CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
Mr. Reddy deposits Rs 10,000 at the beginning of each year for 2 years in a bank paying 10% p.a. compound interest. What is the accumulated amount at the end of year 2?
The accumulated amount is Rs 23,100. With deposits at the beginning of each year, the first Rs 10,000 earns interest for two years and becomes Rs 12,100, while the second earns for one year and becomes Rs 11,000, giving a total of Rs 23,100.
- ARs 21,000
- BRs 23,100Correct
- CRs 22,100
- DRs 24,200
Explanation
First deposit grows for 2 years: 10,000 x 1.21 = 12,100. Second grows for 1 year: 10,000 x 1.1 = 11,000. Total = Rs 23,100. Rs 21,000 is the ordinary annuity value (end-of-year deposits), which ignores the extra year of interest.
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