CS Executive · Corporate Accounting and Financial Management · Time Value of Money
Meera invests Rs 10,000 at 12% per annum compounded half-yearly. What is the amount at the end of 1 year?
The amount is Rs 11,236. With half-yearly compounding, the 12% annual rate is split into 6% per half-year for two periods, so 10,000 x 1.06 squared equals 11,236. Using simple annual interest would wrongly give Rs 11,200.
- ARs 11,200
- BRs 11,236Correct
- CRs 11,255
- DRs 11,000
Explanation
Half-yearly rate = 6% for 2 periods. FV = 10,000 x (1.06)^2 = 10,000 x 1.1236 = Rs 11,236. Rs 11,200 is simple interest at 12% and ignores compounding within the year.
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