CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
Ms. Rao invests Rs 40,000 at 10% p.a. compounded half-yearly. What will be the amount after 1 year?
The amount is Rs 44,100. Half-yearly compounding at 10% p.a. means 5% per half-year for two periods, so 40,000 multiplied by 1.1025 gives Rs 44,100. Annual compounding would give only Rs 44,000.
- ARs 44,000
- BRs 44,100Correct
- CRs 44,200
- DRs 43,600
Explanation
Rate per half-year is 5% and periods are 2. Amount = 40,000 x (1.05)^2 = 40,000 x 1.1025 = Rs 44,100. Rs 44,000 ignores compounding within the year (annual compounding). Rs 44,200 adds simple interest twice at 5% on a higher base incorrectly.
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