ENS 331 ENGINEERING ECONOMICS
DISCOUNT
AND
INFLATION
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
DISCOUNT
It is the difference between the present worth (the amount received for the paper in
cash) and the worth of the paper at some time in the future (the face value of the
paper or principal). The interest paid in advance.
Where:
P – Present worth
F – Future worth
D – Discount
d – discount rate
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
SAMPLE PROBLEM 1:
A man borrowed P2,000.00 from a bank and agreed to pay the loan at the end of 6
months. The bank discounted the man and give him P1,900.00 in cash.
a. What was the rate of discount?
b. What was the rate of interest?
c. At 12% discount, find the present worth of (i) P1,000.00 due in 1 year from
today;and (ii) P1,200.00 due in 6 months.
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
Sample Problem
2:
Mr. Cruz borrowed money from a bank. He
received from the bank P1,342.00 and promise
to repay P1,500.00 at the end of 9 months.
Determine the simple interest rate and the
corresponding discount rate or often referred
to as the “banker discount”?
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
Sample Problem 3:
On the occasion of the Christmas, a
sweet shop offered 10% discount on the
price of a pound of sweets. The normal
selling price of one pound of sweet is
$50. Find the selling price of one pound
of sweets, after discount.
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
INFLATION
- The increase in the prices for goods and services from one year to another, thus
decreasing the purchasing power of money.
- The rate at which price of goods and services increases with time.
Where:
PC – Present cost of a commodity
FC – Future cost of the same commodity
- annual inflation rate
n – number of years
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
INFLATION
- In an inflationary economy, the buying power of money decreases as costs increases,
Thus
Where:
P – Present amount of money
F – Future worth of money
- annual inflation rate
n – number of years
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
INFLATION
- If interest is being compounded at the same time that inflation is occurring, the future
worth will be
Where:
P – Present amount of money
F – Future worth of money
- annual inflation rate
I - interest
n – number of years
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
SAMPLE PROBLEM 4:
The pair of shoes is presently costs P1,000.00. If inflation is at the rate of 8% per
year, what will be the cost of the shoes in two years?
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
SAMPLE PROBLEM 5:
Based on new reports, it is predicted that there will be an average annual rate of
inflation in prices of commodities of 8.2% during the next 10 years. Assuming this
prediction to be accurate, a motorcycle currently costing P51,000.00 now would
have what price 10 years hence?
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
SAMPLE PROBLEM 6:
A real estate broker stated that a house be sold in 1980 for P37,000.00 and was sold
by the buyer for P90,000.00 in 1990. If the increase in price is due solely to inflation,
determine the average rate of inflation between 1980 and 1990.
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
Sample Problem
7:
An economy is experiencing inflation at an
annual rate of 8%. If this continuous, what will
P1,000.00 be worth 2 years from now, in terms
of today’s pesos?
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
Sample Problem 8:
A man invested P10,000.00 at an interest
rate of 10% compounded annually. What will
be the annual amount of his investment, in
terms of today’s pesos, after 5 years, if
inflation remains the same at the rate of 8%
per year.
Engr. Nolime T. Rafols
ENS 331 ENGINEERING ECONOMICS
Thank you and God
Bless!
ENGR. NOLIME T. RAFOLS
