Republic of the Philippines

PALAWAN STATE UNIVERSITY

College of Engineering, Architecture and Technology
Puerto Princesa City

MIDTERM EXAM – BES 7: ENGINEERING ECONOMY

TEST I. OBJECTIVE QUESTIONS. Write the letter of the best answer on the answer sheet. (2 pts each)

1. A market situation in which there are so few suppliers of a particular product that one supplier’s
actions significantly affect prices and supply.
A. Oligopoly B. Monopsony C. Monopoly D. Perfect competition
2. A market whereby there is only one buyer of an item for when there are no goods substitute.
A. Monopsony B. Monopoly C. Oligopoly D. Oligopsony
3. A market situation where there is only one seller with many buyers.
A. Monopoly B. Monopsony C. Oligopoly D. Perfect competition
4. The money paid for the use of borrowed capital.
A. Interest B. Amortization C. Annuity D. Bonds
5. The place where buyers and sellers come together.
A. Store B. Port C. Market D. Bargain center
6. The type of annuity where the first payment is made after several periods, after the beginning of
the payment.
A. Perpetuity B. Ordinary annuity C. Annuity due D. Deferred annuity
7. The quantity of a certain commodity that is offered for sale at a certain price at a given place and
time.
A. Utility B. Supply C. Stocks D. Goods
8. These are products or services that are required to support human life and activities that will be
purchased in somewhat the same quantity event though the price varies considerably.
A. Commodities B. Necessities C. Demands D. Luxuries
9. A series of uniform payment over an infinite period of time.
A. Depletion B. Capitalized cost C. Perpetuity D. Inflation
10. An association of two or more individual for the purpose of engaging business for profit.
A. Single proprietorship C. Corporation
B. Party D. Partnership
11. The simplest form of business organization where in the business is owned entirely by one person.
A. Partnership C. Corporation
B. Sole proprietorship D. Joint venture
12. It is the defined capacity of a commodity to satisfy human want.
A. Satisfaction B. Luxuries C. Necessity D. Utility
13. This occurs in a situation where a commodity or service is supplied by a number of vendors and
there is nothing to prevent additional vendors entering the market.
A. Perfect competition C. Monopoly
B. Monopsony D. Cartel
14. These are products or services that are desired by human and will be purchased if money is
available after the required necessities have been obtained.
A. Commodities B. Necessities C. Luxuries D. Supplies
15. The ratio of the interest payment to the principal for a given unit of time and is usually expressed
as a percentage of the principal is known as ______.
A. investment B. nominal interest C. interest D. interest rate
16. We may classify an interest rate, which specifies the actual rate on interest on the principal for
one year as ____.
A. nominal rate B. rate of return C. effective rate D. exact interest rate
17. It is a distinct legal entity, separate from individuals who own it and which can engage practically
in any business transaction which a real person can do.
A. Partnership B. Corporation C. Competition D. Single proprietorship
18. It is the increase in the prices of goods and services from one year to another.
A. Interest B. Deflation C. Inflation D. Gradient
19. What is an annuity?
A. The future worth of a present amount
B. A series of uniform amounts over a period of time
 C. An annual repayment of a loan
D. A lump sum at the end of the year
20. Double taxation is a disadvantage of which business organization?
A. Partnership B. Corporation C. Enterprise D. Sole proprietorship
21. Which is true about partnership?
A. It has a perpetual life.
B. It will be dissolved if one of the partners ceases to be connected with the partnership.
C. It can be handed down from one generation of partners to another.
D. Its capitalization must be equal for each partner.
22. Which one refers to an annuity where the payments are made at the start of each period,
beginning from the first period?
A. Deferred annuity B. Annuity due C. Ordinary annuity D. Perpetuity
23. What type of annuity where the payments are made at the end of each period, starting from the
first period?
A. Deferred annuity B. Annuity due C. Ordinary annuity D. Perpetuity
24. Which is NOT an essential element of an ordinary annuity?
A. The amounts of all payments are equal.
B. The payments are made at equal interval of time.
C. The first payment is made at the beginning of the first period.
D. Compound interest is paid on all amounts in the annuity.
25. What is the method for helping to visualize and simplify problems having diverse receipts and
disbursements?
A. Lotus spreadsheet analysis C. having an accountant in the family
B. Cash flow diagram D. Excel spreadsheet analysis

TEST II. PROBLEM SOLVING. Use yellow pad for your solution. Write your final answers on the answer
sheet.

1. Determine the exact simple interest on P2,000 for the period from January 10 to June 18, 1993, if
the rate of simple interest is 15%. (10 pts)
2. What single sum of money paid at the end of 3 years will fairly discharge two debts, one P3000 due
in 2 years and another of P2500 due in 5 years, if the interest rate is 3% compounded annually?
(10 pts)
3. A man owes P25,000 due in one year and P75,000 due in four years. He agrees to pay P50,000
today and the balance in two years. How much must he pay at the end of two years if money is
worth 5% compounded semi-annually? (20 pts)
4. In year zero, a man invested $10,000 in a guaranteed 15% security deposit for 5 years. If the
average annual inflation rate is 6% during that time, how much in terms of the year zero dollar will
be in the account after 5 years? (20 pts)
5. A warehouse building was purchased 10 years ago for P250,000. Since then, the effective annual
interest rate has been 8%, inflation has been steady at 2.5% and the warehouse has no
deterioration or decreased in utility. What should the warehouse sell today? (20 pts)
6. A man deposits $300 at the end of each 6 months in a bank paying 2% compounded semi-
annually. How much will he have to her credit at the end of 10 years if he makes no withdrawals?
(10 pts)
7. An engineer bought a machine costing $60,000 payable in 12 quarterly payments, each installment
payable at the beginning of each period. The rate of interest is 24% compounded quarterly. What
is the amount of each payment? (20 pts)
8. An engineer acquires a loan of $500,000 from bank. He will amortize his loan by 10 annual
payments but will start 5 years after the loan was acquired. If money is worth 10% compounded
annually, what was his annual amortization. (20 pts)
9. A state engineer estimates the cost of a canal is $680 million. The legislative analyst estimates the
equivalent annual cost of the investment for the canal to be $20.4 million. If the analyst expects
the canal to last indefinitely, what interest rate is he using to compute equivalent annual cost? (10
pts)
10. Determine the present value of a perpetuity of $10,000 payable semi-annually assuming money is
worth 8% compounded quarterly. (10 pts)