PROPOSED EXERCISES

SIMPLE INTEREST

Karla wants to sell a gold bracelet and receives on April 18, 2007,
siguientes ofertas: a) $ 1.789.000 de contado, b) $ 500.000 de cuota inicial y se
sign a promissory note for $1,480,000 due on August 16, 2007 and c)
$300,000 down payment and two promissory notes are signed: one for $630,000 due in 30 days.
term and another for $ 980,000 with a due date of July 17, 2007. What
Is the offer more advantageous if the normal return on money is 2.5% monthly?

Solution.

Opción A = $1.789.000 de contado

Option B = $500,000 down payment and a promissory note of $1,480,000 due on August 16
from 2007

Fecha inicial = 18 abril de 2007

Final date = August 16, 2007

To calculate the number of days:

07 46
08 16
April 18
3 * 30+ 28 118 days

So, the value you would receive is:

$1,480,000
VP = $500,000 +
118
1 + 0.25 * 30

= $1.847.496,2
 SIMPLE INTEREST

Option C = $300,000 down payment, promissory note for $630,000 with a 30-day term and
I will pay $980,000 due on July 17, 2007

Fecha inicial = 18 abril de 2007

Final date = July 17, 2007

To calculate the number of days:

06 47
07 17
04 18
2 * 30+ 29 = 89 days

$630.000 $980.000
VP = $300,000 + +
30 89
1 + 0.025 * 30 1 + 0.025 * 30

VP = $1,826,969.30

R/ The best option for Karla is B.

Mrs. González owes Mr. López $4,250,000 that she must pay within
of 3 months and $3,680,000 to be paid within 5 months. If Mrs. González wishes
settle your debt at this moment, what amount will you have to pay if the rate of
Is the interest 2.3% per month? Use period zero as the focal date.

Solution.

Cash flow:
FF

0 1 2 3 4 5
X $4.250.000 $3,680,000

ECONOMIC ENGINEERING Page 2

 SIMPLE INTEREST

The value equation is set up as follows:

Data:
i=2.3% monthly
$4.250.000 $3.680.000
= +
1 + 0.023 * 31 + 0,023 ∗ 5

= $3.975.678,204 + $3.300.448,43

X = $7,276,126.63

Mrs. Gonzales will have to pay an amount of $7,276,126.63

Mr. Ruiz requested a loan of $2,500,000 for 8 months at an interest rate of

interest of 36%. If you make a payment of $900,000 in 4 months, how much will you have to pay?
pay at the end of 8 months? Use as a reference date in 8 months. R/. $
2,092,000

Solution.

The cash flow remains:

FF

0 2 4 6 8
$2,500,000 $900.000 X

The value equation is assembled as follows:

Data:
i=36% monthly

From the equation VF = VP (1 + n * i) the following equality is obtained:

Economic Engineering Page 3

 SIMPLE INTEREST

4 8
X + $900,000( 1 + 0.36 * ) = $2,500,000 (1 + 0.36 * )
12 12
X + $1,000,800 = $3,100,000
X = $2,092,000

Mr. Ruiz must pay $2,092,000 at the end of the eight months.

Mr. Ruiz signed two promissory notes: One with a maturity value of $2,750,000.
to be paid in 3 months and another with a maturity value of $4,100,000 to be paid in 6
months. In a new agreement with his creditor, he agreed to pay $2,050,000 on the day
from today and the rest in 9 months. What amount will he have to pay at the end of the month?
9, if the interest rate is 3.5% per month, and the focal date is month 9?
$5,162,250.00.

Solution

The cash flow is as follows:

FF

0 3 6 9
$2.050.000 $2,750,000 $4,100,000
X

To solve this exercise, it is necessary to equalize the payment methods, so that

what is currently available:

$2,750,000 (1+ 0.035 * 6 + )$4.100.000 1 + 0,035

( ∗3 )
$2,050,0001 + (0,035 ∗ 9 + )

$3.327.500 + $4.530.500 = $2.695.750 +

= $5.162.250

ECONOMIC ENGINEERING Page 4

 SIMPLE INTEREST

Mr. Ruiz will have to pay $5,162,250 in the ninth month.

A person signed a promissory note for $3,870,000 with a 90-day term and a rate of
30% annual interest. He wishes to restructure his debt by signing two promissory notes of equal
amount maturing in 90 and 150 days. What will be the value of the new ones?
documents if the interest rate for restructuring is 28.5% and is taken
as a focal date, the date within 150 days? R/. $ 2,128,381.87

Solution.

The cash flow is:

X FF

0 30 60 90 120 150
X
$3,870,000(1+0.30*90/360)
=$4.160.250

For this restructuring, the following value equation is given:

Data:
i=28.5%

60 60
$4,160,250 (1 + 0.285 * )= (1 + 0.285 * )+
360 360

Factoring gives:

60 60
$4,160,250 (1+ 0.285 * )= ((1 + 0.285 * ) + 1)
360 360

(
$4,357,861.875 = x2.0475 )

x = $2,128,381.87

ECONOMIC ENGINEERING Page 5

 SIMPLE INTEREST

The value of the new documents will be $2,128,381.87

A person owes $820,000 that must be paid within 5 months at 20%
simple interest, and $1,670,000 due in 12 months with an interest rate of 24%.
What amount will have to be paid at the end of 8 months to settle the total of the
debt assuming an interest rate of 18%? Take the focal date in month 8.

Solution:

The cash flow is as follows:

FF

0 5 8 12
$820,000(1+0.20*5/12) X $1,670,000(1 + 0.24 * 12 / 12)
$888,333.33 $2,070,800

The value equation is set up as follows:

Data:
i=18%
So there is the payment that must be made in month 5:
5
820,000 * (1 + 0.20 * $888,333.33
12

On the other hand, the payment to be made in month 8 is calculated:

1,670,000 ( 1+ 0.24 * 1 $2,070,800

)

And now, taking both payments over 12 months, the following would be:

3 2,070,800
X = 888,333.33 * (1 + 0.18 * ) +
12 4
1 + 0.18 * 12

X = $2,881,893.24

Economic Engineering Page 6

 SIMPLE INTEREST

The total amount you have to pay to settle the eight months is
$2.881.893,24
24) The owner of an industrial company purchased equipment and tools for the sum
of $20,000,000, gave an initial payment of $5,000,000 and the rest to be paid in a year,
at a 38% simple interest. Four months later, he made a payment of $4,000,000 and
six later gave another payment of $6,000,000. Find the amount to be paid in the
expiry date, use this date as focal. R/. $ 9,306,666.67.

Solution:

The cash flow is as follows:

$20,000,000 FF

0 4 10 12
$5,000,000 4,000,000 dollars $6.000.000

To solve this problem, the following is proposed, taking into account that the total
the debt must be equal to the sum of the payments:
12 8 2
5000000 (1 + 0.38 * ) + 4000000 (1 + 0.38 * ) + 6000000 (1 + 0.38 * ) +
12 12 12
12
= 20,000,000 (1 + 0.38 * )
12

x = $27,600,000 - $18,293,333.33

x = $9,306,666.67

The total amount to be paid on the due date is $9,306,666.67

On a certain date, a person signed a promissory note for a loan of $

7,200,000 at a 90-day term with interest at a rate of 3.2% monthly. 30 days
he then signed another promissory note with a maturity value of $6,600,000 due in 90 days
deadline. 60 days after signing the first document, it is agreed with your
creditor to pay $8,000,000 at that time and replace the two promissory notes with one
only for 90 days, counted from that moment, at the rate of 3.5% monthly.

ECONOMIC ENGINEERING Page 7

 SIMPLE INTEREST

Determine the agreed lump sum payment, taking as a focal date the moment when
the first promissory note was signed.

Solution.
The cash flow is as follows:

FF $8.000.000 $6,600,000 X

0 30 60 90 120 150
X $7,200,000(1 + 0.32 * 90 / 30)
=$7.891200

The value equation is set up as follows:

Data:
i=3.5% monthly

$8.000.000 $7.891.200 $6,600,000

+ = +
60 150 90 120
(1 + 0.035 * ) 30 (1 + 0.035 * 30 ) (1 + 0.035 * ) 30 (1 + 0.035 * 30 )

40
$7,476,635,514 + = $7.141.357,446 + $5.789.473,684
47

X = $6,408,679.87

The agreed one-time payment is $6,408,679.87

Milton must pay $9,000,000 in 5 months and $17,000,000 in 10 months.

months. He comes to an agreement with his creditor to pay as follows: Certain
amount X in 3 months and 300% of X in eight months. If the rate of
the interest is 32%, find the value of the payments using the month as the focal date
8.

Solution.
Economic Engineering Page 8
 SIMPLE INTEREST

The cash flow is:

FF X 3X X

0 3 5 8 9 10
X $9.000.000 $17.000.000

The value equation is set up in the following way:

Data:
i=32% monthly
3 $17,000,000 5
$9,000,000 (1 + 0.32 * ) + = X (1 + 0.32 * ) + 3X
12 2 12
(1 + 0.32 * ) 12

17
$9.720.000 + $16.139.240,51 = ( ) + 3X
15

= $6.256.267,86
3X = $18,768,803.59

The payments are $6,256,267.86 in the third month and $18,768,803.59 in the eighth month.

A person borrowed $X at 25% per year and then invested it at 30% per year.
If the profits obtained from this operation were $650,000 annually,
How much had he received in loan?

Solution
To know how much was received from the loan, the interest is taken into account.
each occasion, for that it is used:

= 2− 1

= ∗ ∗
Economic Engineering Page 9
 SIMPLE INTEREST

Replacing:

$650,000 = X( * 0.30 * 1 − ) (∗ 0.25 ∗ 1 )

$650.000 = 0.05

= $13´000.000

This person obtained a loan of $1,300,000.

28) Abigail invested a total of $65,000,000 in two different banks, In the Bank
popular invested part of the $65,000,000 in a savings account that pays
liquidable yields at maturity for a period of 91 days and at an interest rate
of 19.35%. In Davivienda, he invested the rest with liquidable yields at
maturity of 91 days and an interest rate of 21.8%. If at the end of the term, the
The total interest was $3,458,000, what was the amount invested in each of the
banks? Take a year of 360 days.

Solution.
Data:
Banco Popular = 19.35% = X
Banco Davivienda = 21.8% = Y
I = $3,458,000
VP=$6.500.000
n=91

Two value equations are proposed as follows:

91 91
$3,458,000 = (X * 0.1935 * ) + (Y * 0.218 * ) (1)
360 360

$65.000.000 = + (2)
The equation is solved by substitution:
X = $65,000,000 - Y(3)
Replacing (3) in (1):

Economic Engineering Page 10

 SIMPLE INTEREST

91 91
$3,458,000 = (($65,000,000 - Y) ∗ 0.1935 ∗ ) + (Y * 0.218 * )
360 360
$3,458,000 = $3,179,312.5 - 0.0489125Y + 0.05510555556Y
(
$278,687.50 = Y0.006193055 )
= $45.000.000
Therefore, X is:

= $65.000.000 − $45.000.000
= $20.000.000
The amount invested in Banco Popular was $20,000,000 and in Davivienda
It was $45,000,000.

Carmen and Roberto have a total of $22,000,000; Carmen has her capital.
invested at 20% annual simple interest and Roberto has it at 2.5% monthly simple interest. If at
four-year term, Roberto has $2,600,000 more than Carmen, what was the
initial capital of each one.

Solution
Datos:
Carmen=20% anual simple=X
Roberto=2.5% monthly simple=Y

Two value equations are proposed, one for the initial amount and another for the money.
obtained in 4 years.
X + Y = $22,000,000

$2,600,000 = Y1( + 0.025 ∗ 48 −) (1 + 0.2 ∗ 4)

Resolving:
X = $22,000,000 - Y
$2.600.000 = 1( + 0.025 ∗ 48 −) ($22,000,000 − Y)(1 + 0.2 ∗ 4)
Y = $10,500,000
X = $11,450,000
Carmen's initial capital was $11,450,000 and Roberto's was $10,500,000.

ECONOMIC ENGINEERING Page 11