Simple Interest:

I, P, r, t
1. Anne put 1000 into an investment yielding 6% annual interest;
she left the money in for two years. How much interest does she
get at the end of those two years?
Given:
P = 1,000.00
r = 6% or 0.06
t = 2 years
I=?
Solution:
I = Prt
I = (1000)(0.06)(2)

Answer:
I = 120.00

2.

Benjo paid 380 for the amount he borrowed from his friend 7

months ago at 4%. How much did he borrow?

Given:
I = 380.00
r = 4% or 0.04
t = 7 months or 7/12
P=?
Solution:
P = I/rt

P = 380/(0.04)(7/12)
P = 380/0.0233333

Answer:
P = 16,285.737 or 16,285.74

3.

Accumulate 20000 for 5 years at 5% simple interest.

Given:
P = 20,000.00
r = 5% or 0.05
t = 5 years
F=?
Solution:
F = P(1+rt)
F = 20000[1+(0.05)(5)]
F = 20000(1.25)

Answer:
F = 25,000.00

4.

A rural bank charged Cindy 3500 interest on a loan amounting to

15000 for 3 years. What was the simple interest rate?

Given:
I = 3,500.00
P = 15,000.00
t = 3 years
r=?
Solution:
r = I/Pt
r = 3500/(15000)(3)

r = 3500/45000

Answer:
r = 0.0777777 or 7.77777%

5.

Donald lends 8700 at 4% and earned 570 interest. How many

years will it take him to get back the interest and principal?
Given:
I = 570.00
P = 8700.00
r = 4% or 0.045
t=?
Solution:
t = I/Pr
t = 570/(8700)(0.045)
t = 570/391.5

Answer:
t = 1.4559386 or 1 year, 5 months and 14 days

Simple Discount:
Id, F, d, t, Proceeds, Equivalent
rate, Interest Bearing note, Noninterest Bearing note
6.

Ellanie borrowed 20000 from Faith Inc. in her town. She was

charged 10% simple discount for 10 months. How much is the interest
earned by the company?

Given:
F = 20,000.00
d = 10% or 0.1
t = 10 months or 10/12
Id = ?
Solution:
Id = Fdt
Id = (20000)(0.1)(10/12)

Answer:
Id = 1,666.6666 or 1,666.67
7.

Georgina borrowed 25000 from House-love Inc. in her town. She

was charged 18% simple discount for 9 months. How much did Georgina
received from her loan?
Given:
F = 25,000.00
d = 18% or o.18
t = 9 months or 9/12
Pd = ?
Solution:
Pd = F(1-dt)
Pd = 25000[1-(0.18)(9/12)]
Pd = 25000(0.865)

Answer:
Pd = 21,625.00

8.
a.

b.

What simple interest rate is equivalent to simple discount rate of

15% in discounting an amount for 11 months?

Given:
d = 15% or 0.15
t = 11 months or 11/12
Equivalent Interest Rate (r) = ?
Solution:
r = d/[1-dt]
r = 0.15/[1-(0.15)(11/12)]
r = 0.15/0.8625

Answer:
r = 0.1739 13 or 17.3913% or 17.39%

c. What discount rate should a loaner charge to earn an

interest of 20% on a 1-year loan?
Given:
r = 20% or 0.2
t = 1 year
Equivalent Discount Rate (d) = ?
Solution:
d = r/[1+rt]
d = 0.2/[1+(0.2)(1)]
d = 0.2/1.2

Answer:
d = 0.1666666 or 16.66666% or 16.67%

9.

On March 18, 2011, a company sells 150000 certificate of deposit,

which is to bear interest at 7% and mature of December 05, 2011.
If the buyer holds the certificate of deposit to maturity, what
amount the company would pay?
Given:
S=?
P = 150,000.00
r = 7% or 0.07
t = 270 days
December 05 339
March 10 - -69
270 days
Solution:
S = P(1+rt)
S = 150000[1+(0.07)(270/360)]
S = 150000(1.0525)
Answer:
S = 157,875.00
On November 05, 2011, the owner of the certificate of deposit sold it to a
buyer who wanted to return a 3% on a simple discount basis. Find the
selling price.
Given:
P=?
S = 157,875.00
d = 3% or 0.03
t = 30 days
December 05 339
November 05 - -309
30 days

Solution:
P = S(1-dt)
P = 157875 [1-(0.03)(30/360)]
P = 157875 (0.9975)

Answer:
S = 157,480.31

10.

A bank holds the following non-interest bearing noted. They are

discounted at 2% on July 15, 2011. Find the total proceeds.

Date of Notes
Term
Final Value (S)
May 16, 2011
100 days
5000
June 10, 2011
2 months
4000

Given:
P=?
S = 5,000.00
d = 2% or 0.02
t = 100 days
Discounted days = 60 days
Date of the note, May 16, 2011 136
Term of the note +100
Maturity date, Sept. 13 236
Discount date, July 15 -196
Discount days 40 days

Solution:
P = S(1-dt)
P = 5000[1-(0.02)(40/360)]
P = 5000(0.9977778)
Answer:
P = 4,988.889 or 4988.39
Given:
P=?
S = 4,000.00
d = 2% or 0.02
t = 2 months or 60 days
Discounted days = 10 days
Date of the note, June 10, 2011 161
Term of the note +60
Maturity date, Sept. 13 221
Discount date, July 15 -196
Discount days 25 days
Solution:
P = S(1-dt)
P = 4000[1-(0.02)(25/360)]
P = 4000(0.9986112)
Answer:
P = 3,994.4448 or 3,994.44
Total Proceed = P1+P2
Total Proceed = 4,988.889 +3 ,994.4448

Total Proceed = 8983.329.00 or 8983.33.00

Compound Amount Cases

11.

Mr. Innocencios will and testament dictates that his 200000 estate

will be put in a trust for 10 years. What is the amount of his estate at the
end of time of money is invested at 15% compounded annually?
Given:
P = 200,000.00
t = 10 years

m=1
j = 15% or 0.15
i = j/m = 0.15/1 = 0.15
n = mt = (1)(10) = 10
S=?
Solution:
S = P(1+i)
S = 200000(1.15)
S = 200000(4.04555773570791)
n

10

Answer:
S = 809111.547141582 or 809,111.55

12.

Jenna made a time deposit of 250000 in a bank at 10% effective

for 1 year, and then changed it to 9% converted monthly for the last 3
years. Find the final amount.
Given:
P = 250,000.00
t1 = 1 year
t2 = 3 years
m1 = 1
m2 = 12
j1 = 10% or 0.1
j2 = 9% or 0.09
i1 = j1/m1 = 0.1/1 = 0.1
i2 = j2/m2 = 0.09/12 = 0.0075
n1 = m1t1 = (1)(1) = 1
n2 = m2t2 = (12)(3) = 36
S=?
Solution:
1 S = P (1+i)i
S = 250000(1.1)
S = 250000(1.1)
S = 275,000.00
st

nd

S = P (1+i)i

S = 275000(1.0075)
S = 275000(1.30864537091653)
36

Answer:
S = 359,877.47700204575 or 359,877.48

Present Value at Compound

Interest
13.

Keeno wishes to have 30000 available for his young sisters college

education. His sibling will enter college in 6 years. What amount should
Keeno place in the bank now if the bank pays 12% compounded semiannually?
Given:
S = 30,000.00
t = 6 years
m=2
j = 12% or 0.12
i = j/m = 0.12/2 = 0.06
n = mt = (2)(6) = 12
P=?
Solution:
P = S(1+i)
P = 30000(1.06)
P = 30000(0.4969693635770008686)
-n

-12

Answer:
P = 14909.080907310026058 or 14909.08

Equivalent Rate
14.

What rate compounded quarterly is equivalent to 10% compounded

monthly?
Given:
Investing 1 at 10%, m = 12 in one year will yield an
accumulation of
S1 = (1+0.1/12) .
Investing 1 at j%, m = 4 in one year will yield an
accumulation of
S2 = (1+j/4) .
j=?
12

Solution:
S1 = S2
(1+0.1/12) = (1+j/4)
(1.008333333) = (1+j/4)
[(1.008333333) ] = 1+j/4
(1.008333333) = 1+j/4
1.025208911 = 1+j/4
1 - 1.025208911 = j/4
0. 025208911 = j/4
4(0. 025208911) = j
12

12

12

1/4

Answer
j = 0.100835644 or 10.0835644% or 10.08%

Effective Rate
15.

Find the effective rate equivalent to 8% compounded a.) semi-

annually, and b.) quarterly.

a.

Given:
j = 8% or 0.08
m=2

r=?
b. j = 8% or 0.08
m=4
r=?

a.

Solutions:
r = (1+j/m) 1
r = (1+ 0.08/2) 1
r = (1.04) 1
m

r = (1+j/m) 1
r = (1+ 0.08/4) 1
r = (1.02) 1
b.

Answers:
a. r = 0.0816 or 8.16%
b. r = 0.08243216 or 8.243216% or 8.24%

Continuous Compounding:
Amount, Present Value
16.
16.

a.

Accumulate 3500 for 2 years at 10% compounded continuously.

Given:
P = 3,500.00
t = 2 years
j = 10% or 0.1
S=?
Solution:
S = pejt
S = 3500e0.1(2)
S = 3500e0.2
S = 3500(1.221402758)

Answer:
S = 4,274.909654 or 4274.91

b. Find the present value of 3500 due in 2 years at 10%

compounded continuously.
Given:
S = 3,500.00
t = 2 years
j = 10% or 0.1
P=?
Solution:
P = se-jt
P = 3500e-0.1(2)
P = 3500e-0.02
P = 3500(0.980198673)

Answer:
P = 3,430.695357 or 3,430.70

Interpolation
18.

How long will it take 1800 to become 2000 at 9% converted

semi-annually?
Given:
S = 2,000.00
P = 1,800.00
i = j/m = 0.09/2 = 0.045
n=?

Solution:
S = P(1+i)
2000 = 1800(1.045)
(1.045) = 2000/1800 = 1.111111111
n

n(Periods (1.045)
)
3
1.1411661
0.04914113
3
1 period or 30 days d
?
1.1111111 0.0190861
1
1
2
1.0920250
0
n

d/1 = 0.01908611/0.04914113
d = 0.3883937956
n = 2 + 0.3883937956
n= 2.3883937956
t = 2.3883937956/2

Answer:
t = 1.194196898 years or 1 year, 2 months and 9
days

19.

How long will it take 10100 to become 11275 at 7% converted

monthly?
Given:
S = 11,275.00
P = 10,100.00
i = j/m = 0.07/12 = 0.005833333
n=?
t=?
Solution:
S = P(1+i)
11275 = 10100(1. 005833333)
(1. 005833333) = 11275/10100 = 1.116336634
n

n(Periods
)

(1.045)

19
1 period or 30 days d

?
18

1.1168489
0.00647717
9
1.1163366 0.0059648
3
1
1.1103718
2

d/1 = 0.00596481/0.00647717
d = 0.9208975525
n = 18+ 0. 9208975525
n= 18.9208975525
t = 18.9208975525/12

Answer:
t = 1.576741463 years or 1 year, 6 months and 27
days

Logarithm
20.

When will 6150 earn interest of 2520 if it is invested at the rate

of 10% compounded semi-annually?

Given:
S = 6,150.00 + 2,520.00 = 8,670.00
P = 6,150.00
i = 10% or 0.1
m=2
n=?
t=?
Solution:
S = P(1+i)
8670 = 6150(1.1)
(1.05) = 8670/6150
nlog1.05 = log8670 log6150
n = (log8670 log6150)/log1.05
n = (3.938019097 3.788875116)/0.021189299
n = 7.03864631
n

t = 7.03864631/2

Answer:
t = 3.519323155 years or 3 years, 6 months, and 6
days

21.

When will 1000 earn interest of 300 if it is invested at the rate of

14% compounded semi-annually?

Given:
S = 1,000.00 + 300.00 = 1,300.00
P = 1,000.00
i = 14% or 0.14
m=2
n=?
t=?
Solution:
S = P(1+i)
1300 = 1000(1. 07)
(1.07) = 1300/1000
nlog1.07 = log1300 log1000
n = (log1300 log1000)/log1.07
n = (3.113943352 - 3)/0.029383777
n = 3.877763898
t = 3.877763898/2
n

Answer:
t = 1.938881949 years or 1 year, 11 months, and 7
days

Equation of Value
22.

If money is worth 7% converted semi-annually, find the single

payment now which could replace the following debt:

a.

900 due at the end of 3 years

b.

1100 due at the end of 5 years

Given:
j = 7% or 0.07
m=2
n = -6 and -10
Now = Comparison date or focal date
x=?
Solution:
Today
x
x
x
x

=
=
=
=

5 years

900(1+0.07/2) + 1100(1+0.07/2)
900(1.035) + 1100(1.035)
900(0.813500644)+ 1100(0.708918813)
732.1505796 + 779.8106943
-6

-6

-10

-10

Answer:
x = 1,511.961274 or 1,511.96

Amount of Different types of

Annuities
23.

What is the amount of an annuity of 400 payable every end of the

month for 7 years if money is worth 7% compounded monthly?

Given:
R = 400.00
n = 12 x 7 = 84
i = 0.07/12 = 0.005833333

Solution:
S = Rs
S = 400 s
S = 400(107.99898070)
n i

84

0.005833333

Answer:
S = 43,199.59228 or 43,199.59

24.

An investment of 280 is made at the beginning of each month for

5 years. If interest is 9% compounded monthly, how much will the

investment be at the end of 5 years?
Given:
R = 280.00
n = 5 x 12 = 60
i = 0.09/12 = 0.0075
Solution:
S = Rs
-R
S = 280s
280
S = 280s
280
S = 280(76.98981795) 280
S = 21,557.14903 280
n+1 i

60+1 0.0075
61 0.0075

Answer:
S = 21,277.14903 or 21,277.15

Present Value and different types

of Annuities
25.

What is the present value of an annuity of 400 payable every end

of the month for 7 years if money is worth 7% compounded monthly?

Given:
R = 400.00
n = 84
i = 0.07/12 = 0.005833333
Solution:
A = Ra
A = 400 a
A = 400(66.25728507)
n

84

0.005833333

Answer:
A = 26,502.91403 or 26,502.91

Amortization

26.

A loan of 10000 is to be charged by equal payments at the end of

each year for 6 years. If the interest is based on 5% compounded

annually, construct an amortization schedule. Find R, the annual payment
by using the ordinary annuity formula for R.

Given:
A = 10,000.00
n=6
j = 5% or 0.05
m=1
i = 0.05/1 = 0.05

Solution:
R = A[1 / (a )]
R = 10000[1 / (a
)]
R = 10000(0.19701747)
n

0.05

Answer:
R = 1,970.1747 or 1,970.17
Construct the amortization schedule:

AMORTIZATION SCHEDULE
Payment
Number

1
2
3
4
5
6
TOTALS

Outstanding
Interest at 5% Due
Principal at the
at the end of year
beginning of year

10,000.00
8,529.825
6,986.141
5,365.273
3663.362
1,876.355

500.00
426.491
349.307
268.264
183.168
93.818
1,821.048

R, Yearly
payment

1,970.175
1,970.175
1,970.175
1,970.175
1,970.175
1,970.175
11,821.050

Principal Repaid at
the end of year

1,470.175
1,543.684
1,620.868
1,701.911
1,787.007
1,876.357
10,000.000

Sinking Fund
27.

In order to provide 10000 for the repair and maintenance of his

car, Euclid decides to place equal deposits in a fund at the end of 2 years.

If money is invested at 8%, m = 2, a.) Find the periodic deposit, b.) Form
a table showing the growth of the sinking fund into 10000 at the end of
2 years.

Given:
S = 10,000.00
n=2x2=4
i = 0.08/2 = 0.04

Solution:
R = S[(1) / (a )] i
R = 10000[(1) / (a
)] 0/04
R = 10000(0.27549005 0.04)
n i

4 0.04

Answer:
R = 2354.9005 or 2354.90
Table showing Growth of Sinking Fund:
Payment
Interval

In Fund at the
Beginning of
Interval

Interest Earned a 4%
on Fund at the end of
Interval

Periodic
Payment, R

Amount in Fund at
the end of Interval

1
2
3
4

0.000
2,354.900
4,803.996
7,351.056

0.000
94.196
192.160
294.042

2,354.900
2,354.900
2,354.900
2,354.900

2,354.900
4,803.996
7,351.056
*10,000.00

*Sometimes the final amount is lesser or greater by a

centavos than the desired amount due to rounding errors.

Depreciation
28.

A machine costs 6000 and will have a salvage value of 500 when

retired at the end of 4 years. Prepare a depreciation schedule for the

machine a.) by the straight-line method; b.) by the sum of the years
digits method.

Given:
P = 6,000.00
L = 500.00
W = 5,500.00
t=4
n=4
a.

2.

Solution:
Straight line method
1. Wearing Value:
W=PL
W = 6000 500
Periodic or Annual Depreciation:
D = W/t
D = 5500/4

Answers:
W = 5,500.00
D = 1,375.00
b. Sum of the years digits method
1. S = [n(n+1)] / 2
S = [4(4+1)] / 2
2.

W=PL
W = 6000 500

3.

First Year Depreciation:

D=d
W = (4/10)(5500)
1

4.

First Year Depreciation:

d = 3/10 , d = 2/10 ,
d = 1/10
2

Answers:
S = 10
W = 5,500.00
D= d W = 2,200.00
1

Bonds

29.

A 1000, 6% bond with semi-annual coupons will be redeemed at

par at the end of 15 years. Find the purchase price of the bond a.) by the
general method to yield 4%, and b.) by the premium or discount method
to yield 8%.

a.

Given:
V = 1,000.00
i = 2% or 0.02
n = 30
K = 30.00
Solution:
P = V(1+i + K(a )
P = 1000(1+0.02) +30 a
P = 1000 (0.55207089) + (30) (22.39645555)
P = 552.07089 + 671.8936665
)-n

-30

30 0.02

Answer:
P = 1223.9645565 or 1223.96

Given:
b. H = 1,000.00
Hi = 40.00
Hr = 30.00
n = 30
i = 4% or 0.04
Solution:
6% < 8%
P = H (Hi Hr) a
P = 1000 (40-30) a
P = 1000 10(17.2920330)
n

30

0.04

Answer:
P = 827.07967 or 827.08

Capitalization
30.

It is estimated that maintenance of a certain section of PNR railroad

will require 2000 per kilometer at the end of each 4 years. If money is
worth 8%, find the capitalized cost of the maintenance per kilometer.

Given:
W = 2,000.00
K=4
i = 8% or 0.08
Solution:
Replacement cost per period:
R=W/s
R = 2000 / s
R = 2000/4.50611200
K i

0.08

Answer:
R = 443.84160890807863 or 443.84

Given:
R = 443.84160890807863
i = 8% or 0.08
Solution:

Capitalized cost per kilometer:

C = R/i
C = 443.84160890807863/0.08

Answer:
C = 5548.020111350982875 or 5548.02

Perpetuity
31.

To maintain an apartment, 5000 will be needed at the end of each

year and annually thereafter. What is the present value of all future
maintenance, at a rate of 6%, m=2?
Given:
R = 5,000.00
i = 3% or 0.03
K = 12 months/6 months = 2
Solution:
A=

Ri 1s K i

A=

50000.03s 2 0.03

A = 5000 / (0.03)(2.03000000)

Answer:
A = 82101.80623973727422 or 82101.81