Free Financial Mathematics: Interest, Annuities and Discounting MCQs with Answers

• A. Rs. 1,200
• B. Rs. 1,000
• C. Rs. 1,240
• D. Rs. 1,400

Explanation: Simple interest is calculated as P × r × t. Thus, Rs. 5,000 × 0.08 × 3 equals Rs.

• A. Rs. 12,000
• B. Rs. 12,100
• C. Rs. 12,200
• D. Rs. 12,210

Explanation: The amount is 10,000 × (1.10)², which equals Rs. 12,100. Rs. 12,000 results from applying simple interest instead of annual compounding.

• A. Rs. 40,500.00
• B. Rs. 45,454.55
• C. Rs. 45,000.00
• D. Rs. 41,322.31

Explanation: Present value equals future value divided by (1 + r)ⁿ. Therefore, Rs. 50,000 ÷ (1.10)² equals approximately Rs. 41,322.31; Rs.

• A. Rs. 3,310
• B. Rs. 3,100
• C. Rs. 3,000
• D. Rs. 3,641

Explanation: For an ordinary annuity, payments occur at the end of each period. The value is 1,000[(1.10)³ − 1] ÷ 0.10, giving Rs. 3,310; Rs.

• A. Rs. 2,700.00
• B. Rs. 2,486.85
• C. Rs. 2,735.54
• D. Rs. 3,000.00

Explanation: The present value is 1,000[1 − (1.10)⁻³] ÷ 0.10, which is approximately Rs. 2,486.85.

• A. Rs. 96,000
• B. Rs. 120,000
• C. Rs. 150,000
• D. Rs. 160,000

Explanation: The present value of a level perpetuity is annual payment divided by the discount rate. Thus, Rs. 12,000 ÷ 0.08 equals Rs.

• A. 12.00%
• B. 12.36%
• C. 12.68%
• D. 13.20%

Explanation: The effective annual rate is (1 + 0.12/12)¹² − 1. This equals approximately 12.68%, which is higher than the nominal rate because interest…

• A. A level ordinary annuity
• B. A level annuity due
• C. A perpetuity payment
• D. A simple-interest payment

Explanation: The present value of three end-of-year payments of Rs. 4,021.15 at 10% is approximately Rs. 10,000.

• A. Rs. 3,310
• B. Rs. 3,410
• C. Rs. 3,641
• D. Rs. 3,900

Explanation: Beginning-of-year payments form an annuity due. Its value is the ordinary annuity value multiplied by 1.10, so Rs. 3,310 × 1.10 equals Rs.

• A. Rs. 9,200
• B. Rs. 9,600
• C. Rs. 9,425
• D. Rs. 9,400

Explanation: Under simple bank discount, discount equals F × d × t. The discount is Rs. 10,000 × 0.08 × 9/12, or Rs. 600, so the proceeds are Rs. 9,400.

• A. Rs. 9,200
• B. Rs. 9,000
• C. Rs. 9,440
• D. Rs. 10,000

Explanation: Simple interest equals PRT, so it is 8,000 × 0.06 × 2.5 = Rs. 1,200. Adding this interest to the principal gives a total amount of Rs.

• A. Rs. 10,800.00
• B. Rs. 10,824.32
• C. Rs. 10,864.00
• D. Rs. 10,832.00

Explanation: The quarterly rate is 8% divided by 4, or 2%, and there are four compounding periods. Thus, the amount is 10,000(1.02)^4 = Rs. 10,824.32.

• A. Rs. 100.00
• B. Rs. 152.50
• C. Rs. 150.00
• D. Rs. 162.50

Explanation: Simple interest is Rs. 3,000, while compound interest is 20,000[(1.05)^3 − 1] = Rs. 3,152.50.

• A. Rs. 2,486.85
• B. Rs. 3,000.00
• C. Rs. 2,735.54
• D. Rs. 3,310.00

Explanation: The present value of an annuity due equals the present value of an ordinary annuity multiplied by 1.10.

• A. Rs. 1,867.43
• B. Rs. 2,735.54
• C. Rs. 2,486.85
• D. Rs. 2,055.25

Explanation: The three payments first have a value of Rs. 2,486.85 at the end of year 2.

• A. Rs. 8,000.00
• B. Rs. 8,528.14
• C. Rs. 9,000.00
• D. Rs. 10,000.00

Explanation: For a sinking fund, the annual deposit is FV × i divided by [(1+i)^n − 1].

• A. Rs. 500
• B. Rs. 800
• C. Rs. 1,000
• D. Rs. 1,100

Explanation: Bank discount is calculated on the maturity value, using D = Mdt. Hence, D = 20,000 × 0.10 × 0.5 = Rs. 1,000.

• A. Rs. 10,500.00
• B. Rs. 11,000.00
• C. Rs. 11,300.00
• D. Rs. 11,157.02

Explanation: Each cash flow is discounted to the present separately. The value is 5,000 divided by 1.10 plus 8,000 divided by 1.10^2, which equals…

• A. It decreases as principal falls
• B. It remains exactly constant
• C. It increases steadily
• D. It becomes zero immediately

Explanation: Interest is calculated on the outstanding loan balance. As regular payments reduce the principal, the interest portion decreases and the…

• A. Rs. 11,200.00
• B. Rs. 11,274.97
• C. Rs. 11,236.00
• D. Rs. 11,360.00

Explanation: With continuous compounding, the amount is A = Pe^(rt). Thus, A = 10,000e^(0.06×2) = approximately Rs. 11,274.97.