NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Investment
An investor puts Rs 50,000 in an investment that grows at 10% per annum compounded annually. What will be the value at the end of 2 years?
The value after 2 years is Rs 60,500. Compounding at 10 percent means the amount is multiplied by 1.10 twice, giving 50,000 times 1.21. Simple interest would give only Rs 60,000, ignoring interest earned on interest.
- ARs 60,000
- BRs 60,500Correct
- CRs 55,000
- DRs 61,000
Explanation
Future value = 50,000 x (1.10)^2 = 50,000 x 1.21 = Rs 60,500. Rs 60,000 results from simple interest. Rs 55,000 is only one year's growth. Rs 61,000 is an arbitrary overstatement.
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