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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money

Caselet: Anand, aged 35, plans to save for his daughter's education. He will invest Rs 10,000 at the end of each year for 3 years in a fund earning 10% per annum compounded annually. What is the accumulated value at the end of year 3, and how does it compare with the same deposits made at the beginning of each year (annuity due)?

The ordinary annuity accumulates to Rs 33,100 and the annuity due to Rs 36,410. The annuity due is the ordinary annuity value multiplied by 1.10, because every deposit made at the start of the year earns one additional year of interest.

  1. ARs 33,100 for ordinary annuity; Rs 36,410 for annuity dueCorrect
  2. BRs 33,100 for ordinary annuity; Rs 33,100 for annuity due
  3. CRs 36,410 for ordinary annuity; Rs 33,100 for annuity due
  4. DRs 30,000 for ordinary annuity; Rs 33,000 for annuity due

Explanation

Ordinary annuity FV = 10,000 x (1.1^3 - 1)/0.1 = 10,000 x 3.31 = Rs 33,100. Annuity due = 33,100 x 1.1 = Rs 36,410, as each deposit earns one extra year of interest. Check by summing: 12,100 + 11,000 + 10,000 = 33,100.

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