Review Innovations CE Review for November 2023 – ECON 1

Simple Interest Gradient Series

1. If a man borrowed money from his girlfriend with simple 21. A certain machine purchased today shall be paid in 3 annual
interest rate of 12%, determine the present worth of P74, 900.00, unequal payments with no down payment. If the company
which due at the end of seven months. agrees that the first payment is P120,000 at the end of the first
year and you have to increase that payment by P30,000 per year
2. Clara has invested P 10,000.00, part at 5% and the remainder at for the next remaining years until the end of the 3rd year, how
10% simple interest. How much is invested at higher rate if the much is the present worth of the machine if the company charges
total annual interest from this investment is P 950.00? 12% annual interest?
3. Determine the accumulated amount using exact simple interest 22. Annual deposits were made in the fund earning10% per
on P 10,000.00 for the period from January 20, 1990 to November annum. The first deposit was 2,000 and each deposit thereafter
28 of the same year at 15% interest rate. was 200 less than the preceding one. Determine the amount in
4. You owe P120,000 from a friend and promise to pay 6% simple the fund after sixth deposit.
interest. How much will you pay at the end of 9 months? How 23. Annual maintenance costs for a machine are P1,500 this year
about at the end of 1 year and 6 moths? and estimated to increase 10% each year every year. What is the
5. A price tag of P150,000 is payable in 60 days. A 3% discount is present worth of the maintenance costs for 4 years if i = 8%?
offered if paid in 30 days. What is the rate of simple interest? __________________________________________________________
6. A man borrowed from a bank under a promissory note that he
signed in the amount of P60,000 for a period of one year. He
received only P50,150 after the bank collected the advanced Interest – amount of money earned by a given capital.
interest and an additional amount of P850 for notarial and
inspection fees. What was the rate of simple interest that the bank Simple Interest – interest directly proportional to the
collected in advance? length of time and the amount of principal borrowed.
Ordinary Simple Interest – computed on the basis of one
Compound Interest banker’s year.
7. If the sum of P 12,000 is deposited in an account earning interest 1 banker’s year = 12 months ( 30 days each)
rate of 9% compounded quarterly, what will it become after 1
year?
= 360 days

8. In the previous problem, what is the effective rate? Exact Simple Interest – computed based on exact no. of
days.
9. What is then the equivalent nominal interest rate if compounded
monthly? 1 year = 365 days ( ordinary year)
1 year = 366 days ( leap year)
10. How many years are required for P 1,000 to increase to P 2,000
if invested at 9% per year compounded continuously? Compound Interest – interest is computed every end of
11. What payment X ten years from now is equivalent to a payment each interest period and the interest earned for that
of P 1,000 six years from now, if interest is 15% compounded period is added to the principal.
monthly?
Nominal Rate of Interest – specifies the rate of interest
12. An investment of P3M earns interest of 9% compounded and the number of interest periods per year.
continuously. What is the effective rate of interest?
13. What rate in percent compounded monthly is equivalent to 18% Effective Rate of Interest – the actual rate of interest on
compounded semi-annually? the principal for one year.
Annuity – consists of a series of equal payments made at
14. When compounded bi-monthly, P150,000 becomes P223,183 equal intervals of time.
after 5 years. What is the nominal rate of interest?
Ordinary Annuity – equal payments are made at the end
Annuity of each payment period starting from the first period.
15. If P500.00 is invested at the end of each year for 6 years at an Deferred Annuity – payment of the first amount is
annual interest rate of 7%, what is the total peso amount upon deferred a certain number of periods after the first.
the deposit of the sixth payment?
Annuity Due – payments are made at the start of each
16. If P500.00 is deposited in an account at the beginning of each
year for 6 years at an annual interest rate of 7%, how much can period, beginning from the first period.
be withdrawn after 6 years?
Perpetuity – periodic payments continue indefinitely.
17. A fund is to provide an annual scholarship at P4,000 for the first
5 years; P6,000 for the next 5 years and P9,000 thereafter. The Uniform Arithmetic Gradient – a sequence consisting of
fund will be established 1 year before the first scholarship is end-of-period payments, where each payment
awarded. If the fund earns 12% interest, what sum must be increases or decreases by a constant value.
deposited?
Geometric Gradient – a sequence consisting of end-of-
18. A man paid 10% as down payment of P200,000 for a house and
lot and agreed to pay the balance on monthly installments for 5 period payments, where each payment increases or
years at an interest rate of 15%, compounded monthly. What was decreases by a fixed percentage.
the monthly installment in pesos?
Capitalized Cost – sum of the first cost and the present
19. Money is worth 8% compounded annually. For a uniform series worth of all future payments and replacements which
of payments, what would be its capital recovery factor for a
period of 6 years? is assumed to continue forever.
20. An investor deposits P10,000 at the end of each year in an
account which gives a nominal annual interest of 5%,
compounded continuously. How much sum will he accumulate
in 10 years?

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 Review Innovations CE Review for November 2023 – ECON 1
Formulas:
Geometric Gradient:
Simple Interest:
𝐀 𝟏 − 𝐰𝐧 𝟏+𝐠
𝐅 = 𝐏(𝟏 + 𝐢𝐧) 𝐏= ൤ ൨; 𝐰=
𝟏+𝐢 𝟏−𝐰 𝟏+𝐢
where:
F = accumulated amount or future worth 𝐀
𝐏= 𝒏 → 𝑖𝑓 𝑖 = 𝑔
P = principal amount or present worth 𝟏+𝐢
i = simple interest rate (per year) where:
n = number of interest period (in years) P = principal amount or present worth
A = amount at the end of 1st period
Compound Interest: i = interest rate per payment
g = percentage increase/decrease in payment
𝐅 = 𝐏(𝟏 + 𝐢)𝐧 n = number of interest period
𝐏 = 𝐅(𝟏 + 𝐢)−𝐧
𝐅 = 𝐏𝐞𝐫𝐭 →for continuous compounding
where:
F = accumulated amount or future worth
P = principal amount or present worth
𝑟
i =
𝑚
= interest rate per interest period
n = mt
= total number of interest period for n-years
r = nominal interest rate
m = number of interest period per year
t = number of years of investment

Effective Rate, ER:

𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐞𝐚𝐫𝐧𝐞𝐝 𝐢𝐧 𝐨𝐧𝐞 𝐲𝐞𝐚𝐫
𝐄𝐑 =
𝐩𝐫𝐢𝐧𝐜𝐢𝐩𝐚𝐥 𝐚𝐭 𝐭𝐡𝐞 𝐛𝐞𝐠𝐢𝐧𝐧𝐢𝐧𝐠 𝐨𝐟 𝐭𝐡𝐞 𝐲𝐞𝐚𝐫
𝐫 𝒎
𝐄𝐑 = ቀ𝟏 + ቁ − 𝟏 Factors:
𝐦
𝐫
𝐄𝐑 = 𝐞 − 𝟏 →for continuous compounding
Single-payment-compound- Single-payment-present-
amount factor: worth factor:
Annuity:

𝐅 = 𝐀ቈ
(𝟏 + 𝐢)𝐧 ′ − 𝟏
቉
(F P , i, n) = (1 + i) n
(P F , i, n) = (1 + i) −n

𝒊
(𝟏 + 𝐢)𝐧 ′ − 𝟏 Equal-payment-series- Equal-payment-sinking-fund
𝐏=𝐀 ቈ ቉ compound-amount factor: factor:
𝒊(𝟏 + 𝒊)𝒏
 (1 + i )n ' − 1
−1
𝐀  (1 + i )n ' − 1
𝐏=
𝐢
→ 𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦 (F A, i, n) =   ( A F , i, n ) =  
where:  i   i 
F = accumulated amount or future worth
P = principal amount or present worth Equal-payment-series- Equal-payment-series-
A = periodic amount, payment or investment present-worth factor: capital-recovery factor:
i = interest rate per payment
 (1 + i )n ' − 1
−1
n’ = number of payments
 (1 + i )n ' − 1
n = number of interest period (P A, i, n) =  n  ( A P, i, n ) =  n 
 i(1 + i )   i (1 + i ) 
Uniform Arithmetic Gradient:
(𝟏 + 𝐢)𝐧 ′ − 𝟏 ′
𝑮 (𝟏 + 𝐢)𝐧 − 𝟏
𝐅 = 𝐀ቈ ቉+ ቈ − 𝒏′቉
𝒊 𝒊 𝒊
where:
F = accumulated amount or future worth
G = constant change in the periodic amount
A = amount at the end of 1st period
i = interest rate per payment
n’ = number of payments

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