CA Foundation · Quantitative Aptitude · Mathematics of Finance
A deposit scheme pays interest at 10% per annum compounded half-yearly. Mr. Verma invests ₹40,000 for one year. How much more interest does he earn than under a scheme paying 10% per annum compounded annually?
He earns ₹100 more. With half-yearly compounding at 5% per half-year, ₹40,000 grows to ₹44,100, giving interest of ₹4,100. Annual compounding gives ₹4,000. The difference of ₹100 arises from interest earned on the first half-year's interest.
- A₹100
- B₹200Correct
- C₹300
- D₹400
Explanation
Half-yearly: 40,000 × (1.05)^2 = 40,000 × 1.1025 = 44,100, so interest is ₹4,100. Annual: 40,000 × 10% = ₹4,000. Difference = ₹100. Option ₹200 is wrong because it doubles the difference by mistake; correct answer is ₹100.
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