JAVIER, KENNETH P.

- GC22
Department of Civil Engineering
Ateneo de Naga University

PROBLEM SET 5 - TIME VALUE OF MONEY - ANNUITY

8. Jones Corporation borrowed P9, 000 from Brown Corporation on Jan 1. 1,978 and P12,000
on Jan. 1, 1980. Jones Corporation made a partial payment of P7, 000on Jan. 1, 1981. It was
agreed that the balance of the loan would be amortized by two payments, one of Jan. 1, 1982
and the other on Jan 1. 1983, the second being 50% larger than the first. If the interest rate is
12%, what is the amount of each payment?

Given:

P1= ₱ 9,000.00
P2= ₱ 12,000.00 F
P3= ₱ 7,000.00
i= 12% F

Solution:
F= P1 (1+i)n P P
F1= 9,000(1+0.12)5 J J J
F1= 15,861.08 Php A A A
N N N

F= P2 (1+i)n
F2= 12,000(1+0.12)3
F2= 16,859.14 Php

F= P3(1+i)n P X 1.5
F3=7,000(1+0.12)2 J J J
F3= 8,780.80 Php A A A F
N N N

1.5x+ F3+ F4= F1+ F2 F

1.5x+8,780.80+1.12x= 15,861.08+16,859.14
2.62x=23,939.42
x= 9,137.18 Php

Substitute x:
1.5x= 13,705.77 Php
JAVIER, KENNETH P. - GC22
Department of Civil Engineering
Ateneo de Naga University

9. A woman borrowed P3,000 to be paid after 1 ½ years with interest at 12% compounded
semiannually and P5,000 to be paid after 3 years at 12% compounded monthly. What single
payment must she pay after 3 ½ years at an interest rate of 16% compounded quarterly to settle
the two obligations?

Given:
P1 = 3,000
Php Y1 = 1 ½
years R1 =
12% M1= 2

P2 = 5,000
Php Y2 = 3
years R2 =
12% M2= 12

Required:
3= ? if,
3=312
3=16%
3=4

Solution:
F1=P1(1+ 1)n1
F1=3,000(1+0.12/2)2(1.5)
F1=3,573.048

F2=P2(1+ 2)^n2
F2=5,000(1+0.12/12)12(3)
F2=7,153.844

F3=F1(1+ 3)n3-n1+F2(1+ 3)n3-n2

F3=3,573.048(1+0.16/4) 4(3.5-1.5)
+7,153.844(1+0.16/4) 4(3.5-3)
F3=4,889.963+7,737.598

F3=12,627.561 Php
JAVIER, KENNETH P. - GC22
Department of Civil Engineering
Ateneo de Naga University

10. Mr. J. de la Cruz borrowed money from a bank. He received from the bank P1, 342 and
promise to repay P1, 500 at the end of 9 months. Determine the simple interest rate and the
corresponding discount rate or often referred to as the “Banker’s discount.”

Given:
Future Worth = 1,500 = Principal

Present Worth = 1,342

Solution:
Discount = Future Worth – Present Work
Discount = 1,500 − 1,342

Discount = 158
d = rate of discount = discount / principal
d = 158/1500
d = 0.1053 or 10.53%

i = simple interest rate = d / 1−d

i = 0.1053/1−0.1053
i = 0.11769 or 11.77%
JAVIER, KENNETH P. - GC22
Department of Civil Engineering
Ateneo de Naga University

11. A man deposits ₱50,000 in a bank account at 6% compounded monthly for 5 years. If
the inflation rate of 6.5% per year continues for this period, will this effectively protect the
purchasing power of the original principal?
Given:
P = ₱50,000
r = 6% compounded monthly
n = 5 years
f = 6.5% inflation rate
m = 12

Solution:
i = (1+ r /m)m−1
i = (1+0.06/12)12−1
i = 6.17 %
F = P [(1+ i) / (1+ f)]n
F = 50,000 [(1+0.06168) / (1+0.065)]5
F = 49,225.501 Php
JAVIER, KENNETH P. - GC22
Department of Civil Engineering
Ateneo de Naga University

13. A young woman, 22 years old, has just graduated from college. She accepts a good job and
desires to establish her own retirement fund. At the end of each year thereafter she plans to
deposit ₱2,000 in a fund at 15% annual interest. How old will she be when the fun has an
accumulated value of ₱1,000,000?

Given:
A = 2,000 Php
t = 15%
m=1
Solution:
F = P (1+i)my
1,000,000 = 2,000 (1+1.15n+1.15n-1...)
1,000,000 = 2,000(1.15 −1) / 1.15−1
1.15n−1 = 1,000,000(0.15) / 2000
1.15n−1 = 75
1.15n = 76
n = log76 / log1.15
n = 31
= 31+22
= 53 years old

1 2 3 4 8 9 10 n-3 n-2 n-1 n

A A A A A A A A A A A
JAVIER, KENNETH P. - GC22
Department of Civil Engineering
Ateneo de Naga University

14. Mr. Reyes borrows P600, 000 at 12% compounded annually, agreeing to repay the loan in
15 equal annual payments. How much of the original principal is still unpaid after he has made
the 8th payment?

Given:
P = 600 000
r = 12% compounded annually
n = 15
n=7

Solution:
600000 = A [1 − (1 + i)n-1] i
600000 = A {[1 − (1 + 0.12)-15] / 0.12}
A= 88094.54

If; n = 7
P = A[1 − (1 + i )-n] i
P = 88094.54 [1 − (1 + 0.12)-7] 0.12
P = 402042 is still unpaid

P 600,000

1 2 3 4 5 6 .... 13 14 15

A A A A A A A A A
JAVIER, KENNETH P. - GC22
Department of Civil Engineering
Ateneo de Naga University

15. M purchased a small lot in a subdivision, paying P200, 000 down and promising to pay P15,
000 every 3 months for the next 10 years. The seller figured interest at 12% compounded
quarterly.

Given:
Down payment = P200, 000
A = P15, 000
n = (4) (10) = 40 compounded quarterly
i = 12%

a. What was the cash price of the lot?

i = 0.12/4 = 3%; n = 40
P = 200000 + A {[1−(1+ i) -n] / i}
P = 200000+15000{1−(1+0.03)-40]/0.03}

P = 546,722 Php -price of the plot

b. If M missed the first 12 payments, what must he pay at the time the 13th is due to bring
him up to date?
i = 0.12/4 = 3%; n = 13
P = A {[1−(1+ i ) -n -1]/ i }
P =15000{1−(1+0.03)-13-1] / 0.03}
F13 = 234270, 13th payment

c. After making 8 payments, M wished to discharge his remaining indebtedness by a single

payment at the time when the 9th regular payment was due, what must he pay in addition to
the regular payment then due?

n = 40-9; n=31
P= A {[1−(1+ i ) -n-1] / i }
P = 15000 {1−(1+0.03)-31-1]/0.03}
P = 300006 Php
JAVIER, KENNETH P. - GC22
Department of Civil Engineering
Ateneo de Naga University

d. If M missed the first 10 payments, what must he pay when the 11th payment is due
to discharge his entire indebtedness?

Starting from the 11th Payment, n = 29

P29 = A [1−(1+ i ) -n/i ]
P29 =15000[1−(1+0.03)-31 / 0.03]
P29 = 287826.82

Future Worth after 11th Payment, n = 11

F11 = A [1−(1+ i )− n/i ]
F11 = 15000 [(1+0.03)11−1/0.03]
F11 = 192116.94

Total Payments for Indebtedness

Total = P29 + F11

Total = 287826.82+ 192116.94

Total = 479948

1 2 3 .... 9 .... 13 ..... 39 40

A A A A A A

P200, 000
Given by:
DOWNPAYEMENT= P200, 000; A = P15,000; m = 4; y = 10; n = 40; i = 12%
JAVIER, KENNETH P. - GC22
Department of Civil Engineering
Ateneo de Naga University

16. A man approaches the ABC Loan Agency for P100, 000 to be paid in 24
monthly installments. The agency advertises an interest rate of 1.5% per
month. They proceed to calculate the amount of his monthly payment in the
following manner.

Amount Requested: 100, 000 Php

Credit Investigation: 500 Php

Interest: (P101, 500) (1.5%) (24) = P36, 540
Credit Risk Insurance: 1000 Php
Total Owned: P101, 500 + P36, 540 = P138, 400

Total: 101, 500 Php

Payment = 138,040/24 = 5,751.67 Php

What is the effective rate of interest of the loan?

Solution:
P10000 / P5751.61 = 17.386
17.3863 = [1 − (1 + i )-24] / i
i = 0.0276

Effective rate = [(1+0.276)12−1] ×100

Effective rate = 38.64%

P 100,000

.......

1 2 3 4 5 6 24 25
JAVIER, KENNETH P. - GC22
Department of Civil Engineering
Ateneo de Naga University

19. A man wishes to provide a fund for his retirement such that from his 60th to 70th
birthdays he will be able to withdraw equal sums of P18, 000 for his yearly expenses. He invests
equal amount for his 41st to 59th birthdays in a fund earning 10% compounded annually. How
much should each of these amounts be?

Given:
A = 18 000 Php
i = 10%
n = 19
n = 11

SOLUTION:
A1 [ 1 – (1+i) –n1 / i ] = A2 [ 1 – (1+i) –n2 / i ] (1+i)–n1
A1 [ 1 – (1+0.10) –19 / 0.10 ] = 18,000[ 1 – (1+0.10) –11 / 0.10 ] (1+0.10)–19
A1 = 2, 285.00

60 61 62 .... 69 70

41 42 43 ... 58 59