CS Executive · Corporate Accounting and Financial Management · Time Value of Money
Ramesh deposits ₹50,000 in a bank for 2 years at 10% per annum compounded annually. What will be the amount at the end of 2 years?
The amount is ₹60,500. Compounding at 10% for two years multiplies the principal by 1.21, giving 50,000 × 1.21. Simple interest would give only ₹60,000 because it ignores interest earned on the first year's interest.
- A₹60,000
- B₹60,500Correct
- C₹55,000
- D₹61,000
Explanation
Future value = 50,000 × (1.10)^2 = 50,000 × 1.21 = ₹60,500. Option ₹60,000 is simple interest (50,000 + 2 × 5,000), ignoring interest on interest. Check: year 1 = 55,000; year 2 = 55,000 × 1.1 = 60,500.
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