Question

1. What is the interest earned from a savings of P10,000 at a simple interest rate of 107 per year for 5 years? (5 points) 2. How long does a man need to invest P5,000 to be P9,000 at an interest rate of 10 compounded annually? (5 points) 3. What is the rate of interest, compounded monthly charged to an investment of P2 000 that pays P1, 205 per month for 2 years. (5 points) 4. How much annual deposit is required for 10 vears in order to earn P15,000 at a rate o 12% per year compounded quarterly? (10 points) 5. How much do you need to invest in equal annual amounts for the next ten years if you want to withdrawP5,000 at the end of the eleventh year, and increase the amount of withdrawal by P1,000 per year thereafter until 25 years? The interest rate is 6% compounded annually. (10 points) 6. For the repayment schedule that starts at the end of year 3 at $Z and proceeds for years 4 through 10 as $22, $32..., what is the value of Z, if the principal of this loan is $10,000 and the interest rate is 10% compounded annually? (10 points)

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Answer 1

1.

R = 10% simple interest rate

Time = 5 years

Savings = P 10000

So,

interest earning = 10000*10%*5

interest earning = P 5000

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2.

Let, time = n years

9000 = 5000*(1+10%)^n

1.8 = 1.1^n

n = log 1.8/1.1

n = 6.17 years or 6 years

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3.

Let, monthly rate = R

Time = 24 months

Then,

24000 = 1205*(1-1/(1+R)^24)/R

At R = 1.5%

PW of cash inflows = $24136.64

At R = 1.75%

PW of cash inflows = $23450.13

As per the method of interpolation,

R = 1.5% + ((24136.64-24000)/(24136.64-23450.13))*(1.75%-1.5%)

R = 1.55%

So,

Annual rate of interest (compounding monthly) = 12*1.55%

Annual rate of interest (compounding monthly) = 18.6%

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