CMA Intermediate · Financial Management and Business Data Analytics · Time Value of Money
Sunita Textiles of Surat deposits ₹20,000 at the beginning of each year for 3 years in a fund earning 10% p.a. compounded annually. Using the ordinary-annuity FV factor for 3 years at 10% as 3.310, what will be the value of the fund at the end of year 3?
The fund will be worth ₹72,820. Deposits are made at the start of each year, so it is an annuity due. The ordinary annuity value of ₹66,200 (20,000 x 3.310) is multiplied by 1.10 to add one more year of interest.
- A₹66,200
- B₹72,820Correct
- C₹60,182
- D₹79,442
Explanation
Annuity due FV = ordinary annuity FV x (1+r). Ordinary FV = 20,000 x 3.310 = 66,200. Multiply by 1.10 = 72,820. The figure ₹66,200 is wrong because it treats the payments as made at year-end and ignores the extra year of interest for beginning-of-year deposits.
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