JAPSON, FRANCIS LENARD D.

- GC21
Department of Civil Engineering
Ateneo de Naga University

PROBLEM SET 4 - TIME VALUE OF MONEY - SIMPLE AND COMPOUND

INTEREST

Solve the problems 1-7, pp 51 in the book

Engineering Economy by Sta. Maria, H. with
the following details:
JOBL Reserved - TA177.4 S2 Fil Volume ed.

Problem 1
What is the annual rate of interest if Php
315.30 is earned in four months on an
investment of Php 22,081.62?
GIVEN:
P= Php 22,081.62
i= Php 315.30
n=4 (period)
SOLUTION:
𝐼 = 𝑃𝑛𝑖
4
315.30 = (22,081.62)( )𝑖
12
(12)(315.30)
𝑖=[ ]
(4)(22,081.62)
𝑖 = 4.28%

CONCLUSION:
Therefore, the annual interest is equal to
4.28 percent.

GEAL201 ENGINEERING ECONOMICS

SY 2019-2020
JAPSON, FRANCIS LENARD D. - GC21
Department of Civil Engineering
Ateneo de Naga University

Problem 2
A loan of Php 1,738.91 is made for a period of 13 months, from January 1 to January 31 the
following year, at a simple interest of 19.14%. What future amount is due at the end of the loan
period?
GIVEN:
P = Php 1,738.91
i = 19.14%
n = 13 (period)
SOLUTION:
𝐹 = 𝑃(1 + 𝑛𝑖)
13
𝐹 = 1,738.91 [1 + ( )(0.1914)]
12
𝐹 = 2,099.47
CONCLUSION:
After 13 months, the loan will have a value of Php 2,099.47.

Problem 3
If you borrow money from your friend with simple interest of 12.76%, find the present worth of Php
28,981.85 which is due at the end of 10 months.
GIVEN:
F = Php 28,981.85
i = 12.76%
n = 10 (period)
SOLUTION:
𝐹 = 𝑃(1 + 𝑛𝑖)
10
28,981.85 = 𝑃 [1 + ( )(0.1276)]
12
28,981.85
𝑃=
10
[1 + (12)(0.1276)]

𝑃 = 26,196.31
CONCLUSION:
The present value of the borrowed money is Php 26,196.31.
GEAL201 ENGINEERING ECONOMICS
SY 2019-2020
JAPSON, FRANCIS LENARD D. - GC21
Department of Civil Engineering
Ateneo de Naga University

Problem 4
Determine the exact simple interest on Php 6,955.64 for the period from 25 February, 1992 to 19
November, 1992, if the rate of interest is 25.53%.
GIVEN:
P =6,955.64
i = 25.53%
Period Start = 25 February, 1992
Period End = 19 November, 1992
Period = 268 days

SOLUTION:
𝐼 = 𝑃𝑛𝑖
268
𝐼 = (6,955.64)( )(0.2553)
366
𝐼 = 1,300.29
CONCLUSION:
The exact simple interest is Php 1,300.29.
Problem 5
A man wishes his son to receive Php 173,891.11 ten years from now. What amount should he
invest if it will earn interest of 6.36 % compounded semi-annually during the first 5 years and
7.21% compounded every 4 months during the next 5 years?
GIVEN:
F = 173,891.11 n=my
r1 = 6.38 % r2 = 8.11 %
m1 = 2 m2 = 3
y1 = 5 y2 = 5
i=r/y
SOLUTION:
*work backwards to get present value*
𝑟2 −𝑚 𝑦
𝑃2 = 𝐹(1 + ) 2 2
𝑚2
0.0811 −(3)(5)
𝑃2 = 173,891.11(1 + )
3
𝑃2 = 116,549.20

GEAL201 ENGINEERING ECONOMICS

SY 2019-2020
JAPSON, FRANCIS LENARD D. - GC21
Department of Civil Engineering
Ateneo de Naga University

𝑟1 −𝑚 𝑦
𝑃1 = 𝑃2 (1 + ) 1 1
𝑚1
0.0638 −(2)(5)
𝑃1 = 116,549.20(1 + )
2
𝑃1 = 85,139.91
CONCLUSION:
The man must invest Php 85,139.91at the start of the investment for such conditions to achieve
the value of Php 173,891.11 in ten years.
Problem 6
By the condition of a will the sum of Php 23,185.48 is left to be held in trust by her guardian until
it amounts to Php 57,963.70. When will the girl receive the money if the fund is invested at 11.04%
compounded every 4 months?
GIVEN:
P = 23,185.48
F = 57,963.70
r = 11.04%
m=3
SOLUTION:
𝑟 𝑚𝑦
𝐹 = 𝑃(1 + )
𝑚
0.1104 3𝑦
57,963.70 = 23,185.48(1 + )
3
57,963.70
ln ( )
23,185.48
3𝑦 =
0.1104
ln (1 + 3 )
𝑦 = 8.45
CONCLUSION:
The girl will receive the money in 8.45 years.

Problem 7
GEAL201 ENGINEERING ECONOMICS
SY 2019-2020
JAPSON, FRANCIS LENARD D. - GC21
Department of Civil Engineering
Ateneo de Naga University

At a certain interest rate compounded semi-annually Php 3,477.82 will amount to Php 16,651.21
after 10 years. What is the amount at the end of 12 years?
GIVEN:
P = 3,477.82
F = 16,651.21
y1 = 10
y2 = 12
m=6
SOLUTION:
𝑟 𝑚𝑦
𝐹 = 𝑃(1 + )
𝑚
𝑟
16,651.21 = 3,477.82(1 + )6(10)
6

60 16,561.21
𝑟 = (6) ( √ − 1)
3,477.82

𝑟 = 15.81%
𝑟
𝐹 = 𝑃(1 + )𝑚𝑦
𝑚
0.1581 (6)(12)
𝐹 = 3,477.82(1 + )
6
𝐹 = 22,624.66
CONCLUSION:
The amount after 12 years will be Php 22,624.66

GEAL201 ENGINEERING ECONOMICS

SY 2019-2020