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CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities

Patel Foods deposits Rs 1,00,000 for 1 year at 8% p.a. with interest compounded half-yearly. What is the maturity amount?

The maturity amount is Rs 1,08,160. With half-yearly compounding the 8% annual rate becomes 4% per half-year for two periods, so 1,00,000 x 1.04 squared equals Rs 1,08,160, which is more than the Rs 1,08,000 given by annual simple interest.

  1. ARs 1,08,000
  2. BRs 1,08,160Correct
  3. CRs 1,04,000
  4. DRs 1,08,243

Explanation

Half-yearly rate is 4% for 2 periods. Amount = 1,00,000 x 1.04 x 1.04 = Rs 1,08,160. Rs 1,08,000 ignores compounding (simple interest). Rs 1,08,243 would be quarterly compounding, which is not specified.

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