NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money
Ms. Kavita invests Rs 10,000 at the end of each year for 3 years in a scheme earning 10% per annum compounded annually. What is the value of her investments at the end of year 3?
The value is Rs 33,100. With end-of-year payments, the first deposit earns interest for two years, the second for one year and the third none, so 10,000 times (1.21 + 1.10 + 1) equals Rs 33,100.
- ARs 30,000
- BRs 33,100Correct
- CRs 36,410
- DRs 13,310
Explanation
For an ordinary annuity, FV = 10,000 x (1.10^2 + 1.10 + 1) = 10,000 x 3.31 = Rs 33,100. Rs 36,410 treats the payments as made at the start of each year (annuity due). Rs 13,310 compounds only one payment for 3 years, and Rs 30,000 ignores interest.
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