CMA Intermediate · Financial Management and Business Data Analytics · Time Value of Money
Kavita Enterprises invests ₹1,00,000 for 2 years at 10% p.a. Interest is compounded annually. What is the maturity value at the end of 2 years?
The maturity value is ₹1,21,000. With annual compounding, the sum grows by a factor of 1.10 each year, so after two years it is 1,00,000 multiplied by 1.21. Simple interest would give only ₹1,20,000 because it ignores interest on interest.
- A₹1,20,000
- B₹1,21,000Correct
- C₹1,10,000
- D₹1,19,000
Explanation
Compound value = 1,00,000 x (1.10)^2 = 1,00,000 x 1.21 = ₹1,21,000. The ₹1,20,000 option comes from simple interest, which ignores interest earned on the first year's interest.
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