Skip to content

CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest

Mrs. Sharma lends Rs 24,000 to a friend at 7.5% per annum simple interest. How much interest will she earn in 4 years?

The interest earned is Rs 7,200. Simple interest equals principal multiplied by rate and time, so 24,000 x 7.5% x 4 gives 24,000 x 0.30, which is Rs 7,200. Interest is charged only on the original principal each year.

  1. ARs 6,000
  2. BRs 7,200Correct
  3. CRs 7,500
  4. DRs 9,000

Explanation

Simple interest = P x r x t = 24,000 x 0.075 x 4 = 24,000 x 0.30 = Rs 7,200. Rs 6,000 would come from using 6.25% instead of 7.5%. Rs 9,000 would come from using 9.375%, which is not given. Rs 7,500 is just a nearby figure that does not match the calculation.

Did you get it right without looking?

One question tells you little. A timed set on Time Value of Money and Annuity - Simple and Compound Interest shows your real accuracy, how long you take and where you lose marks.

Practise Time Value of Money and Annuity - Simple and Compound InterestFree diagnostic mock

More Time Value of Money and Annuity - Simple and Compound Interest questions