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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money

Mr. Sharma, aged 40, will invest Rs 20,000 at the end of each year for 3 years in a scheme earning 10% per annum. What is the future value of this annuity at the end of year 3?

The future value is Rs 66,200. For an ordinary annuity, the factor is (1.1^3 - 1)/0.1 = 3.31, and 20,000 x 3.31 gives 66,200. Rs 72,820 would apply only if deposits were made at the start of each year.

  1. ARs 60,000
  2. BRs 66,200Correct
  3. CRs 72,820
  4. DRs 79,500

Explanation

FV = 20,000 x [(1.10)^3 - 1]/0.10 = 20,000 x 3.31 = Rs 66,200. Check: 20,000x1.21 + 20,000x1.10 + 20,000 = 24,200 + 22,000 + 20,000 = 66,200. Rs 72,820 is the annuity-due value (66,200 x 1.10).

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