CA Foundation · Quantitative Aptitude · Mathematics of Finance
Anita invests ₹10,000 at 20% per annum compounded half-yearly. What amount will she have at the end of 1 year, and what is the effective annual rate?
She will have ₹12,100 and the effective annual rate is 21%. Compounding half-yearly at 10% per period grows ₹10,000 to ₹11,000 and then ₹12,100. Interest of ₹2,100 on ₹10,000 is 21%, higher than the 20% nominal rate.
- A₹12,000 and 20%
- B₹12,100 and 21%Correct
- C₹12,100 and 20%
- D₹12,200 and 22%
Explanation
Half-yearly rate = 10%. Amount = 10,000 × (1.10)^2 = ₹12,100. Interest is ₹2,100 on ₹10,000, so effective rate = 21%. Option ₹12,000 and 20% ignores compounding.
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