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CS Executive · Corporate Accounting and Financial Management · Time Value of Money

Kiran deposits Rs 20,000 at the end of each year for 3 years in a scheme earning 10% p.a. compounded annually. What is the accumulated value at the end of year 3?

The accumulated value is Rs 66,200. For deposits at each year-end, the future value annuity factor at 10% for 3 years is 3.31, so 20,000 x 3.31 equals 66,200. Rs 72,820 would apply only if deposits were made at the beginning of each year.

  1. ARs 60,000
  2. BRs 66,200Correct
  3. CRs 72,820
  4. DRs 26,620

Explanation

Ordinary annuity: 20,000 x [(1.10)^3 - 1]/0.10 = 20,000 x 3.31 = Rs 66,200. Check: 20,000x1.21 + 20,000x1.10 + 20,000 = 24,200 + 22,000 + 20,000 = 66,200. Rs 72,820 treats deposits as made at the start of each year (annuity due).

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