CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
Rs 10,000 is invested at a nominal rate of 20% per annum compounded quarterly. What will be the amount at the end of 6 months? (Use simple arithmetic.)
The amount is Rs 11,025. The quarterly rate is 5% and six months contains two quarters, so the amount is 10,000 multiplied by 1.05 squared, which is 1.1025, giving Rs 11,025.
- ARs 11,000
- BRs 11,025Correct
- CRs 11,000.50
- DRs 12,000
Explanation
Quarterly rate = 20/4 = 5%. Number of quarters in 6 months = 2. Amount = 10,000 x 1.05^2 = 10,000 x 1.1025 = Rs 11,025. Rs 11,000 results from using simple interest of 10% for half a year, which ignores compounding.
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