CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
A sum of money becomes Rs 13,310 after 3 years and Rs 14,641 after 4 years under annual compounding. What is the original sum invested?
The original sum is Rs 10,000. The growth from year 3 to year 4 is 1,331 on 13,310, so the rate is 10%. Dividing 13,310 by 1.1 cubed, which is 1.331, gives Rs 10,000, and 10,000 x 1.4641 confirms Rs 14,641.
- ARs 9,000
- BRs 10,000Correct
- CRs 11,000
- DRs 12,100
Explanation
Rate = (14,641 - 13,310)/13,310 = 1,331/13,310 = 10%. Principal = 13,310 / (1.1)^3 = 13,310 / 1.331 = 10,000. Check: 10,000 x 1.4641 = 14,641. Rs 11,000 would arise from wrongly dividing by 1.21.
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