Peñamora Regino III C.

3ME-C
Economics

Saq #4
How long for $1,000 to become $2,000 invested at 7.8% compounded annually? Semi-
annually? Quarterly? Monthly? Daily?
Solution
F=P(1+i)n
r
i=
m

For annually:
0.078
2000=1000 1+( 1 ) 1(n)

n = 9.228 or 9.23 years

For semi-annually
0.078
2000=1000 1+( 2 ) 2(n)

n= 9.058 or 9.06 years

For Quarterly
0.078
2000=1000 1+( 4 ) 4(n)

n=8.972 or 8.97 years

For monthly

0.078
2000=1000 1+( 12 ) 12(n)

n= 8.915 or 8.92 years

For Daily
0.078
2000=1000 1+ ( 100 ) 100(n)

n= 8.89 years

1. What effective interest rate is equivalent to 14 % per year, compounded semi-

annually? Answer: i = 14.49%
Solution
r
i = [1+( ) ¿2-1
2
0.14 2
i = [1+( )¿ -1
2
i= 14.49%

2. What is the corresponding nominal rate, compounded monthly for an effective rate of
16.5%? Answer: r = 15.37%
r
i = [1+( ) ¿12 -1
2
r
0.165 = [1+( ) ¿12-1
2
r = 15.37%

1. A construction company has an option to purchase a certain bulldozer for $61,000 at any time between
now and 4 years from now. If the company plans to purchase the dozer 4 years from now, the equivalent
present amount that the company is paying for the dozer at 6% per year interest is closest to
(a) $41,230

(b) $46,710

(c) $48,320

(d) Over $49,000

Given

n = 4years

i = 6%

F = $61,000

P=?

Solution

P = F (1+i)-n

P = 61,000(1+0.06)-4

P = $48, 317.71346 Or letter C

2. The cost of tuition at a certain public university was $160 per credit-hour 5 years ago. The cost today
(exactly 5 years later) is $235. The annual rate of increase is closest to

(a) 4%

(b) 6%

(c) 8%

(d) 10%

Solution

r -n
P= F(1+ ¿
n
r -1(5)
P= F(1+ ¿
1
= 0.079 or 0.8

r = 8%

Answers: 1. C 2. C
If money’s worth is 7% today and you are looking for a property worth ₱1M. Howmuch is the discount
when it was sold to you, after 8 months, for only ₱975,000.00. Whatwas the rate of discount? the rate
interest?

Answer:

D= ___________ (Answer is not provided; when you got d and r correctly, it follows that your answer is
correct)

d = 6.8% ; r = 7.3%

F=1,000,000

P= 975,000

D= F-P

D= 1,000,000 – 975,000

D= ₱25,000

P
d= x 0.07
F
d = 6.8%

d
r=
1−d
0.068
r=
1−0.068
r = 0.0729 x 100

r = 7.29% or 7.3%