Problem No.
1:
Mr. Dela Cruz plans to deposit a P1,000 at the end of each month for 5 years at
12% interest compounded bi-monthly. What will be the amount available in
three years? Use ordinary annuity
Given:
A=₱1,000
in=12% ; m=6
n=Nm=3(12)=36
Req’d: F3
Sol’n:
(1 + 𝑖) − 1
𝐹=𝐴
𝑖
Where; 𝑖 = =
Equate 𝑖 and 𝑖 and use the effective rate equation;
𝑖 =𝑖
𝑖
𝑤ℎ𝑒𝑟𝑒; 𝑖 = 1 + −1
𝑚
𝑖 𝑖
𝑖 = 1+ −1= 1+ −1
12 6
𝑖 0.12
1+ −1= 1+ −1
12 6
𝑖 0.12
1+ −1= 1+ −1
12 6
𝑖 0.12
1+ = 1+
12 6
𝑖 0.12
1+ = 1+
12 6
0.12
𝑖 = 12 1+ −1
6
𝑖 = 0.1194
0.1194 ( )
1+ −1
𝐹 = ₱1,000 12
0.1194
12
𝑭𝟑 = ₱𝟒𝟑, 𝟎𝟑𝟕. 𝟑𝟎
Problem No.2:
An engineer borrowed P50,000 from Social Security System, in the form of
calamity loan, with interest at 8% compounded quarterly payable in equal
quarterly installments for ten years starting at the end of the first period. Find
the quarterly payments.
Given:
P=₱50,000
in=8% ; m=4
n=Nm=10(4)=40
Req’d: A
Sol’n:
1 − (1 + 𝑖)
𝑃=𝐴
𝑖
1 − (1 + 𝑖)
𝐴=𝑃
𝑖
.
Where; 𝑖 = = = = 0.02
1 − (1 + 0.02)
𝐴 = ₱50,000
0.02
𝑷 = ₱𝟏, 𝟖𝟐𝟕. 𝟕𝟗
Problem No.3:
If you obtain a loan of P800,000 at the rate of 10% compounded annually in
order to build a house, how much must you pay monthly to amortize the loan
within a period of ten years starting at the end of the first month?
Given:
P=₱800,000
in=10% ; m=1
n=Nm=10(12)=120
Req’d: A
Sol’n:
1 − (1 + 𝑖)
𝑃=𝐴
𝑖
1 − (1 + 𝑖)
𝐴=𝑃
𝑖
Where; 𝑖 = =
𝑖 = (1 + 𝑖) − 1
𝑖 =𝑖
0.10 𝑖
1+ −1= 1+ −1
1 12
𝑖
(1 + 0.10) − 1 = 1 + −1
12
𝑖
1.10 = 1 +
12
𝑖 = 12 (1.10) −1
𝑖 = 0.0957
𝑖
1− 1+
𝐴=𝑃 𝑚
𝑖
𝑚
0.0957
1− 1+
𝐴 = ₱800,000 12
0.0957
12
𝑨 = ₱𝟏𝟎, 𝟑𝟖𝟐. 𝟒𝟗
Problem No.4:
A man invests ₱10,000 now for the college education of his 2-year old son. If
the fund earns 14% effective, how much will the son get each year starting from
his 18th to the 22nd birthday?
Given:
P=₱10,000
i=ie=14%
n=5
M=15
Req’d: A
Sol’n:
1 − (1 + 𝑖)
𝑃=𝐴 (1 + 𝑖)
𝑖
𝑖 1
𝐴=𝑃
1 − (1 + 𝑖) (1 + 𝑖)
Where; 𝑖 = 0.14 𝑛 = 5 and 𝑀 = 15
0.14 1
𝐴 = 10,000
1 − (1.14) (1.14)
𝑨 = 𝑷𝟐𝟎, 𝟕𝟗𝟏. 𝟔𝟒
Problem No.5:
A person buys a piece of property for P100,000 down payment and ten deferred
semi-annual payments of P8,000 each starting three years from now. What is
the present value of the investment if the rate of interest is 12% compounded
semi-annually?
Given:
DP=₱100,000
A=₱8,000
i=in=12% ; m=2
n=10
M=5
Req’d: P
Sol’n:
1 − (1 + 𝑖)
𝑃 = 𝐷𝑃 + 𝐴 (1 + 𝑖)
𝑖
.
Where; 𝑖= = 0.06 𝑛 = 10 and 𝑀 = 5
1 − (1.06)
𝑃 = 100,000 + 8,000 (1.06)
0.06
𝑷 = 𝑷𝟏𝟒𝟑, 𝟗𝟗𝟗. 𝟎𝟖
Problem No.6:
A farmer bought a tractor costing P25,000 payable in 10 semi-annual payments,
each installment payable at the beginning of each period. If the rate of interest
is 26% compounded semi-annually, determine the amount of each installment.
Given:
P=₱25,000
i=in=26% ; m=2
n=10
Req’d: A
Sol’n:
( )
1 − (1 + 𝑖)
𝑃 =𝐴 1+
𝑖
( )
1 − (1 + 𝑖)
𝐴 =𝑃 1+
𝑖
.
Where; 𝑖= = 0.13 and 𝑛 = 10
( )
1 − (1.13)
𝐴 = 25,000 1 +
0.13
𝑨 = 𝑷𝟒, 𝟎𝟕𝟕. 𝟐𝟎
Problem No.7:
A parent on the day the child is born wishes to determine what lump sum would
have to be paid into an account bearing interest at 5% compounded annually in
order to withdraw P20,000 each on the child’s 18th, 19th,20th and 21st birthdays.
How much is the lump sum amount?
Given:
A=₱20,000
i=5%
n=4
M=17
Req’d: P
Sol’n:
1 − (1 + 𝑖)
𝑃=𝐴 (1 + 𝑖)
𝑖
Where; 𝑖 = 0.05 𝑛 = 4 and 𝑀 = 17
1 − (1.05)
𝑃 = 20,000 (1.05)
0.05
𝑷 = 𝑷𝟑𝟎, 𝟗𝟒𝟏. 𝟕𝟑
Problem No.8:
A certain manufacturing plant is being sold and was submitted for bidding. Two
bids were submitted by interested buyers. The first bid offered to pay P200,000
each year for 5 years, each payment being made at the beginning of each year.
The second bidder offered to pay P120,000 the first year, P180,000 the second
year, and P270,000 each year for the next 3 years, all payments being made at
the beginning of each year. If money is worth 12% compounded annually,
which bid should the owner of the plant accept?
Given:
Bid 1: A=₱200,000 ; n=5 ; i=12%
Bid 2: Payment 1=₱120,000 ; Payment 2=₱180,000 ; A=₱270,000
i=12% ; n=3
Req’d: P
Sol’n:
For Bid 1:
( )
1 − (1 + 𝑖)
𝑃 =𝐴 1+
𝑖
Where; 𝑖 = 0.12 and 𝑛=5
( )
1 − (1.12)
𝑃 = 200,000 1 +
0.12
𝑷𝟏 = 𝑷𝟖𝟎𝟕, 𝟒𝟔𝟗. 𝟖𝟕
For Bid 2:
( )
1 − (1 + 𝑖)
𝑃 = 120𝐾 + 180𝐾(1 + 𝑖) +𝐴 1+ (1 + 𝑖)
𝑖
Where; 𝑖 = 0.12 𝑛=3 and 𝑀 = 2
( )
1 − (1.12)
𝑃 = 120𝐾 + 180𝐾(1.12) + 270𝐾 1 + (1.12)
0.12
𝑷𝟐 = 𝑷𝟖𝟓𝟗, 𝟕𝟐𝟕. 𝟏𝟖
Since P2 > P1 , therefore, the plant owner should accept the second bid.
Problem No.9:
Mr.Ayala borrows P100,000 at 10% effective annual interest. He must pay back
the loan over 30 years with uniform monthly payments due on the first day of
each month. What does Mr.Ayala pay each month?
Given:
P=₱100,000
ie=10%
n=Nm=30(12)=360
Req’d: A
Sol’n:
( )
1 − (1 + 𝑖)
𝑃 =𝐴 1+
𝑖
( )
1 − (1 + 𝑖)
𝐴 =𝑃 1+
𝑖
Also,
𝑖 = (1 + 𝑖) − 1
𝑖 =𝑖
(1 + 0.10) − 1 = (1 + 𝑖) −1
1.10 = (1 + 𝑖)
𝑖 = 0.007974
So, 𝑖 = 0.007974 and 𝑛 = 360
( )
1 − (1.007974)
𝐴 = 100𝐾 1 +
0.007974
𝑨 = 𝑷𝟖𝟑𝟗. 𝟏𝟗
Problem No.10:
It costs P50,000 at the end of each year to maintain a section of kennon road in
Baguio City. If money is worth 10%, how much would it pay to spend
immediately to reduce the annual cost to P10,000?
Given:
A=₱50,000-₱10,000=₱40,000
i=10%
Req’d: P
Sol’n:
𝐴
𝑃=
𝑖
40,000
𝑃=
0.10
𝑷 = 𝑷𝟒𝟎𝟎, 𝟎𝟎𝟎
