CA Foundation · Quantitative Aptitude · Mathematics of Finance
The future value of an ordinary annuity of 3 equal annual payments at 5% per annum compound interest is ₹63,050. What is the future value of the corresponding annuity due (same payment, same rate, same period)?
The annuity due's future value is ₹66,202.50. Every payment is made one period earlier than in an ordinary annuity, so the ordinary annuity's future value is multiplied by one plus the rate: 63,050 × 1.05. Using 1.1025 would add two years of interest.
- A₹63,050
- B₹66,202.50Correct
- C₹66,050
- D₹69,513.01
Explanation
Each payment of an annuity due is made one year earlier, so it earns one more year of interest. FV(due) = FV(ordinary) × (1 + i) = 63,050 × 1.05 = ₹66,202.50. Multiplying by 1.1025 would add two extra years of interest, which is wrong.
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