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# Therefore I tell you,

in prayer, believe that
and it will be yours.

## -Mark 11:24 [NIV]

Engr. John Ryan D. Regalario
Sample Problem 1
1. It is defined as the production and consumption
of goods and services of a community regarded as
a whole.

## A. Engineering Economy C. Market

B. Economy D. Market Situation
Sample Problem 1
1. It is defined as the production and consumption
of goods and services of a community regarded as
a whole.

## A. Engineering Economy C. Market

B. Economy D. Market Situation
I. SIMPLE INTEREST
Ordinary Simple Interest
Sample Problem 2
2. What is the Ordinary Simple Interest of P3000 for
6 months and 15 days if the rate of interest is 10%?

A. P3163 C. P162.50
B. P251.25 D. P110.50
Sample Problem 2
2. What is the Ordinary Simple Interest of P3000 for
6 months and 15 days if the rate of interest is 10%?

A. P3163 C. P162.50
B. P251.25 D. P110.50
Sample Problem 3
3. A loan of P5,000 is made for a period of 15 months,
at a simple interest rate of 15%, what future amount
is due at the end of the loan period?

## A. P4, 873.50 C. P3, 550.25

B. P6, 110.00 D. P5, 937.50
Sample Problem 3
3. A loan of P5,000 is made for a period of 15 months,
at a simple interest rate of 15%, what future amount
is due at the end of the loan period?

## A. P4, 873.50 C. P3, 550.25

B. P6, 110.00 D. P5, 397.50
Sample Problem 4
4. You loan from a loan firm an amount of P100,000
with a rate of simple interest of 20% but the interest
was deducted from the loan at the time the money
was borrowed. If at the end of one year, you have to
pay the full amount of P100,000, what is the actual
rate of interest.

A. 15% C. 23%
B. 25% D. 18%
Sample Problem 4
4. You loan from a loan firm an amount of P100,000
with a rate of simple interest of 20% but the interest
was deducted from the loan at the time the money
was borrowed. If at the end of one year, you have to
pay the full amount of P100,000, what is the actual
rate of interest.

A. 15% C. 23%
B. 25% D. 18%
SIMPLE INTEREST
Exact Simple Interest
SIMPLE INTEREST
Exact Simple Interest

Note:
Leap years occur every
four years, except for years
ending in 00 that are not
divisible by 400.
Sample Problem 5
5. Calculate for the exact simple interest on P15,000
for the period from February 12, to August 15, 2004 if
the rate of simple interest is 12%.

A. P909.84 C. P540.35
B. P678.87 D. P887.65
Sample Problem 5
5. Calculate for the exact simple interest on P15,000
for the period from February 12, to August 15, 2004 if
the rate of simple interest is 12%.

A. P909.84 C. P540.35
B. P678.87 D. P887.65
II. RATES OF INTEREST
Nominal Rate of Interest (NRI):
Nominal rate of interest specifies the rate of interest and
the number of interest periods per year.
Effective Rate of Interest (ERI):

Equivalent rates
For two nominal rates to be equal, their effective
rates must be equal.
Sample Problem 6
6. What is the effective rate corresponding to 18%
compounded daily? Take 1 year is equal to 360
days.

A. 13.56% C. 19.72%
B. 16.77% D. 21.25%
Sample Problem 6
6. What is the effective rate corresponding to 18%
compounded daily? Take 1 year is equal to 360
days.

A. 13.56% C. 19.72%
B. 16.77% D. 21.25%
Sample Problem 7
7. What nominal rate, compounded semi-annually,
yields the same amount as 16% compounded
quarterly?

A. 15.43% C. 16.32%
B. 12.75% D. 17.46%
Sample Problem 7
7. What nominal rate, compounded semi-annually,
yields the same amount as 16% compounded
quarterly?

A. 15.43% C. 16.32%
B. 12.75% D. 17.46%
III. COMPOUND INTEREST
Future Worth, F:
Where: (for both cases)

F = future worth
P = Present worth
i = Effective interest rate per
interest period (per month,
Present Worth, P: per quarter, per year, etc)
n = Total number of
compounding periods
m = mode of compounding
r = specified nominal rate
t = number of years
For Continuous Compounding

( )
F = P enr Future Worth

( )
P = F e -nr Pr esent Worth
Sample Problem 8
8. The amount of P50,000 was deposited in the bank
earning an interest of 7.5% per annum. Determine
the total amount at the end of 5 years, if the
principal and interest were not withdrawn during
the period.

## A. P65, 234.56 C. P87,456.32

B. P71,781.47 D. P60,694.46
Sample Problem 8
8. The amount of P50,000 was deposited in the bank
earning an interest of 7.5% per annum. Determine
the total amount at the end of 5 years, if the
principal and interest were not withdrawn during
the period.

## A. P65, 234.56 C. P87,456.32

B. P71,781.47 D. P60,694.46
Sample Problem 9
9. The sum of P20,000 is left to Robert as a will,
however, with a condition that the sum will be held
in a trust fund until it amounts to P50,000. When
will Robert receive the money if the fund is invested
at 8% compounded quarterly?

A. 11 C. 13
B. 12 D. 14
Sample Problem 9
9. The sum of P20,000 is left to Robert as a will,
however, with a condition that the sum will be held
in a trust fund until it amounts to P50,000. When
will Robert receive the money if the fund is invested
at 8% compounded quarterly?

A. 11 C. 13
B. 12 D. 14
Sample Problem 10
10. A sum of P1,000 is invested now and left for eight
years, at which time the principal is withdrawn. The
interest 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. P356.85 C. P835.12
B. P562.35 D. P705.42
Sample Problem 10
10. A sum of P1,000 is invested now and left for eight
years, at which time the principal is withdrawn. The
interest 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. P356.85 C. P835.12
B. P562.35 D. P705.42
Sample Problem 11
11. What would be the present value of instalment
payments of P1,000 now, P2,000 at the end of the
first year, P3,000 at the end of the second year,
P4,000 at the end of the third year and P5,000 at the
end of the fourth year, if money is worth 10%
compounded annually.

A. P12,315.87 C. P11,717.85
B. P14,115.76 D. P10,550.25
Sample Problem 11
11. What would be the present value of instalment
payments of P1,000 now, P2,000 at the end of the
first year, P3,000 at the end of the second year,
P4,000 at the end of the third year and P5,000 at the
end of the fourth year, if money is worth 10%
compounded annually.

A. P12,315.87 C. P11,717.85
B. P14,115.76 D. P10,550.25
Sample Problem 12
12. On his 6th birthday a boy is left an inheritance.
The inheritance will be paid in a lump sum of
P10,000 on his 21st birthday. What is the present
value of the inheritance as of the boys 6th birthday,
if the interest is compounded quarterly?
Assume i = 4%.

A. P5,552.64 C. P5,352.25
B. P5,504.50 D. P5,981.57
Sample Problem 12
12. On his 6th birthday a boy is left an inheritance.
The inheritance will be paid in a lump sum of
P10,000 on his 21st birthday. What is the present
value of the inheritance as of the boys 6th birthday,
if the interest is compounded quarterly?
Assume i = 4%.

A. P5,552.64 C. P5,352.25
B. P5,504.50 D. P5,981.57
Sample Problem 13
13. If the nominal interest rate is 5% percent, how
much is P3000 worth in 15 years in a continuously
compounded account?

A. P6,351 C. P6,117
B. P6,250 D. P6,562
Sample Problem 13
13. If the nominal interest rate is 5% percent, how
much is P3000 worth in 15 years in a continuously
compounded account?

A. P6,351 C. P6,117
B. P6,250 D. P6,562
Sample Problem 14
14. How long will it take money to double itself if
invested at 5% compounded annually?

A. 13 years C. 15 years
B. 14 years D. 16 years
Sample Problem 14
14. How long will it take money to double itself if
invested at 5% compounded annually?

A. 13 years C. 15 years
B. 14 years D. 16 years
Sample Problem 15
15. How long will it take for an investment to triple
its amount if invested at an interest rate of 12%
compounded semi-annually?

## A. 18.86 years C. 4.71 years

B. 9.43 years D. 6.6 years
Sample Problem 15
15. How long will it take for an investment to triple
its amount if invested at an interest rate of 12%
compounded semi-annually?

## A. 18.86 years C. 4.71 years

B. 9.43 years D. 6.6 years
IV. Annuities
Annuity is a series of equal payments A made
at equal intervals of time..
Ordinary Annuity
- the type of annuity where the payments are made at
the end of each period
Future Worth of Ordinary Annuity:

A
( 1 + i ) - 1
n
F=
i
Present Worth of Ordinary Annuity:
A
( )
-n
P=
1 - 1 + i
i
Annuity Due
- is the type of annuity where the payment is made at
the beginning of each period
Future Worth of Annuity Due:

A
( 1 + i ) - 1
n
F=
i
Present Worth of Annuity Due:

A
( ) ( 1 + i )
-n
P=
1 - 1 + i
i
Deferred annuity
- is the type of annuity where the first payment is made
later than the first or is made several periods after the
beginning of the annuity.
Future Worth of Deferred Annuity:

A
( 1 + i ) - 1
n
F=
i
Present Worth of Deferred Annuity:

A
1 - ( 1 + i ) ( 1 + i )
-n -m
P=
i
Perpetuity
- is an annuity in which the periodic payments
continue indefinitely.
Present Worth of Perpetuity:
Sample Problem 16
16. Today, a businessman borrowed money to be
paid in 10 equal payments for 10 quarters. If the
interest rate is 10% compounded quarterly and the
quarterly payment is P2,000, how much did he
borrow?

A. P16,350.2 C. P13,436.8
B. P10,852.5 D. P17,504.1
Sample Problem 16
16. Today, a businessman borrowed money to be
paid in 10 equal payments for 10 quarters. If the
interest rate is 10% compounded quarterly and the
quarterly payment is P2,000, how much did he
borrow?

A. P16,350.2 C. P13,436.8
B. P10,852.5 D. P17,504.1
Sample Problem 17
17. 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?

A. P870.4 C. P892.3
B. P839.2 D. P821.8
Sample Problem 17
17. 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?

A. P870.4 C. P892.3
B. P839.2 D. P821.8
Sample Problem 18
18. A person buys a piece of lot for P100,000 down
payment and 10 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?

A. P144,000 C. P135,000
B. P156,000 D. P187,000
Sample Problem 18
18. A person buys a piece of lot for P100,000 down
payment and 10 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?

A. P144,000 C. P135,000
B. P156,000 D. P187,000
V. Capitalized Costs
Capitalized Cost refers to the present worth of a
property that is assumed to last forever. The capitalized
cost of any property is the sum of the first cost and
the present costs of perpetual replacement,
operation and maintenance.
Capitalized Costs
Capitalized Costs
Capitalized Costs
Sample Problem 19
19. At 6%, find the capitalized cost of a bridge whose
cost is P250M and life is 20 years, if the bridge must
be partially rebuilt at a cost of P100M at the end of
each 20 years.
A. P315.2M C. P295.3M
B. P275.8M D. P135.6M
Sample Problem 19
19. At 6%, find the capitalized cost of a bridge whose
cost is P250M and life is 20 years, if the bridge must
be partially rebuilt at a cost of P100M at the end of
each 20 years.
A. P315.2M C. P295.3M
B. P275.8M D. P135.6M
Sample Problem 20
20. An equipment is purchased for P50,000. If the
annual maintenance cost is P1500, determine the
capitalized cost of perpetual service with an
interest rate of 6%.
A. P100,000 C. P25,000
B. P75,000 D. P58,333.33
Sample Problem 20
20. An equipment is purchased for P50,000. If the
annual maintenance cost is P1500, determine the
capitalized cost of perpetual service with an
interest rate of 6%.
A. P100,000 C. P25,000
B. P75,000 D. P58,333.33
VI. Depreciation
Depreciation is the decrease in the value of physical
property due to passage of time.
Methods of Computing Depreciation
Straight Line Method
Straight line method of depreciation assumes
that the loss in value of the property is directly
proportional to the age of the property.
Methods of Computing Depreciation
Sinking Fund Method
Methods of Computing Depreciation
Declining Balance Method
Methods of Computing Depreciation
Double Declining Balance Method
Methods of Computing Depreciation
Sum of the - years digits Method (SYD)
Sample Problem 21
21. An engineer bought a machine for P500,000.
Other expenses including installation amounted to
P30,000. At the end of its estimated useful life of 10
years, the salvage value will be 10% of the first cost.
Using straight line method of depreciation, what is
the book value after 5 years?

A. P256,400 C. P350,250
B. P291,500 D. P450,500
Sample Problem 21
21. An engineer bought a machine for P500,000.
Other expenses including installation amounted to
P30,000. At the end of its estimated useful life of 10
years, the salvage value will be 10% of the first cost.
Using straight line method of depreciation, what is
the book value after 5 years?

A. P256,400 C. P350,250
B. P291,500 D. P450,500
Sample Problem 22
22. A printing equipment costs P 73,500 has a life
expectancy of 8 yrs. and has a salvage value of P
3500 at the end of its life. The book value at the end
of x years is equal to P 38,500. Using straight line
method of depreciation, solve for the value of x.

A. 3 years C. 5 years
B. 4 years D. 6 years
Sample Problem 22
22. A printing equipment costs P 73,500 has a life
expectancy of 8 yrs. and has a salvage value of P
3500 at the end of its life. The book value at the end
of x years is equal to P 38,500. Using straight line
method of depreciation, solve for the value of x.

A. 3 years C. 5 years
B. 4 years D. 6 years
Sample Problem 23
23. A machine worth 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.

A. P60,822 C. P65,344
B. P63,455 D. P54,632
Sample Problem 23
23. A machine worth 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.

A. P60,822 C. P65,344
B. P63,455 D. P54,632
Sample Problem 24
24. An asset is purchased for P120,000. Its
estimated economic life is 10 years, after which it
will be sold for P12,000. Find the depreciation for
the 3rd year using the sum-of-the-years digit (SYD)
method.

A. P19,636 C. P15,710
B. P21,352 D. P12,345
Sample Problem 24
24. An asset is purchased for P120,000. Its
estimated economic life is 10 years, after which it
will be sold for P12,000. Find the depreciation for
the 3rd year using the sum-of-the-years digit (SYD)
method.

A. P19,636 C. P15,710
B. P21,352 D. P12,345
Thank You!!!

VII. BONDS

## A bond is a certificate of indebtedness of a corporation

usually for a period not less than ten years and
guaranteed by a mortgage on certain assets of the
corporation or its subsidiaries
Bond Value
The value of a bond is the present worth of all future
amounts that are expected to be received through
ownership of the bonds.
C

(

P = Fr
1 + i ) - 1 C
n
+
Fr Fr Fr Fr Fr Fr Fr

( ) ( )
n n

i 1 + i
1 + i

Where:
F = face, or par, value P

## C = redemption or disposal price (often equal to F)

r = bond rate per period
n = number of periods before redemption
I = investment rate per period
P= value of the bond n periods before redemption
Sample Problem 26
A man wants to make 14% nominal interest
compounded semi-annually on a bond
investment. How much should he be willing to
pay now for a 12%, P10,000- bond that will mature
in 10 years and pays interest semi-annually?

A. P8,950 C. P7,890
B. P8,590 D. P7,950
Sample Problem 26
A man wants to make 14% nominal interest
compounded semi-annually on a bond
investment. How much should he be willing to
pay now for a 12%, P10,000- bond that will mature
in 10 years and pays interest semi-annually?

A. P8,950 C. P7,890
B. P8,590 D. P7,950
VIII. Break-even Analysis
Sample Problem 27
A manufacturer produces certain items at a labor cost
per unit of P315, material cost per unit of P100, and a
variable cost of P3.00 per unit. If the item has a selling
price of P995, how many units must be manufactured
each month for the manufacturer to break even if the

A. 500
B. 700
C. 600
D. 800
Sample Problem 27
A manufacturer produces certain items at a labor cost
per unit of P315, material cost per unit of P100, and a
variable cost of P3.00 per unit. If the item has a selling
price of P995, how many units must be manufactured
each month for the manufacturer to break even if the

A. 500
B. 700
C. 600
D. 800
Sample Problem 28
ABC Corporation manufactures book cases that sells for
P65.00 each. It costs ABC P35,000 per year to operate its
plant. This sum includes rent, depreciation charges on
equipment and salary payments. If the cost to produce
one bookcase is P50, how many bookcases must be sold
each year for ABC to avoid taking a loss?

A. 2334 C. 3234
B. 3243 D. 2344
Sample Problem 28
ABC Corporation manufactures book cases that sells for
P65.00 each. It costs ABC P35,000 per year to operate its
plant. This sum includes rent, depreciation charges on
equipment and salary payments. If the cost to produce
one bookcase is P50, how many bookcases must be sold
each year for ABC to avoid taking a loss?

A. 2334 C. 3234
B. 3243 D. 2344