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CMA Foundation · Fundamentals of Business Mathematics and Statistics · Arithmetic Progression and Geometric Progression

Meera invests Rs 10,000 at the end of each year for 3 years in a scheme paying 10% compound interest per annum. What is the total amount at the end of the third year, just after the third deposit?

The amount is Rs 33,100, found by summing the GP of deposits compounded for 2, 1 and 0 years: 10,000 times (1.21 + 1.1 + 1).

  1. ARs 33,100Correct
  2. BRs 33,000
  3. CRs 36,410
  4. DRs 30,000

Explanation

The deposits earn 2, 1 and 0 years of interest: 10,000 x (1.1^2 + 1.1 + 1) = 10,000 x (1.21+1.1+1) = 10,000 x 3.31 = Rs 33,100. Rs 33,000 ignores compounding on the first year's interest. Rs 36,410 wrongly treats it as a start-of-year annuity.

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