CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
A person invests Rs 5,000 at the end of each year for 2 years at 20% p.a. compound interest. What is the amount at the end of year 2?
The amount is Rs 11,000. The first year-end deposit earns one year of interest and becomes Rs 6,000, while the second deposit made at the end of year 2 earns none and stays Rs 5,000, so the total is Rs 11,000.
- ARs 11,000Correct
- BRs 10,000
- CRs 12,000
- DRs 13,200
Explanation
Amount = 5,000 x [(1.2^2 - 1)/0.2] = 5,000 x 2.2 = Rs 11,000. Check: first deposit 5,000 x 1.2 = 6,000, plus second 5,000 = 11,000. Rs 10,000 ignores interest.
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