CMA Foundation · Fundamentals of Business Mathematics and Statistics · Time Value of Money and Annuity - Simple and Compound Interest
Rs 8,000 is invested for 2 years at 10% p.a. compounded half-yearly. What is the amount at maturity? (Use (1.05)^4 = 1.21550625)
The maturity amount is about Rs 9,724. With half-yearly compounding the rate is 5% for four periods, so 8,000 is multiplied by 1.2155. Annual compounding would give only Rs 9,680.
- ARs 9,724Correct
- BRs 9,680
- CRs 9,600
- DRs 9,801
Explanation
Rate per half-year is 5% and periods are 4. Amount = 8,000 x 1.21550625 = 9,724.05, about Rs 9,724. Rs 9,680 comes from annual compounding (8,000 x 1.21), which ignores half-yearly compounding.
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