Mathematics of

Investment

[FINALS REVIEWER ]

I. TRUE OR FALSE
1. Exact Time Exact Interest is also known as bankers rule.
2. Promissory notes whether interest bearing or not always have interest.
3. The amortization method is used for periodic payments to be applied first to
interest and to the principal.
4. Sinking fund method is used for payment of bonds and other long term debts.
5. An example of ordinary annuities is when rental payments are made at the
beginning of every month.
6. When discounting promissory notes the price paid by the third person is always
lower than the maturity value.
7. The effective interest rate is equal to the nominal interest rate.
8. Depositing monthly at a bank for one year and then withdrawing money 6
months afterwards is an example of an amount after the last payment.
9. When a bank issues a loan, the institution deducts the interest from the
proceeds, this method is called discounting notes.
10.An example of a perpetuity annuity is an endowment.
II. MULTIPLE CHOICE
11. The proceeds or earnings that are derived from any business activity.
a. Profit
b. Simple Interest
c. Maturity Value
d. Interest
12.Which of the following is the formula for computing the simple interest?
a. S = P + I
b. S = P(1 + rt)
c. I = Prt
d. D = Sdt
13.
a.
b.
c.
d.

Which of the four commercial practices yield the highest interest?

Exact Time Exact Interest
Exact Time Ordinary Interest
Approximate Time Ordinary Interest
Approximate Time Exact Interest

14. If an interest of 10% is compounded semi-annually? The effective interest is:

a. 5%
b. 9%
c. 15%
d. 21%
15.This type of annuity starts and ends at fixed points in time.
a. Forborne
b. Annuity Certain
c. Contingent
d. Annuity Due

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16.This method which a fund is accumulated systematically until such time it is

equal to the sum needed.
a. Amortization
b. Owners Equity
c. Perpetuity
d. Sinking Fund
17.All of the following are true about Sinking Funds. Except:
a. They are used as means of payments of bonds.
b. They require periodic deposits.
c. The periodic payment is equal to the amount to be accumulated multiplied by
the interest rate.
d. The periodic payment is equal to the amount to be accumulated divided by
the future value factor of 1 per period
18.This commercial practice assumes that all months have 30 days a year.
a. Exact Time
b. Approximate Time
c. Both a and b
d. Neither a nor b
19.In the amortization method, periodic payment is first applied to:
a. Principal
b. Principal or Interest, whichever is higher
c. Interest
d. The average of principal and interest
20.Juliet is in need of a dormitory and she was able to find one near UST and found
out that the rent is being paid at the end of each month, this is an example of:
a. Ordinary Annuity
b. Forborne Annuity
c. Deferred Annuity
d. Annuity Due
III. PROBLEMS
21.An IPhone can be bought for P2,000 down and P500 every month for six months.
Find the equivalent cash price if money is worth 12% converted monthly.
22.A gaming laptop has a cash value of P39,000. The computer dealer charges a 9%
add-on for all installment purchases and a 12% simple interest settlement rate. If a
customer made a P10,000 down payment and installments of P12,000 and P8,000
in 6 months and 9 months, respectively. Find the payment to be settled in 12
months to settle the debt. Use 12 months as the focal date.
23.A bank charges a discount rate of 24% on all loans. How much is the proceeds if
P50,000 is borrowed for a term of 9 months?

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24.What is the present value of P15,000 in 2.5 years if money is worth 8%

compounded semi-annually?
25.What is the effective interest rate of 5% compounded quarterly?
26.P100,000 was borrowed from a bank provided that the loan be paid within 5
years at 6% converted quarterly. How much will be the quarterly payment?
27. A loan worth P300,000 was given for the purchase of a used car. If the loan is to
be paid in installment at 12% converted monthly for 5 years, how much will be the
owners equity on the 50th payment?
28.Every end of each month, a man deposits P3,825 in a bank that gives 12%
interest compounded monthly. How much will the man have after 2 years?
29. What simple interest rate is equivalent to a 10% discount rate of a 3-month
loan?
30.Which rate can give a better return on an investment, 5% compounded semiannually or 5.05% effective?
31.To settle a debt, payments of P2,367 are to be made every month for 18 months.
If money is worth 12% compounded monthly and the first payment is to be made
immediately, what is the size of the debt?
32.What discount rate was applied to a loan worth P60,000 payable in 6 months,
which left P54,000 to the borrower?
33.Henson won in a lottery that is worth P5 million. The amount, however, can be
redeemed only after 2 years. If a millionaire is willing to by Hensons winnings at
12% compounded monthly, how much does Henson expect to receive?
34.A note of P25,000 is due in 10 months at 9% simple interest. Four months after
the note was made, the holder of the note sold it to a third party who charged 10%
discount rate. Find the proceeds.
35.Find the face value of a note at a discount rate of 6% if its term is 150 days and
its maturity value is P120,600.
Numbers 36 40 pertain to the following:
Antonio borrowed from Maria, Clavio and Luis an amount of P250,000. P50,000 of
which is from Maria, P140,000 from Clavio and P160,000 from Luis.
36. Maria, Clavio and Luis all have an account in a bank which gives 10% interest
per annum for its depositors. How much would Antonio pay in 6 months to settle the
debt?

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37. Antonios debt to Maria falls due in 7 months and she has an account in a bank
that gives 24% compounded monthly. How much would Antonio have to pay now to
settle the debt?
38. Debt to Clavio falls due in 8 months and has an account in a bank that gives
12% interest per annum. How much should Antonio have to pay at due date?
39. Debt to Luis falls due in 9 months and has an account in a bank that gives 16%
compounded quarterly. How much should Antonio pay in 3 months to settle the
debt?
40. All debts fall due in 1 year, and all of them have an account in one bank that
gives 10% per annum, Antonio will make payments of P100,000 in 6 months and
P50,000 in 8 months. However due to good luck, he will be able to pay all the debt
in 10 months. How much would he then pay?
Numbers 41 45:
Jeric was able to acquire a loan from a bank worth P150,000 with an interest worth
12% per annum. The amount is payable in 5 years.
41.
42.
43.
44.
45.

How
How
How
How
How

much
much
much
much
much

is
is
is
is
is

the
the
the
the
the

periodic payment?
first interest applied?
balance after the 3rd payment?
outstanding principal after the 3 rd payment?
owners equity after the 3 rd payment?

Numbers 46 50:
Coffee Happiness Inc. has issued 10% bonds worth P1,000,000 to creditors. As it
matures in 5 years, they plan to set up a sinking fund to settle debt once it becomes
due. Their trusted bank offers a sinking fund with an interest of 9% per annum.
46. How much is annual deposit?
47. How much interest is earned after the first deposit?
48. How much is the amount in the fund after the 3 rd deposit
49. How much is the amount of the total periodic payment?
50. How much is the fund after the final deposit?

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Answers:
True or False:
1. False
2. True
3. True
4. True
5. False
6. False
7. False
8. True
9. False
10. True
Multiple Choice:
11. a. Profit
12. c. I = Prt
13. b. Exact Time Ordinary Interest
14. d. 21%
15. b. Annuity Certain
16.d. Sinking Fund
17. c. The periodic payment is equal to the amount to be accumulated multiplied
by the interest rate.
18.b. Approximate Time
19.c. Interest
20.a.Ordinary Annuity
Supply the Answer:
21.P4,897.76
22.P10,710
23.P41,000
24. P12,328.91
25. 5.09%
26. P5,824.55
27. P236,795.54
28. P103,173.50
29. 10.26%
30. 5.06% effective interest of 5% compounded semi-annually
31.P39,202.85
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32. 20%
33. P3,937,830.64
34.P25,531.25
35.P117,000
36. P238,095.23
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.

P43,528
P140,000
P147,929
P91,735
P41,611
P18,000
P126,389
P351,148
P79,672.95
P163,797.48
P16,379.75
P542,169.66
P263,797.48
P1,000,000

Additional Problems:

A total of P8,000 is deposited in 2 simple interest accounts. The annual

interest rate is 12% in one account and 10% in the other account. The total
annual interest earned was P900. How much was invested in each account?

A total of P7,000 was invested in two simple interest accounts such that the
annual interest earned in each account was the same. The interest rates of
the accounts were 15% and 20%. How much was invested in each account?

Tim invested some money into a 10% annual simple interest account. In a
16% account, he invested P4000 more than what he put in the 10% account.
He earned a total of P2200 in interest from these investments after one year.
How much was deposited into each account?

You invest P5000 in an account earning simple interest. The balance after 6
years is P6200. What is the interest rate?

You deposit P5000 in an account that pays 7% annual interest compounded

continuously. What is the balance after 2 years?

Suppose you invest P1500 in an account paying 4.75% annual interest. What
is the account balance after 25 years with the interest compounded annually,
semi-annually, quarterly and monthly?

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You have P2500 that you invest at 6% simple interest. What is the balance
after four years? = 3,100

What is the account balance at the end of a year earning simple interest? My
initial principal is P300 and my interest rate is 6%.

If you invest P200 into a simple interest savings account for 5 years and earn
P60 in interest. What is the interest rate?

You invest P1500 in an account with an interest rate of 8% for 12 years,

making no other deposit or withdrawals. What will be in your account balance
if the interest is compounded monthly?

A couple deposits P1500 each every 6 months in a bank that gives an annual
interest of 5% for their wedding in 2021. If they started their deposits in year
2001, how much does the fund contain in 2021?

At what interest rate will annual payments of P3000 accumulate to P30000 in

10 years?

To pay off a debt, you borrowed P250,000 that is to be amortized by a series

of quarter payments for the next 10 years. If the interest rate applicable is
12% annually, solve for your periodic payments and the outstanding principal
after making the 20th payment.

The amount required is P50,000 after 10 years at 7% compounded

semiannually. What is the semiannual payment?

The amount required is P2500 after 2 years at 5% compounded quarterly.

What isthe quarterly payment?

Emily wants to invest an amount every month so that she will have P5,000 in
3 years to make a down payment on a new car. Her account pays 8%
compounded monthly. How much should she deposit each month?

The CondoforSale is required by law to set aside funds to replace its roof. It is
estimated that the roof will need to be replaced in 20 years at a cost of
P180,000. The condo can invest in treasuries yielding 6% paid semiannually.
If the condo invests in the treasuries, what semiannual payment is required to
have the funds to replace the roof in 20 years?

If Josh deposits P10,000 every year in an account paying 8% compounded

annually, how long will it take him to accumulate P1,000,000?

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James obtains a loan for his brand new car. His car costs P18,000 and he puts
P1000 down and amortizes the rest with equal monthly payments over a 5year period at 6% to be compounded monthly.
o
o

What will the monthly payment be?

How much interest will be paid?

The amount of principal repaid in the 3rd payment of a 5-year loan at 9% is

300. What is the original loan value?

A corporation creates a sinking fund in order to have P530,000 to replace

some machinery in 9 years.
o

How much should be placed in this account at the end of each week if
the annual interest rate is 7.6% compounded weekly? (Round your
answers to the nearest centavo)
How much interest was earned during the second week of the 6th
year?

New parents wish to save for their new-born's education and wish to have
P52,000 at the end of 18 years.
o

How much should the parents place at the end of each year into a
savings account that earns an annual rate of 6.9% compounded
annually? (Round your answers to two decimal places.)
How much interest was earned during the 12th year?

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