A sum of Rs. 10,000 is invested at a nominal rate of 10% per annum compounded semiannually. What is its value after 3 years?
Correct answer: C. Rs. 13,400.96
- A. Rs. 13,310.00
- B. Rs. 13,500.00
- C. Rs. 13,400.96
- D. Rs. 13,600.00
Explanation
The semiannual rate is 5% and there are six compounding periods. Thus, the value is Rs. 10,000(1.05)^6 = Rs. 13,400.96. Using 10% directly for each half-year would overstate the amount.
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About Financial Mathematics: Interest, Annuities and Discounting
Financial mathematics covers simple and compound interest, principal, rate, time, accumulated value and present value. It also includes annuities, regular payments, sinking funds, loan repayments and discounting, with a distinction between ordinary annuities and annuities due and between trade discount and mathematical discount.
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