St.

Paul University Surigao

St. Paul University System
8400 Surigao City, Philippines

COLLEGE OF ENGINEERING
Hernandez, Ma. Elizabeth E. February 26, 2022

BSEM-301 Engr. Shaira D. Barol

Engineering Economy
ACTIVITY 1:

Answer the following and show your solution.

1. A price tag of P1,200 is payable in 60 days but if paid within 30 days it will have a 3%
discount. Find the rate of interest.
a. 37.1%
b. 40.2%
c. 38.5%
d. 39.3%

Solution:
3
1200 x = 36
100
Amount to be paid on 30 days.
1200 – 36 = 1164

I = Prt
30
36 =1164r
360
r = 0.371
r = 37.1%

2. How many years will P100,000 earned a compound interest of P50,000 if the interest rate
is 9% compounded quarterly?
a. 3.25
b. 4.55
c. 5.86
d. 2.11
Given:
P = 100,000
Pi = 50,000
R = 9%
Quarterly = 4
t=?

Solution:

How many years: t = ?

9
Rate per quarter: = 2.25%
4
F = P + Pi = 100,000 + 50,000 = 150,000

[
F = P 1+
i
100 ] n

F P 1+
P
=
i
100
n
[ ]
P

F
P [
= 1+
i
100 ]
n

Substitute:

150,000
100,000
= 1+
2.25
100[ ] n

15
= [ 1+0.0225 ] n
10
3
= ( 1.0225 )n
2
3
( 1.0225 )n ¿
2

( )
n
1.0225 x 400 3
¿
1 x 400 2

( 409
400 )
n
= 3
2
 n=log
( 409
400
() 32 )
N = 18.22265

18.22265
The quarter of 18.22265 is = = 4.5556 years
4
So therefore, it takes 4 and half years for P100,000 to earn a compound interest of P50,000 with
the rate of 2.25% per quarter.

3. A loan of 5000 is made for a period of 15 months at a simple interest rate of 15%. What
future amount is due at the end of the loan period?
a. 5,637. 50
b. 5,900.90
c. 5,937.50
d. 5,842.54

Given:
P = 5,000
T = 15 months
R = 15% = 0.15

Solution:

What future amount is due at the end of the loan period?

F = P (1 + rt)

F = 5,000[1 + 0.15 ( 1512 )]

F = 5,000(1 + 0.1875)
F = 5,000(1.1875)
F = 5,937.5

4. A businessman invested P1000 and after 4 years, it becomes P1608.44 when he invested
at a certain rate of interest compounded bi-monthly. Determine the nominal rate and the
corresponding effective rate.
a. 12% ; 12.62%
b. 12% ; 13.40%
c. 14% ; 14.6%
d. 15% ; 15.8%
 Given:
P = 1000
N=4
NR = ?
ER = ?

Solution:

n
F=P ( 1+i )

( )
4 x6 bi−monthly
0.12
F=P 1+
6 bi−monthly

( )
24
0.12
F = 1000 1+
6
F = 1000( 1+0.02 )24
F = 1000 ( 1. 608.437 )= 1608.437 after 4 years
NR = 0.12 or 12%

So, the nominal interest is 12%

( )
n
i
ER = 1+ - 1
n

ER = ( 1+
6 )
6
0.12
-1

ER = 0.1262 ≈ 12.62%

Therefore, the effective interest rate is 12.62%.

5. A manufacturing firm wishes to give each 80 employees a holiday bonus. How much is
needed to invest monthly for a year at 12% nominal interest rate, compounded monthly,
so that each employee will receive a P2000 bonus?
a. P12,608.70
b. P12,615.80
c. P12,600.90
d. P12,300.80

Given:
 N = 12
F = 80(2000) = 160,000
12%
I= = 0.01
12compound monthly

Solution:

F = A ¿]

Substitute:
F = A ¿]
160,000 A 12.6825030132
=
12.6825030132 12.6825030132

A = 12615.80612

Therefore, the manufacturing firm needed to invest P12,615.80612 to monthly for a year at 12%
nominal interest rate compounded monthly.

6. A service car whose cash price was P540000 was brought with a down payment of
P162000 and monthly instalments of P10874.29 for 5 years. What was the rate of interest
if compounded monthly?
a. 20
b. 26
c. 24
d. 22

Solution:
i
12

P 540,000=P 16200+1−[ii−60]
P 10,874.29
i
i
( )
12
By shift solve,
i=0.24 x 100
i=24 %
7. A machine has just been purchased for P1.2 million. It is anticipated that the machine
will be held 5 years, that it will have a salvage value of P80000 as based on current
prices, and that the annual rate inflation during the next 5 years will be 7%. The machine
will be replaced with a duplicate and the firm will accumulate the necessary capital by
making equal end-of-year deposits in a reserve fund that earns 6% per annum. Determine
the amount of actual deposit.
a. P278,654
b. P320,540
c. P290,450
d. P235,875

Solution:
Find cost = P1.2m (1 + .07)5 = P1,683,062.077
80000
F= ¿
¿¿
F=P 57,038.89
1,683,062.077−57,038.89
P=1.2 m+
¿¿
¿ P 6,007,510.994
A
P=
i
A
P 6,007,510.994 =
.06
A=P360,450.66

8. In how many years is required for P2000 to increase by P3000 if interest at 12%
compounded semi-annually?
a. 8
b. 9
c. 10
d. 7

Given:
0.12
i= = 0.06
2
F = 2000 + 3000 = 5000
P = 2000
N = 2n Semi-annually

Solution:
 F=P ( 1+i )2 n

Substitute:

2n
5000=2000 ( 1+0.06 )
5000=2000 ( 1 .06 )2 n
2n
5000
=¿ 2000 ( 1 .06 )
2000 2000
2n
2.5 = ( 1 .06 )

log 2.5 ¿ log ( 1.06 )2 n

log 2.5 ¿ 2 n log 1.06

N = 7.8626 ≈ 8

Therefore, it will take 8 years for P2000 to increase by 3000.

9. An employee obtained a loan of P100000 at the rate of 6% compounded annually in order

to build a house. How much must he pay monthly to amortize the loan within a period of
10 years?
a. P8,322.07 monthly
b. P1,101.80 monthly
c. P2,494.04 monthly
d. P3,452.90 monthly

Given:
P = P100,000
R = 6% or 0.06
N = 10 years

Solution:
F = P ( 1+ i )n
Substitution:
F = P 100,000 ( 1+0.06 )10 x1
F = P 100,000 ( 1 .06 )10 x 1
F = P 100,000 ( 1.790847 )
 F = P179,084.769

Therefore, the employee needs P179,084.77 to fully paid the loan with 10 years of period

Thus, for monthly payment:

Conversion:
10 years to months: 10 x 12 = 120 months

P 179,084.769
= 1491.66 pesos per month
120

10. A businessman borrowed P300,000 and agrees to discharge his obligation by paying a
series of 8 equal payments of P57,434.78 the first being due at the end of 5 years.
Find the rate of interest he is paying if it is compounded semi-annually.

a. 6%
b. 8%
c. 10%
d. 12%