CA Foundation · Quantitative Aptitude · Mathematics of Finance
Mr. Verma invests ₹40,000 at a nominal rate of 10% per annum compounded half-yearly. What will be the interest earned by him in the first year?
The interest for the first year is ₹4,100. The half-yearly rate is 5%, so the amount is 40,000 x 1.05 x 1.05 = ₹44,100. Subtracting the principal of ₹40,000 gives interest of ₹4,100, which is more than the simple interest of ₹4,000.
- A₹4,000
- B₹4,100Correct
- C₹4,200
- D₹2,050
Explanation
Half-yearly rate = 5%. Amount after 1 year = 40,000 x (1.05)^2 = 40,000 x 1.1025 = ₹44,100. Interest = 44,100 - 40,000 = ₹4,100. The option ₹4,000 ignores compounding and uses the nominal rate as simple interest.
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