CA Foundation · Quantitative Aptitude · Mathematics of Finance
The future value of an ordinary annuity of ₹2,000 per year for 2 years at a rate of interest i per annum compounded annually is ₹4,200. What is the rate of interest?
The rate is 10% per annum. With two year-end payments, the first grows for one year and the second earns nothing, so 2,000(2 + i) = 4,200. This gives i = 0.1. Checking, 2,200 + 2,000 equals 4,200.
- A5%
- B20%
- C10%Correct
- D21%
Explanation
For 2 payments, FV = 2,000[(1+i)+1] = 4,200, so 2+i = 2.1 and i = 10%. Check: 2,000×1.1 + 2,000 = 4,200. The 21% option confuses two-year compounded growth with the annual rate.
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