CA Foundation · Quantitative Aptitude · Mathematics of Finance
Ravi deposits ₹5,000 at the beginning of every year for 3 years in a bank paying 10% per annum compounded annually. What will be the amount at the end of the third year?
The amount is ₹18,205. Because deposits are made at the start of each year, this is an annuity due: the ordinary annuity value of ₹16,550 is multiplied by 1.1. Equivalently, the deposits grow for 3, 2 and 1 years.
- A₹16,550
- B₹18,205Correct
- C₹15,000
- D₹19,000
Explanation
Each deposit earns interest for a full year more than in an ordinary annuity. 5,000×1.331 + 5,000×1.21 + 5,000×1.1 = 6,655 + 6,050 + 5,500 = ₹18,205. ₹16,550 treats the deposits as made at year end.
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