NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
Rs 1,00,000 is invested at 8% per annum with annual compounding. What is the approximate value after 2 years?
The value after two years is Rs 1,16,640. With annual compounding, Rs 1,00,000 grows to Rs 1,08,000 in year one and then 8 percent more on that amount, giving Rs 1,16,640. Simple interest would wrongly give Rs 1,16,000.
- ARs 1,16,000
- BRs 1,16,640Correct
- CRs 1,15,000
- DRs 1,17,000
Explanation
Value = 1,00,000 x 1.08 x 1.08 = 1,16,640. Rs 1,16,000 results from simple interest, which ignores interest earned on interest.
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