Problem 2
An asset costing P50,000 has a life expectancy of 6 years and an estimated salvage
value of
P8,000. Calculate the depreciation charge at the end of the fourth period using
fixed-percentage
method.
Ans. P5,263.87
Problem 3 (ME Oct. 1997)
An asset is purchased for P120,000.00. Its estimated economic life is 10 years, after
which it will
be sold for P12,000.00. Find the depreciation for the first year using the sum-of-the-
years digit
method (SOYD).
Ans. P19,636.36
Problem 4 (ME April 1998)
An asset is purchased for P9,000.00. Its estimated economic life is 10 years, after
which it will be
sold for P1,000.00. Find the book value during the third year if the sum-of-the-year’s
digit
(SOYD) depreciation is used.
Ans. P5,072.73
Problem 5 (CE Nov. 1998)
A machine having a first cost of P60,000.00 will be retired at the end of 8 years.
Depreciation
cost is computed using a constant percentage of the declining book value. What is
the total cost of
depreciation, in pesos, up to the time the machine is retired if the annual rate of
depreciation is
28.72%?
Ans. P56,001.54