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CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities

Sunita's savings account earns interest at 4% per annum, calculated on the daily closing balance and credited quarterly. Her closing balance was Rs 1,00,000 for 73 days of a quarter and Rs 2,00,000 for the next 18 days to complete a 91-day quarter segment. Using a 365-day year, what interest accrues for these 91 days?

Interest accrues on daily balances: 1,09,00,000 rupee-days at 4% over a 365-day year gives about Rs 1,195, so the nearest option is Rs 1,200. Using only the lower balance for the whole period would give about Rs 1,000, which ignores the higher balance.

  1. ARs 1,000
  2. BRs 1,200Correct
  3. CRs 800
  4. DRs 1,400

Explanation

Rupee-days = 1,00,000 x 73 + 2,00,000 x 18 = 73,00,000 + 36,00,000 = 1,09,00,000. Interest = 1,09,00,000 x 4 / (100 x 365) = 4,36,000/365 = Rs 1,194.5, about Rs 1,195, so Rs 1,200 is nearest. Rs 1,000 uses only the Rs 1,00,000 balance for 91 days at 4% x 91/365 = 997.

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