Skip to content

CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest

Rs 25,000 is deposited by Ms. Pooja in a bank at 8% per annum compounded half-yearly. What will be the amount at the end of 1 year?

The amount is Rs 27,040. With half-yearly compounding the rate per period is 4% and there are 2 periods, so the amount is 25,000 multiplied by 1.0816. Annual compounding at 8% would give only Rs 27,000.

  1. ARs 27,000
  2. BRs 27,040Correct
  3. CRs 27,200
  4. DRs 26,000

Explanation

Half-yearly rate = 4% for 2 periods. Amount = 25,000 x (1.04)^2 = 25,000 x 1.0816 = Rs 27,040. Rs 27,000 results from compounding annually at 8%, ignoring the 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.

Practise Time Value of Money and Annuity - Simple and Compound InterestFree diagnostic mock

More Time Value of Money and Annuity - Simple and Compound Interest questions