CMA Intermediate · Financial Management and Business Data Analytics · Time Value of Money
Rajesh wants to accumulate ₹3,31,000 at the end of 3 years by making equal year-end deposits into a fund earning 10% p.a. compounded annually. What equal annual deposit is needed? (FV factor of an ordinary annuity for 3 years at 10% = 3.31)
He needs to deposit ₹1,00,000 each year. Dividing the target ₹3,31,000 by the ordinary annuity future value factor of 3.31 gives the equal year-end deposit, which accounts for compound interest at 10%.
- A₹1,10,333
- B₹1,00,000Correct
- C₹90,909
- D₹1,21,000
Explanation
Deposit = target FV / FV annuity factor = 3,31,000 / 3.31 = 1,00,000. Check: 1,00,000 x (1.21 + 1.10 + 1) = 3,31,000. ₹1,10,333 results from dividing by 3 and ignoring interest... actually it ignores compounding.
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