NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
A investor puts Rs 1,00,000 in a scheme earning a compound annual return of 10%. What will be the value of the investment at the end of 2 years?
The investment grows to Rs 1,21,000. Compounding at 10% for two years multiplies the principal by 1.21. Simple interest would give only Rs 1,20,000 because it ignores interest earned on previously accrued interest.
- ARs 1,20,000
- BRs 1,21,000Correct
- CRs 1,10,000
- DRs 1,22,000
Explanation
Compounding: 1,00,000 x 1.10 x 1.10 = Rs 1,21,000. Rs 1,20,000 results from simple interest, ignoring interest earned on interest.
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