CA Foundation · Quantitative Aptitude · Mathematics of Finance
Ramesh invests ₹40,000 today at 10% per annum compounded annually. What will be its future value at the end of 2 years?
The future value is ₹48,400. Compounding ₹40,000 at 10% for two years multiplies it by 1.21. Simple interest would give only ₹48,000 because it omits the interest earned on the first year's interest.
- A₹48,000
- B₹48,400Correct
- C₹44,000
- D₹46,400
Explanation
FV = 40,000 x (1.10)^2 = 40,000 x 1.21 = ₹48,400. Check: year 1 gives 44,000; year 2 gives 44,000 x 1.1 = 48,400. The ₹48,000 option uses simple interest and misses interest on interest.
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