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Calculating Simple and Compound Interest

The document provides various financial calculations including ordinary simple interest, comparisons between simple and compound interest, and break-even analysis for a farmer's equipment costs. It includes examples of calculating interest on different principal amounts, the future value of investments, and deductions for increased operating costs. The calculations involve different interest rates and time periods, demonstrating the application of financial formulas.

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mne-007-21
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3 views4 pages

Calculating Simple and Compound Interest

The document provides various financial calculations including ordinary simple interest, comparisons between simple and compound interest, and break-even analysis for a farmer's equipment costs. It includes examples of calculating interest on different principal amounts, the future value of investments, and deductions for increased operating costs. The calculations involve different interest rates and time periods, demonstrating the application of financial formulas.

Uploaded by

mne-007-21
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Determine the ordinary simple interest on P35,000 for 7 months and 15 days if the rate of interest is 8%?

Given:

P = 35,000

i = 8%

n = 7mos & 15 days = 15days/30days = 0.5mo


= 7.5mos/12 = 0.625 year Solution:

I = P x ix n
= P35,000 x 0.08 x 0.625
= P1,750

Compare the interest earned by $10,000 for 7 years at 6% simple interest per year with the interest earned by the same amount for five years at 6%
compounded annually

Simple interest: I = P x i x n
= 10,000 x 0.06 x 7
= $4,200
Compound interest: F = P (F/P,6%, 7)
= 10,000 7
(1+0.06)
= 10,000 (1.5036)
= $15,036.30

I=F–P
= $15,036.30 - $10,000
= $5,036.30

At a certain interest rate compounded quarterly, P1,000 will amount to P4,500 in 15 years. What is the amount at the end of 10 years?
Given: For 15 years P = P1,000;
n = 15 (4) = 60 periods F = P4,500

For 10 years:
F n
= P (1+i)
= 40
1,000 (1+0.02538)
= 1,000 (2.725)
= P2,725.17

Solution:
F n
= P (1+i)
4,500 60
= 1,000 (1+i)
4.5 60
= (1+i)
1/60
4.5 =1+i
i = 1.02538 – 1
i = 2.538%

A machine is purchased on the basis of guaranteed performance. However, initial tests indicate that the
operating cost will be P500 more per year than guaranteed. If the expected life is 25 years and money is
worth 10%, what deduction from the purchase price would compensate the buyer for the additional
operating cost

Given :

A=P500

N=25years

I=10%

Solution:

P = A (P/A, 10%, 25)

= P500 (9.0770)
= P4,538.50
A farmer wants to buy a new combine rather than hire a custom harvester. The total fixed
costs for the desired combine are $21,270 per year. The variable costs (not counting the
operator's labor) are $8.75 per hour. The farmer can harvest 5 acres per hour. The
custom harvester charges
$16.00 per acre. How many acres must be harvested per year to break-even?

Solution:

Fixed costs = $21,270

Charge of custom harvester= $16/A

Variable costs = $8.75/hr / 5 A/hr = $1.75/A

BEP = CF / (p-cv)

= $21,270 / ($16/A - $1.75/A)

= $21,270 / $14.25/A

= 1,493 Acres

What is the principal amount if the principal plus interest at the end of 3 years is P 15,000 for a simple
interest of 20% per annum

Solution:
F = P (1 + ni)

P = F / (1 + ni)

= 15,000 [ 1+ 3(0.20)]

= 15,000 (1.6)
= 24,000

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