CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
Rs 10,000 is deposited for 1 year at 20% per annum compounded half-yearly. What is the amount at the end of the year?
The amount is Rs 12,100. With half-yearly compounding the rate per period is 10% for 2 periods, so the amount is 10,000 x 1.10 x 1.10 = Rs 12,100. Annual compounding at 20% would give only Rs 12,000.
- ARs 12,000
- BRs 12,100Correct
- CRs 12,200
- DRs 11,000
Explanation
Half-yearly rate = 10% and periods = 2. Amount = 10,000 x (1.10)^2 = 12,100. Rs 12,000 results from using annual compounding at the nominal rate, which ignores the extra interest from half-yearly compounding.
Did you get it right without looking?
One question tells you little. A timed set on Time Value of Money and Annuity - Simple and Compound Interest shows your real accuracy, how long you take and where you lose marks.
More Time Value of Money and Annuity - Simple and Compound Interest questions
- A firm wants to accumulate Rs 2,100 at the end of 2 years by making equal deposits at the end of each of the 2 years at 10% p.a. compound in…
- At what annual simple interest rate will a sum of money double itself in 12.5 years?
- A firm leases equipment and pays Rs 12,000 at the beginning of each year for 2 years. If the discount rate is 20% p.a., what is the present …
- The difference between compound interest and simple interest on a sum for 2 years at 10% per annum is Rs 150. What is the sum?
- A nominal rate of 8% per annum is compounded quarterly. Which expression gives the effective annual rate?
- Mr. Reddy will receive Rs 2,000 at the end of each year for 3 years and, on the same terms, a perpetuity of Rs 2,000 a year would start at t…