BM 99.

2
Assignment #2

Problem 1 Application of Simple and Compound Interest

1. Mr. Poseidon Neptune, owner of Underwater Bar Inc., borrowed ₱350,000 at 11% from a bank to expand its
operations. Given that the loan is for 3 years, compute for the total interest assuming (a) simple interest; and
(b) compound interest. (2 points)

2. Mr. Hephaestus Vulcan took out a loan to buy a netbook computer on February 2. The loan is due to be
repaid on April 15 when Mr. Anthony expects to receive his salary. The interest on the loan is ₱378 at a rate
of 10.5%. Find the Principal. Count the exact days and use a 360-day year. (1 point)

3. A bridge was damaged by an earthquake. Asclepius Inc. was contracted by the government to repair the
bridge. Asclepius Inc. needs ₱1,650,000 for 30 days to pay wages and buy supplies. A bank lends them the
funds at an 8% rate. How much cash is needed to repay the bank after 30 days? Use a 360-day year. (1
point)

4. Plutus must make an ₱8,500 quarterly tax payment to the Bureau of Internal Revenue. He decides to borrow
money from his company, Plutus’ Financing and repay the loan in 90 days. Given an 8.5% rate, compute for
the (a) simple interest; and (b) compound interest. Use a 365-day year. (2 points)

5. Eros deposits ₱1,000,000 which pays 6% compounded annually, but the Philippine Tax Code imposes 20%
tax payment from such interest income. Find the balance in the account after 1 year. (1 point)

6. Ms. Maya Manaco has ₱2,500,000 to invest for a year. She can lend it to his brother who has agreed to pay
10% simple interest for the year, or she can invest it with a bank at 8% compounded quarterly for a year.
Which of the alternatives will yield a higher interest? By how much? (2 points)

7. Ms. Amper Aconti owns a shoe store specializing in running shoes and needs ₱1,080,000 in 4 years to
renovate her store. Find (a) the amount that must be invested today at 8% compounded annually to reach the
amount needed and (b) the amount of interest earned. (2 points)

8. Mr. Dilam Gawain believes his barber shop is worth ₱200,000 and estimates that its value will grow at 10%
per year compounded annually for the next 3 years. If he sells the business, the funds will be invested at 8%
compounded quarterly for 3 years. Find (a) the future value of the business if it is to be continued and (b)
what price should he sell his business at present if he chose to sell his business and still yield the same value
in continuing his business? (2 points)

9. What is the present value of ₱ 13,996.80 when the interest rate is 8% compounded annually for 2 years? (1
point)

10. What is the future value if the amount invested is ₱10,000 at 10% compounded quarterly for 5 years? (1
point)

Problem 2 Bond Amortization (Premium)

On January 1, 2022, Skyfall Inc. received permission to issue a 5-year bond with a face value of ₱6,000,000.
The nominal rate is 12% and is payable annually every December 31. The face value of the bond will be repaid
in full after 5 years.

On January 1, 2022, Skyfall Inc. sold the bonds for ₱6,454,894.41with an effective yield of 10%. Using the
effective interest method, complete the amortization table. (10 points)
Problem 3 Bond Amortization (Discount)
On January 1, 2022, Goldeneye Corp. issued a 5-year bond with a face value of ₱6,000,000 with a nominal rate
of 10% for ₱5,567,426.86. This issuance has an effective rate of 12%. The interest is payable every December
31. The face value of the bond will be repaid at the end of 5 years.

Using the effective interest method, complete the amortization table (10 points).