NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Time Value of Money
Ms. Kavita invests Rs 50,000 at the end of each year for 3 years in a scheme that earns 10% per annum compounded annually. What is the value of her investment at the end of year 3?
The value is Rs 1,65,500. For an ordinary annuity of Rs 50,000 for 3 years at 10%, the future value factor is 3.31. The first deposit grows for two years, the second for one year and the last earns nothing, giving 60,500 + 55,000 + 50,000.
- ARs 1,65,500Correct
- BRs 1,50,000
- CRs 1,81,050
- DRs 1,65,000
Explanation
Future value of an ordinary annuity = 50,000 x [(1.1)^3 - 1]/0.1 = 50,000 x 3.31 = Rs 1,65,500. Check: 50,000x1.21 + 50,000x1.1 + 50,000 = 60,500+55,000+50,000 = 1,65,500. Rs 1,81,050 would result from treating payments as made at the start of each year (annuity due).
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