Engineering Economy
PROBLEM SET 2
Answer the following problems. Write your complete solutions in a notebook. Box your final answers. How to
submit your work? We will discuss that later…
Annuity (Continued)
Situation 2: A father deposited to a trust company a sufficient amount of money on the day his son was
born so that the boy could receive five annual payments of P10,000 each for his college
tuition fees starting with his 18th birthday. The interest rate is 12%
31. How much did the father deposit?
32. What if the son prefers not to withdraw the annual payments and decided to withdraw a
single lump sum amount on his 25th birthday, how much will the boy receive?
Perpetuity
33. Find the present worth of a perpetuity of P10,000 payable quarterly if money is worth 10%
compounded monthly.
34. It costs P50,000 at the end of each year to maintain a section of Kennon road in Baguio City.
If money is worth 10%, how much would it pay to spend immediately to reduce the annual
cost to P10,000?
Situation 3: Find the present value of perpetuity of P1,000 payable every month
35. If money is worth 10% compounded monthly.
36. If money is worth 10% compounded quarterly.
37. If money is worth 10% compounded monthly and the first payment starts at the end of the
6th month.
Gradient
38. A man borrowed P120,000 and promised to pay annually for 5 years. The payment starts at
“X” pesos. The man intends to increase his payments by P5,000 at the end of each
successive year. If the interest rate is 8% compounded annually, how much will the first
payment be?
39. Suppose a man receives an initial annual salary of P60,000, increasing at the rate of P5,000a
year. If money is worth 10%, determine his equivalent uniform salary for a period of 8 years.
40. Deposits are made to an account as indicated in the table below which bears interest at the
rate of 10% compounded annually. How much will there be in the account at the end of the
sixth year?
End of Year Deposit
1 P0
2 P500
3 P1,000
4 P1,500
5 P2,000
Situation 4: A vacant lot has been leased at P20,000 per year with an annual increase of P1,500 for 8
years. Payments are to be made at the end of each year. Interest rate is 7% compounded
annually.
41. What amount should be paid today that would be equivalent to the 8-year lease payment
plan?
42. What is the sum of payments after 8 years?
43. Compute the equivalent rate if it is compounded continuously.
44. A man borrowed P120,000 and promised to pay annually for 5 years. The payment starts at
“X” pesos and succeeding payments double yearly. If the interest rate is 8% compounded
annually, how much will the first payment be?
45. A man borrowed P120,000 and promised to pay annually for 5 years. The payment starts at
“X” pesos. The man intends to increase his payments by 10% at the end of each successive
year. If the interest rate is 8% compounded annually, how much will the first payment be?
Compound Amount Factors
46. Find the future worth factor of a single payment for 18 years at 6% compounded annually.
47. Find the present worth factor of a single payment for 18 years at 6% compounded annually.
48. Find the future worth factor of an annual payment for 18 years at 6% compounded annually.
49. Find the sinking fund factor of an annual payment for 18 years at 6% compounded annually.
50. Find the present worth factor of an annual payment for 18 years at 6% compounded
annually.
51. Find the capital recovery factor of an annual payment for 18 years at 6% compounded
annually.
52. Find the present worth factor of a uniform arithmetic gradient for 18 years at 6%
compounded annually.
53. Find the future worth factor of a uniform arithmetic gradient for 18 years at 6%
compounded annually.
54. Find the uniform gradient series factor of a uniform arithmetic gradient for 18 years at 6%
compounded annually.
Situation 5: A man plans to retire at the end of 25 years by depositing an amount of P5,000 at the end of
each year for certain interest in a bank.
55. Compute the nominal interest of his transaction if the compound amount factor for a period
of 25 years is 54.8645.
56. How much will he receive by the time he retires?
57. Compute the value of the sinking fund factor for this deposit.
