PRACTICE PROBLEMS

1. An item presently costs P500. If inflation is at the rate of 5% per year, what will be the cost
of the item in 2 years?
a. P453.51 b. P531. 15 c. P515.25 d. P551.25

2. An economy is experiencing inflation at an annual rate of 5%. If this continues, what will
P500 be worth two years from now in terms of today’s pesos?
a. P453.51 b. P531. 15 c. P515.25 d. P551.25

3. What is the real worth of P1000, five years from now if invested at 10% pa, and inflation is
expected at 8% pa?
a. 116.5 b. 109.61 c. 110.35 d. 118.5

4. What is the real interest rate?

5. A company borrowed P100,000 today to be repaid after 3 years at a market interest rate of
11%.. What is the actual amount owed at the end of 3 years.
a. P136,763 b. P118,141 c. P136,410 d. P1180,400

6. What is the real interest earned by the lender if the general inflation rate is 5% per year
a. 16.5% b. 17.81% c. 17.55% d. 18.5%

7. What is the real peso equivalent in purchasing power to the actual-peso amount at the end
of the third year?
a. P136,763 b. P118,141 c. P136,410 d. P136,410

8. The unit price of the goods is P100. The company plans to increase its present selling price
by 10% . What will its actual unit selling price be if inflation projected for the year of 5% is
considered in the proposed price increase?.
a. P115.50 b. P111.00 c. P141.00 d. P100.40

9. A young engineer at the age of 25 contributes P 250 a month into the retirement fund and
the company matches this contribution. How much money will be in the fund when the
engineer reaches 65 years old. The fund earns 12% pa compounded monthly.
a. P 318,667 b. P400,500 c. P5,159,333 d. P 5,882,386

10. Your rich aunt is going to give you an end-of-year gift of P100,000 for each year of the
next ten years. If the general inflation is expected to average 6% per year during the next 10
years, what is the equivalent value of these gifts at the present time. The real interest is 4%
per year.
a. P 318,667 b. P400,500 c. P608,172 d. P 582,386

11. Choose the best retirement plan for the employee from among those presented below.
Assume cost of money is 10% pa compounded monthly.
a. P1.4M now b. P64,000/month for 2 years c. P1.65M after the 2nd year
d. P120,000/month for 1 year, 1st payment 13 months from now

12. Suppose your aunt specified that the annual gifts of P100,000 are to be increased by 6%
each year to keep pace with inflation of 6%. With market interest rate of 4% per year, what is
the current present worth of the gifts?
a. P 318,667 b. P400,500 c. P608,172 d. P811,090
13. It is desired to have a certain sum of money 12 years from now. When the present value is
0.5 times the compounded value, what is the discreet value of interest to attain this value?

a. 5.95% b. 11.90% c. 12.00% d. 12.90%

14. What will be the future worth after 18 months if a sum of P1,000 is invested at a simple
interest of 10% per year?
a. P 1,150 b. P 1,157.62 c. P 1,153.69 d. P1,510

15. Mr. Eden borrows from the bank P600,000 at 12% compounded annually, agreeing to pay
the loan in 15 equal payments. How much does Mr. Eden still owe to the bank after he has
made the 8th payment?
a. P452,040 b. P 402,042 c. P341,153.69 d. P211,510

16. What end of year expenditure for 10 years is equivalent to P100,000 at the end of the
second year, P200,000 at the end of the fifth year and P600,000 at the end of the eight year, if
the interest is 8% per year?
a. P 81,372 b. P156,471 c. P 83,372 d. P 154,671

17. What is the equivalent amount if a single expenditure is to be made 10 years from now?
(Refer to previous prob)
a. P1,178,799 b. P1,149,032 c. P 1,154,671 d. P1,781,098

18. What is the equivalent amount if a single expenditure is to be made now?(Refer to

19. If P200,000 is invested at 12% per annum compounded quarterly, the annual interest for
the investment is nearest to:
a. P24,504 b. P 26,223 c. P25,450 d. P25,102

20. What is the present worth of P600 deposited at the end of every month for 4 years if the
interest rate is 12% per annum compounded monthly?
a. P36,734 b. P22,784 c. P 23,868 d. P28,800

21. The effective interest is 12.75% for a nominal interest of 12.%. The compounding method
used is:
a. quarterly b. monthly c. semi-annually d. continuous

22. What will P2000 invested at 10% per annum be worth 5 years from now if inflation is
expected at 8%?
a. P2,192 b. P1,825 c. P2,939 d. P3,221

23. What is the accumulated amount at the end of the 10th year of a 10-year annual annuity
payment of P10,000 with interest of 12% per annum compounded monthly?
a. P252,188 b. P251,088 c. P148,180 d. P181,361

24. What is the present worth of a 10-year annuity paying P10,000 at the end of each year
with interest of 12% per annum compounded quarterly?
a. 52,188 b. 51,088 c. 48,180 d. P55,252
 BONDS PROBLEMS

1. A city will issue 9% bonds, redeemable at par in 20 years, with interest payable annually.
The proceeds from the bond issue will be used to finance part of the public works
program of the city. To pay for both the deposit to the sinking fund and the annual
interest, it is estimated that P1M can be raised yearly through taxation. If the fund earns
8% compounded quarterly, what is the maximum amount of bonds which the city can
issue?
a. P8.8960 M b. P 8.9405 M c. P 8.9865 d. P
6.1623M

2. A 10 year bond with a par value of P1,000 and with bond rate of 10% payable annually is
sold after 2 years after purchase for P1080. If the yield is to be 6% compounded
annually, how much should the redemption price be?
a. P1,444 b. P 935 c. P 732 d. P925

3. A bond, with a face value of P1000 redeemable at par in 10 years, pays dividends at the
rate of 6% per annum. Determine the purchase price of the bond now if the yield on the
bond is 8% compounded semi-annually?
a. P909 b. P 930 c. P 856 d. P 825
4. A corporation sold an issue of 20-year bonds having a total face value of P100,000 for
P95,000. The bonds bear interest at 8%, payable annually. The company wishes to
establish a sinking fund for retiring the bond issue and will make annual deposits that will
earn 6%, compounded quarterly. Compute the annual cost for interest and redemption of
these bonds.
a. P 1,126 b. P 1,131 c. P 10,690 d. P10,679

5. How much can be paid for P100,000, 10% bond, with interest paid annually, if the bond matures
12 years hence? Assume that the purchaser will be satisfied with 6% nominal interest compounded
semi-annually.
a. P126,936 b. P 133,872 c. P132,620 d. P131,825

6. A bond with a par value of P1,000 and with bond rate of 10% payable annually is sold now
for P1080. If the yield is to be 12%, how much should the redemption price be at the end
of 8 years?
a. P1,444 b. P 1,569 c. P 1,825 d. P1,925

7. A bond, with a face value of P1000 redeemable at par in 15 years, pays dividends at the
rate of 6% per annum. Determine the purchase price of the bond now if the yield on the
bond is 7%?
a. P909 b. P 1,069 c. P 1,125 d. P 825

8. A corporation sold an issue of 20-year bonds having a total face value of P10,000 for
9,500. The bonds bear interest at 8% pa, payable semi-annually. The company wishes to
establish a sinking fund for retiring the bond issue and will make semi-annual deposits that
will earn 6% pa, compounded semi-annually. Compute the annual cost for interest and
redemption of these bonds.
a. P 1,126 b. P 1,131 c. P 1,025 d. P1,081

Assignment #5: Bonds

1. Find the current price of a 10-year bond paying 6% per year that is redeemable at par value, if
bought by a purchaser to yield 10% per year. The face value of the bond is P100,000
a. P76,120 b. P71,610 c. P70,600 d. P75,422
2. A bond issue of P200,000 in 10-years, in P1,000 units paying 16% interest per annum payments,
must be retired by the use of sinking fund that earns 12% pa. What is the total annual expense?
a. P43,397 b. P34,793 c. P24,147 d. P21,7340

3. A city will issue 9% bonds, redeemable at par in 15 years, with interest payable annually.
The proceeds from the bond issue will be used to finance part of the public works
program of the city. To pay for both the deposit to the sinking fund and the annual
interest, it is estimated that P1M can be raised yearly through taxation. If the fund earns
8% compounded annually, what is the maximum amount of bonds which the city can
issue?
a. P8,026,940 b. P 7,884,598 c. P 7,126,825 d. P6,162,825

4. A bond with a par value of P1,000 redeemable in 10 years and with bond rate of 10%
payable annually is sold now for P1080. If the yield is to be 12%, how much should the
redemption price be at the end of 8 years?
a. P1,444 b. P 1,599 c. P 1,825 d. P1,825
5. A bond, with a face value of P1000 redeemable at par in 10 years, pays dividends at the
rate of 6% per annum. Determine the purchase price of the bond now if the yield on the
bond is 10%?
a. P754 b. P 1,569 c. P 1,825 d. P1,825

6. A corporation sold an issue of 20-year bonds having a total face value of P10,000 for
9,500. The bonds bear interest at 16%, payable semi-annually. The company wishes to
establish a sinking fund for retiring the bond issue and will make semi-annual deposits
that will earn 12%, compounded semi-annually. Compute the annual cost for interest and
redemption of these bonds.
a. P 1,126 b. P 1,131 c. P 1,825 d. P1,781.11

7. How much can be paid for P50,000, 10% bond, with interest paid semi-annually, if the bond
matures 12 years hence? Assume that the purchaser will be satisfied with 6% nominal interest
compounded semi-annually.
a. P66,936 b. P 51,569 c. P7 1,825 d. P61,825

8. You bought a P10,000 bond at par value that paid nominal interest at a rate of 10%, payable semi-
annually, and held it for 10 years. You then sold it at a price that resulted in a yield of 8% nominal
interest compounded semi-annually on your capital. What was the selling price?
a. P7,022 b. P 8,569 c. P 6,825 d. P7,825

9. Find the price of a 10-year bond paying 6% per year, redeemable at par value 2 years after it was
bought, yielding 10% per year. The face value of the bond is P100,000
a. P76,120 b. P71,610 c. P78,660 d. P52,650.74

10. A bond issue of P200,000 in 10-years, in P1,000 units paying 8% interest per annum payments,
must be retired by the use of sinking fund that earns 6% pa. What is the total annual expense?
a. P31,174 b. P34,793 c. P24,147 d. P21,7340