Annuity

ENGINEERING ECONOMY | Annuity
1. If money is worth 4% compounded monthly, what payment at the end of each quarter will replace payments of
P500 monthly?
2. What amount would have to be invested at the end of each year for the next 8 years at 4% compounded semi-
annually in order to have P5,000 at the end of the time?
3. A contractor bought a concrete mixer at P12,000 if paid in cash. The mixer may also be purchased by instalment
to be paid within 5 years. If money is worth 8%, the amount of each annual payment, if all payments are made
at the beginning of each year, is:
4. A contract calls for semi-annual payments of P40,000 for the next 10 years and an additional payment of
P250,000 at the end of that time. Find the equivalent cash value of the contract at 7% compounded semi-
annually?
5. Mr. Rankine bought a piece of property for P100,000 down payment and 10 deferred semi-annual payments of
P8,000 starting 3 years from now. If the interest rate is 12% compounded semi-annually, what is the present
worth of the property?
6. If money is worth 8%, determine the present value of a perpetuity of P1,000 payable annually, with the first
payment due at the end of 5 years.
7. A man is left with an inheritance from his father. He has an option to receive P2,000,000 at the end of 10 years,
however he wishes to receive the money at the end of each year for 5 years. If interest rate is 8%, how much
would he receive every year?
8. Determine the present worth of an annual payment of P2,500 at the end of each year for 12 years at 8%
compounded annually.
9. A man borrowed P200,000 from a bank at 12% compounded monthly, which is payable monthly for 10 years. If
the first payment is to be made after 3 months, how much is the monthly payment?
10. What is the present worth of a P1,000 annuity over a 10-year period, if interest rate is 8%?
11. How much money must you invest today in order to withdraw P1,000 per year for 10 years if interest rate is
12%?
12. A machine is under consideration for investment. The cost of the machine is P25,000. Each year it operates, the
machine will generate a savings of P15,000. Given an effective annual interest of 18%, what is the discounted
payback period in years, on the investment in the machine?
13. What is the present worth of a P100 annuity starting at the end of the third year and continuing to the end of
the fourth year, if the annual interest rate is 8%?
14. Consider a project which involves the investment of P100,000 now and P100,000 at the end of one year.
Revenues of P150,000 will be generated at the end of years 1 and 2. What is the net present value of this project
if the effective annual interest rate is 10%?
15. An investment of x pesos is made at the end of each year for three years at an interest rate of 9% per year
compounded annually. What will be the value of the investment upon the deposit of the third payment?
16. If P500 s invested at the end of each year for 6 years, at an effective annual interest rate of 7%. What is the total
amount available upon the deposit of the 6th payment?
17. You need a P40,000 per year for four years to go to college. Your father invested P50,000 in a 7% account for
your education when you were born. If you withdraw the P40,000 at the end of your 17th, 18th, 19th and 20th
years. How much money will be left in the account at the end of your 21st year?
18. How much money must you deposit today to an account earning 12% so that you can withdraw P25,000 yearly
indefinitely starting at the end of the 10th year?
19. In five years, P18,000 will be needed to pay for a building renovation. In order to generate this sum, a sinking
fund consisting of three annual payments is established now. For tax purposes, no further payments will be
made after three years. What payment is necessary if money is worth 15% per annum?
20. An investment of P40,000 has a revenue of x pesos at the end of the first and second year. Given a discount rate
of 15% compounded annually, find x so that the net present worth of the investment is zero.

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ENGINEERING ECONOMY | Annuity

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