EE40 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

interest of 12% compounded quarterly. ANS: P 30, 655.68 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 breakeven. 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 semiannually and will be redeemed at 110% on July 1, 1999. Find its price bought on July 1, 1996 to yield an investor 4%, compounded semiannually. 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 highaccuracy 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 mediumvoltage 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 endof-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 D. Over $4,000,000 105. 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

109. If the interest rate is 5 %, the discount

factor is closest to the value

A. .05 B. .75 C. .95 D. 1.05 E. None of the above. 110. The factor (A/P,i , n) can be interpreted as
A. the present value of an annuity that pays one dollar in each period. B. the future value of an annuity with present value equal to one dollar.

A. $60,600 B. $98,300 C. $157,200 D. $173,400

106. Income from sales of an injector-cleaning gasoline additive has been averaging $100,000 per year. At an interest rate of 18% per year, the future worth of the income in years 1 through 5 is closest to

C. the constant payment in an annuity with present value equal to one dollar.
D. the Arithmetic Gradient series equivalent to a present amount P. E. None of the other choices given is correct. 111. Suppose Liza borrowed 230 dollars from Maggy today and paid her back using 10 yearly instalments of 23 dollars each, starting with the first installment in year 1. The present value of the "gift" Maggy gave Liza if the prevailing annual rate of interest is 5% is closest to

A. $496,100 B. $652,200 C. $715,420 D. Over $720,000 107. A manufacturing company borrows

$100,000 with a promise to repay the loan with equal annual payments over a 5-year period. At an interest rate of 12% per year, the annual payment will be closest to

A. $23,620 B. $27,740 C. $29,700 D. $31,800 108. If a person begins saving money by

depositing $1000 now and then increases the deposit by $500 each year through year 10, the amount that will be in the account in year 10 at an interest rate of 10% per year is closest to

A. 52 B. 23 C. 114 D. 84 E. 0 112. According to the discussion in class, how

many of the following terms can be used as reasons why the value of money is likely to decrease with time? Terms: (1) inflation, (2) impatience in consumption, (3) exchange rate fluctuations, (4) demographics, (5) money supply reductions A. one of the above terms can be used.

A. $21,662 B. $35,687 C. $43,872 D. $56,186

B. two of the above terms can be used. C. three of the above terms can be used.
D. four of the above terms can be used. 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%

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 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?

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

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".)

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

A. 108.21

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.