NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
Ms. Kavita invested Rs 50,000 in a bank deposit that earns 8% per annum compounded annually. What will be the value of the deposit at the end of 2 years?
The deposit grows to Rs 58,320. Compounding at 8% for two years multiplies the principal by 1.08 twice, giving a factor of 1.1664 on Rs 50,000. Simple interest would give only Rs 58,000 because it ignores interest earned on earlier interest.
- ARs 58,000
- BRs 58,320Correct
- CRs 57,600
- DRs 59,200
Explanation
Compound value = 50,000 x 1.08 x 1.08 = 50,000 x 1.1664 = Rs 58,320. Rs 58,000 is a simple-interest result (50,000 + 2 x 4,000 is 58,000), ignoring interest on interest.
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