CA Foundation · Quantitative Aptitude · Mathematics of Finance
The future value of an ordinary annuity of ₹20,000 per year for 2 years at 10% per annum compounded annually is ₹42,000. What would be the future value at the end of 2 years if the same payments were made at the beginning of each year (annuity due)?
The future value is ₹46,200. An annuity due makes each payment one year earlier, so every payment earns one extra year of interest. The ordinary annuity value of ₹42,000 is therefore multiplied by 1.10, giving ₹46,200.
- A₹44,000
- B₹46,200Correct
- C₹37,800
- D₹38,182
Explanation
Each payment of an annuity due earns interest for one more year than in an ordinary annuity, so FV(due) = FV(ordinary) × (1 + i) = 42,000 × 1.10 = ₹46,200. Check: 20,000 × 1.21 + 20,000 × 1.10 = 24,200 + 22,000 = 46,200. Adding only ₹2,000 (10% on one payment) ignores interest on the whole series.
Did you get it right without looking?
One question tells you little. A timed set on Mathematics of Finance shows your real accuracy, how long you take and where you lose marks.
More Mathematics of Finance questions
- Verma Foods invests ₹2,00,000 in a project that returns ₹1,10,000 at the end of year 1 and ₹1,21,000 at the end of year 2. Using a discount …
- The sales of Kavya Foods grew from ₹4,00,000 to ₹6,76,000 in 2 years. Assuming growth is compounded annually, what is the compound annual gr…
- A project costs ₹1,00,000 and yields cash inflows of ₹60,000 at the end of year 1 and ₹72,600 at the end of year 2. The cost of capital is 1…
- Verma takes a loan of ₹1,00,000 at 10% per annum compounded annually, repayable in two equal annual instalments at the end of each year. Giv…
- Find the compound interest on ₹40,000 for 6 months at 8% per annum, compounded quarterly.
- Anand Traders receives ₹7,200 at the beginning of each year for 2 years. Using a discount rate of 20% per annum, what is the present value o…