CMA Intermediate · Financial Management and Business Data Analytics · Time Value of Money
Meera deposits ₹10,000 at the end of each year for 3 years in a bank account that pays 10% p.a. compound interest. What will be the balance at the end of year 3?
The balance is ₹33,100. Each end-of-year deposit compounds for 2, 1 and 0 years respectively, giving 12,100 + 11,000 + 10,000. This equals 10,000 times the annuity factor 3.31. Treating deposits as made at the start would wrongly give ₹36,410.
- A₹33,100Correct
- B₹30,000
- C₹36,410
- D₹30,310
Explanation
FV of an ordinary annuity = 10,000 × [(1.1^3 − 1)/0.10] = 10,000 × 3.31 = ₹33,100. Check: 10,000×1.21 + 10,000×1.1 + 10,000 = 12,100+11,000+10,000 = 33,100. ₹36,410 wrongly treats it as an annuity due (one extra year of compounding).
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