NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money
Mr. Iyer plans to deposit Rs 10,000 today in a bank account paying 10% per annum compounded annually. What will be the balance at the end of 3 years?
The balance will be Rs 13,310, because compounding at 10% for three years multiplies the principal by 1.331. Simple interest would give only Rs 13,000, since it ignores interest earned on previously credited interest.
- ARs 13,000
- BRs 13,310Correct
- CRs 13,100
- DRs 12,100
Explanation
FV = 10,000 x (1.10)^3 = 10,000 x 1.331 = Rs 13,310. Rs 13,000 is simple interest, which ignores interest earned on interest. Rs 12,100 is the value after only 2 years.
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