ENGINEERIG ECONOMY Set A (with answers/solutions)

Direction: Choose the correct answer.

1. It is a series of equal payments occurring at equal intervals of time where the first payment is made after several
periods, after the beginning of the payment. How do you call this payment?
a) Deferred annuity b) Delayed annuity c) Progressive annuity d) Simple annuity

2. How do you call a market whereby there is only one buyer of an item for which there are no goods substitutes?
a) Monopoly b) Monopsony c) Oligopoly d) Oligopsony

3. This is the amount of a property in which a willing buyer will pay to a willing seller for the property when neither
one is under the compulsion to buy or sell. What do you call this value?
a) Fair value b) Goodwill value c) Book value d) Market value

4. This type of annuity has the payments made at the start of its period, beginning from the first period. How do you
call this annuity?
a) Ordinary annuity b) Annuity due c) Deferred annuity d) Perpetuity

5. How do you call a method of computing depreciation in which the annual charge is a fixed percentage of the
depreciated book value at the beginning of the year to which the depreciation applies?
a) Straight line method b) Sinking fund method
c) SYD method d) Declining balance method

6. This is the cumulative effect of elapsed time on the money value of an event, based on the earning power of
equivalent invested funds capital should or will earn. What is this?
a) Present worth factor b) Interest factor c) Time value of money d) Yield

7. Which of the following business organization has the disadvantage of double taxation?
a) Sole proprietorship b) Partnership c) Corporation d) Enterprise

8. This is the function of interest rate and time that determines the cumulative amount of a sinking fund resulting from
specific periodic deposits. How do you call this?
a) Sinking fund factor b) Present worth factor
c) Capacity factor d) Demand factor

9. This is the intangible item of value which is the exclusive right of a company to provide a specific product or
service in a stated region of the country. What is this?
a) Market value b) Book value c) Goodwill value d) Franchise value

10. Which of the following items included as in the first cost of any property?
a) The original b) Installation expense purchase price and freight and transportation charges
c) Initial taxes d) Both a, b, & c

11. Defined as the future value minus the present value.

a) Interest b) Rate of return c) Discount d) Capital

12. How do you call this type of annuity where the payments are made at the end of each payment period starting from
the first period?
a) Ordinary annuity b) Annuity due c) Deferred annuity d) Perpetuity

13. The capitalized cost of any structure or property is equal to which of the following?
a) First cost + interest b) Annual cost of the first cost

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 c) First cost + cost of perpetual maintenance d) First cost + salvage value

14. How do you call the flow back of profit plus depreciation from a given project?
a) Capital recovery b) Cash flow c) Economic return d) Earning value

15. What is the profit derived from a project or business enterprise without consideration of obligations to financial
contributors or claims of other based on profit?
a) Economic return b) Yield c) Earning value d) Expected yield

16. This is a mathematical expression also known as the present value of an annuity. What is this factor?
a) Sinking fund factor b) Capacity factor c) Demand factor d) Present worth factor

17. How do you call the payment for the use of borrowed money?
a) Loan b) Maturity value c) Interest d) Principal

18. This is an interest rate at which the present worth of the cash flow on a project is zero of the interest earned by an
investment. What is this interest rate commonly called?
a) Effective rate b) Nominal rate c) Rate of return d) Yield

19. As applied to the capitalized asset, this is a distribution of the initial cost by periodic changes to operation as in
depreciation or the reduction of the debt by either periodic or irregular prearranged program. How do you call this?
a) Annuity b) Capital recovery c) Annuity factor d) Amortization

20. This is the lessening of the value of an asset due to the decrease in the quantity available (referring to the natural
resources, coal, etc.). How do you call this?
a) Depreciation b) Depletion c) Inflation d) Incremental cost

21. How do you call the recorded current value of an asset?

a) Scrap value b) Salvage value c) Book value d) Present worth

22. This is the ratio of an interest payment to the principal for a given unit of time and usually expressed as a
percentage of the principal. What is this?
a) Interest b) Interest rate c) Investment d) Depreciation rate

23. How do you call a method of depreciation whereby the amount to recover is spread uniformly over the estimated
life?
a) Straight line method b) Sinking fund method
c) Declining balance method d) SYD method

24. This method of depreciation has a fixed sum of money deposited regularly at compound interest in a real or
imaginary fund in order to accumulate an amount equal to the total depreciation of an asset’s estimated life. What
is this method of depreciation?
a) Straight line method b) Sinking fund method
c) Declining balance method d) SYD method

25. What is the true value of interest rate computed by equations for compound interest in a 1 year period?
a) Expected return b) Nominal interest c) Interest d) Effective interest

26. The scrap value of an asset is sometimes known as:

a) Book value b) Salvage value c) Replacement value d) Future value

27. This is the reduction of the value of an asset due to constant use and passage of time. What is this?
a) Scrap value b) Depletion c) Depreciation d) Book value

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28. Which of the following is not an essential element of an ordinary annuity?
a) The amount of all the payments are equal
b) They are made at equal interval of time
c) The first payments is made at the beginning of each period
d) Compound interest is paid on all amounts in the annuity

29. Which of the following is not a type of business organization?

a) Sole proprietorship b) Corporation c) Enterprise d) Partnership

30. What is a market condition where only few individual produce a certain product that action of one will lead to
almost the same action by the other?
a) Monopoly b) Oligopoly c) Semi-monopoly d) Perfect competition

31. Which of the following is considered as the simplest form of business organization?
a) Sole proprietorship b) Partnership c) Management d) Corporation

32. How do you call an association of two or more persons for a purpose of engaging in a profitable business?
a) Sole proprietorship b) Enterprise c) Partnership d) Corporation

33. This is a distinct legal entity that can practically transact any business transaction that a real person could do. How
do you call this entity?
a) Sole proprietorship b) Enterprise c) Partnership d) Corporation

34. What is the minimum number of incorporators in order that a corporation be organized?
a) 3 b) 5 c) 10 d) 7

35. A currency traded in a foreign market for which the demand is consistently high in relation to its supply.
a) Money market b) Fixed assets c) Trade investments d) Underground economy

36. Everything a company owns and which has a money value is classified as an asset. Which of the following is
classified as an asset?
a) Intangible assets b) Fixed assets
c) Trade investments d) Intangible assets, fixed assets, and trade investments

37. Which of the following is an example of intangible assets?

a) Cash b) Investment in subsidiary companies c) Fixed assets d) Patents

38. Lands, buildings, plant and machinery are examples of:

a) Current assets b) Fixed assets c) Trade investments d) Intangible assets

39. This is a form of fixed-interest security issued by central or local governments, companies, banks or other
institutions. They are usually a form of long-term security, but may be irredeemable. How do you call this?
a) Bonds b) T-bills c) Certificate of deposits d) Shear of stock

40. It is defined as the certificate of indebtedness of a corporation usually for a period not less than 10 years and
guaranteed by a mortgage on certain assets of a corporation. What is this commonly called?
a) Bond b) T-bills c) Stock d) Deposit

41. What is a type of bond where the corporation pledges securities which it owns (stocks, bonds of its subsidiaries)?
a) Mortgage bond b) Registered bond c) Coupon bond d) Collateral trust bond

42. Which of the following types of bond does not have security except a promise to pay by the issuing corporation?
a) Debenture bond b) Registered bond c) Coupon bond d) Collateral trust bond

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43. How do you call a type of bond issued jointly by two or more corporations?
a) Joint bond b) Debenture bond c) Registered bond d) Collateral trust bond

44. This is a type of bond whose guaranty is in lieu on railroad equipment. What is this type of bond?
a) Equipment b) Debenture bond c) Registered bond d) Infrastructure bond

45. How do you classify a bond if the security of the said bond is a mortgage on certain specified asset of a
corporation?
a) Registered bond b) Preferred bond c) Incorporator’s bond d) Security bond

46. How do you call a type of bond where the corporation’s owner name is recorded and the interest is paid
periodically to the owners with their asking for it?
a) Registered bond b) Preferred bond c) Incorporator’s bond d) Bail bond

47. How do you call an increase in the value of a capital asset?

a) Profit b) Capital gain c) Capital expenditure d) Capital stock

48. What is the reduction in the money value of a capital asset?

a) Capital expenditure b) Capital loss c) Loss d) Deficit

49. It is a negotiable claim issued by a bank in lieu of a term deposit. What is this?
a) Time deposit b) Bond c) Capital gain d) Certificate of deposit

50. How do you consider any particular raw material or primary product (e.g. cloth, wool, flour, coffee….)?
a) Utility b) Necessity c) Commodity d) Stock

51. It denotes the fall in the exchange rate of one currency in terms of other. The term usually applies to floating
exchange rates. How do you call this?
a) Currency appreciation b) Currency devaluation c) Currency float d) Currency depreciation

52. What is the amount of company’s profits that the board of directors of the corporation decides to distribute to
ordinary shareholders?
a) Dividend b) Return c) Share of stock d) Par value

53. This is the residual value of a company’s assets after all outside liabilities (shareholders excluded have been
allowed for). What is this residual value commonly called?
a) Dividend b) Equity c) Return d) Par value

54. What do you call a document that shows proof of legal ownership of a financial security?
a) Bond b) Bank note c) Coupon d) Check

55. What is a market condition where there are two buyers and two sellers?
a) Doupsony b) Duopoly c) Bilateral doupsony d) Bilateral oligopoly

56. Which do you think is true in case of bankruptcy of a partnership?

a) The partners are not liable for the liabilities of the partnership
b) The partnership assets (excluding the partners’ personal assets) only will be used to pay the liabilities
c) The partners’ personal assets are attached to the debt of the partnership
d) The partners may sell stock to generate additional capital

57. Which of the following is true about partnership?

a) It can be handed down from one generation of partners to another
b) It will be dissolved if one partner ceases to be connected with the partnership
c) It has perpetual life
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 d) Its capitalization must be equal for each partner.

58. Which of the following is true about corporations?

a) It is not best for business organization
b) The minimum number of incorporators to start a corporation is three
c) The life is dependent on the lives of the incorporators
d) The stockholders of the corporation only liable to the extent of their investments

59. Determine the approximate number of year if an amount of money is doubled when invested at 12% interest per
annum.
a) 4 years b) 5 years c) 6 years d) 7 years

P1  i   F  2P 1.12N  2 N ln 1.12  ln 2

N
Solution:

ln 2
N  6.11  7
ln 1.12

60. If A is a periodic payment and i is interest rate, then what is the value of present worth of perpetuity?
i A
a) Ai b) A – i c) d)
A i

61. It is defined as the capacity of commodity to satisfy human want. What is this?
a) Discount b) Necessity c) Luxuries d) Utility

62. How do you call the profit obtained by selling at a higher price than its original purchase price?
a) Debenture b) Goodwill c) Capital gain d) Internal rate of return

63. How do you call the bonds that are attached coupons indicating the interest due and the date when such interest is
to be paid?
a) Registered bond b) Coupon bond c) Mortgage bond d) Collateral trust bond

64. What do you call a bond whose security is a mortgage on certain specified assets of the corporation?
a) Registered bond b) Coupon bond c) Mortgage bond d) Collateral trust bond

65. This is a process of determining the value of a certain properties for defined reasons. What is this process?
a) Valuation b) Appraisal c) Estimate d) Valuation and appraisal

66. What do you call a financial summary showing the relationship among assets, liabilities, and ownership in the
corporation on a specific date?
a) Income tax return b) Balance sheet c) Bookkeeping records d) Accounting cost

67. This is the ratio of an annual net profit to the amount of capital invested. How do you call this ratio?
a) Net income b) Gross income c) Rate of return d) Working capital

68. What is the difference between sales revenue and the cost of goods sold?
a) Net income b) Gross profit c) Rate of return d) Gross national

69. It represents the ownership of stockholders who have a residual claim on the assets of the corporation after all other
claims have been settled. What is this ownership of the stock holder?
a) Authorized capital b) Preferred stock c) Incorporators stock d) Common stock

70. This value of an asset is sometimes called as second hand value. What is this value?

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 a) Scrap value b) Salvage value c) Book value d) Going value

71. It represents the ownership, and enjoys certain preference than ordinary stock. How do you call this type of stock?
a) Authorized capital b) Preferred stock c) Common stock d) Incorporator’s stock

72. How do you call the satisfaction or pleasure that an individual derives from the consumption of a good or services?
a) Necessity b) Utility c) Marked d) Luxury

73. This is an intangible item of value arising from the exclusive right of the company to provide specified product and
service in a certain region of the country. What is this commonly called?
a) Marked value b) Goodwill value c) Fair value d) Franchise value

74. What is the quantity of a certain commodity that is offered for sale at a certain price at a given time and place?
a) Demand b) Supply c) Utility d) Market

75. This is the quantity of a certain commodity that is bought at a certain price at a given time and place. How do you
call this quantity?
a) Demand b) Supply c) Utility d) Market

76. How do you call this statement: “When free competition exists, the price of a product will be that value where
supply is equal to the demand”?
a) Law of diminishing return b) Law of supply
c) Law of demand d) Law of supply and demand

77. Say something about this statement: “When one of the factor of production is fixed in quantity or is difficult to
increase, increasing the other factor of product ion will result in a less than proportionate increase in output”.
a) Law of diminishing return b) Law of supply
c) Law of demand d) Law of supply and demand

78. How do you call the place where sellers and buyers come together?
a) Department store b) Market c) Mall d) Shopping center

79. This is a market situation where there are few sellers and few buyers. What is this market situation?
a) Oligopoly b) Oligopsony c) Bilateral oligopoly d) Bilateral oligopsony

80. What do you think is a market situation where there is one seller and one buyer?
a) Monopoly b) Monopsony c) Bilateral monopoly d) Bilateral monosopny

81. What do you think is an agreed payment made to an owner of an industrial property right for the grant of an
exclusive sell for profit of the item concerned?
a) Salary b) Commission c) Royalty d) Profit share

82. What do you think is a form of indirect tax which is incorporated into the selling price of a product and which is
borne by the customer?
a) EVAT b) Capital gain tax c) Sales tax d) Tariff

83. What do you think is the meaning of the acronym EVAT?

a) Extended value added tax b) Expanded value added tax
c) External value added tax d) Export value added tax

84. How do you call a market that deals in long-term company securities (stocks and shares) and government securities
(bonds)?
a) Stock exchange b) Share market c) Super market d) Test market

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85. What do you think is the negotiation of wage rates, conditions of employment, etc. by representatives of the labor
force and management?
a) Union trade b) Union rally c) Collective bargaining d) Cooperative

86. How do you call a form of business firm that is owned and run by a group of individuals for their mutual benefit?
a) Union b) Cooperative c) Partnership d) Joint venture

87. If P5000 lent out at 18% annual simple interest earned P450 interest, how long had it been lent?
a) 1 year b) 6 months c) 2 months d) 6 days

I 450
Solution: n   0.5 year  6 months
Pi 50000.18

88. What is the simple interest rate if an investment of P37,500.00 accumulates to P45,937.5 in 18 months?
a) 0.15 b) 0.2 c) 0.21 d) 0.3

Solution: F  P1  i n 
F 
 1  
iP 100 %    F  P 100 %   45,937.5  37,500.00  100 %   15 %
 n 
 
 nP   1.537,500.00 
 

89. If the loan was for 15 months at 16.8% interest a year and the repayment on a loan was P12,100.00, how much was
the principal?
a) P8,500.00 b) P9,500.00 c) P10,000.00 d) P10,500.00

F 12,100.00
Solution: P   P9,965.10  P10,000.00
1  i  1.1681.25
n

90. Determine the accumulated value of P2,000.00 in 5 years it is invested at 11% compounded quarterly.
a) P3,440.00 b) P3,404.00 c) P3,044.00 d) P4,304.00

mn 4 5 
 i   0.11 
Solution: F  P1  n   2,000.001    P3,440.00
 m  4 

91. The sum of P15,000.00, deposited in an account earning 4% per annum compounded quarterly, will become
P18,302.85. Determine the effective rate of interest per year.
a) 3.06 % b) 4.06 % c) 5.06 % d) 6.06 %
 i  m   0.04  4 
Solution: i e  1  n   1100 %  1    1100 %  4.06 %
 m    4  

92. What is the present value of P5,000.00 due in 8 years if money is worth 12% compounded semi-annually?
a) P1,896.23 b) P1,869.23 c) P1,698.23 d) P1,968.23

F 5,000.00
Solution: P mn
 2 8 
 P1,968.23
 in   0.12 
1   1  
 m  2 

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93. If a machine is purchased on installment and the buyer makes an P80,000.00 down payment and owes a balance of
P150,000 in 2 years. Determine the machine cash value if money is worth 14% compounded quarterly.
a) P199,312.00 b) P183,912.00 c) P193,912.00 d) P139,912.00

Solution: Cash Value = Down payment + Present value of the balance

F 150,000.00
Cash Value  P80,000.00  mn
 P80,000.00  42 
 P193,912.00
 in   0.14 
1   1  
 m  4 

94. Determine the compound amount if P5,000.00 is invested for 3 years and 9 months at 12% compounded semi-
annually.
a) P7,740.41 b) P7,407.41 c) P7,470.41 d) P7,447.10

mn 2 3.75
 i   0.12 
Solution: F  P1  n   5,000.001    P7,740.41
 m  2 

95. What is the present value of P1,000 due in 3 years and 4 months at 11% compounded Quarterly?
a) P665.94 b) P669.54 c) P696.54 d) P656.94

F 1,000.00
Solution: P mn
 4 3.333
 P696.54
 in   0.11 
1   1  
 m  4 

96. Find the number of years when P2,500.00 is compounded to P5,800.00 if invested at 12% compounded quarterly.
a) P6.12 years b) 7.12 years c) 8.12 years d) 5.12 years

  i 
mn
 in  F  F
Solution: 1     mn ln 1  n   ln  
 m P   m  P
F  5,800.00 
ln   ln  
n P   2,500.00 
 7.12 years
m 4
 in   0.12 
ln 1   ln 1  
 m  4 

97. What is the effective rate equivalent of 12% compounded quarterly?

a) 12.55% b) 11.55 % c) 12.98 % d) 13 %

 i  m   0.12  4 
Solution: i e  1  n   1100 %  1    1100 %  12.55 %
 m   
 4  

98. What rate compounded-quarterly is equivalent to 14% compounded semi-annually?

a) 10.76 % b) 11.76 % c) 12.76 % d) 13.76 %

 i n  4   0.14  2 
Solution: i e  1    1100 %  1    1100 %
 4   2  
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 4
 in 
1    1.1449
 4

 
i n  41.1449 4  1  13.76 %
1

 

99. Celestino owes P500, due in 3 years and P800 due in 7 years. He is allowed to settle these obligations by a single
payment on the 6th year. Find how much he has to pay on the 6th year if money is worth 14% compounded semi-
annually.
a) P1,449.12 b) P 1,559.12 c) P1,339.12 d) P1,669.12

2 3 
 0.14  800
Solution: F6 th  5001    2 1
 750.37  698.75  P1,449.12
 2   0.14 
1  
 2 

100. Determine the present value of P5,000.00 due in 5 years at 7 % compounded continuously.
a) P3,500.44 b) P 3,550.44 c) P3,450.44 d) P3,523.44

F 5,000.00
Solution: P   P3,523.44
e inn
e0.075
101. Cleofas borrowed P2,000.00 from a bank and agreed to pay the loan at the end of one year. The bank
discounted the loan and gave him P1950 in cash. Determine the rate of discount.
a) 3.75 % b) 3.12 % c) 2.5 % d) 1.2 %

FP  2,000.00  1,950.00 

Solution: d 100 %   100 %  2.5 %
 F   2,000.00 

102. A machine was purchased under these terms: P30,000 down and P5,000 each month for 5 years. If money is
worth 12% compounded monthly, what is the cash price of the machine?
a) P144,775.19 b) P245,775.19 c) P542,775.91 d) P254,775.19

Solution: Cash Price = Down Payment + Present Worth of Annuity

 i n  mn 
A 1    1
 m  
Cash Pr ice  Down Payment   mn
 i 
i 1  n 
 m
 0.12 125  
5,000.001    1
Cash Pr ice  P30,000.00   12    P 254,775.19
1295
 0.12 
0.121  
 12 

103. Determine the amount that must be deposited every 3 months in a fund paying 12% compounded quarterly in
order to have P25,000 in 8 years.
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a) P746.71 b) P476.17 c) P674.71 d) P700.00

 in   0.12 
 F  25,000.00
Solution: A m   4 
 P 476.17
mn 4 8 
 in   0.12 
1   1 1  
 m  4 

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