CA Foundation · Quantitative Aptitude · Mathematics of Finance
Neha deposits ₹5,000 at the end of each year for 3 years in an account paying 10% per annum compounded annually. She makes no more deposits and leaves the accumulated amount untouched for a further 2 years. What will the balance be at the end of 5 years from the first deposit date's start (i.e., 2 years after the third deposit)?
The balance will be ₹20,025.50. The three year-end deposits of ₹5,000 at 10% accumulate to ₹16,550 at the end of year 3. That sum then compounds for two more years at 10%, multiplying it by 1.21.
- A₹16,550.00
- B₹18,205.00
- C₹20,025.50Correct
- D₹22,028.05
Explanation
FV of the ordinary annuity at the end of year 3 = 5,000 × (1.1³ − 1)/0.1 = 5,000 × 3.31 = ₹16,550. This then grows for 2 more years: 16,550 × 1.21 = ₹20,025.50. ₹18,205 grows it only one year, and ₹22,028.05 grows it three years.
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