Mathematics of FinanceMCQPYQ Dec 23Question 1251 of 512
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What is the effective rate of interest when principal amount 50,000\displaystyle 50,000 deposited in a nationalized bank for one year, corresponding to a nominal rate interest 8%\displaystyle 8\% per annum compounded quarterly [1.028=1.0824\displaystyle 1.02^8 = 1.0824]

Options

A10.48%\displaystyle 10.48\%
B8.08%\displaystyle 8.08\%
C8.16%\displaystyle 8.16\%
D8.24%\displaystyle 8.24\%
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Correct Answer

Option d8.24%\displaystyle 8.24\%

All Options:

  • A10.48%\displaystyle 10.48\%
  • B8.08%\displaystyle 8.08\%
  • C8.16%\displaystyle 8.16\%
  • D8.24%\displaystyle 8.24\%

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Detailed Solution & Explanation

**Derivation of Effective Rate of Interest** Given: - Nominal interest rate (r\displaystyle r) = 8%\displaystyle 8\% per annum - Compounding Frequency = Quarterly (m=4\displaystyle m = 4) **Step 1: Find the quarterly interest rate (i\displaystyle i)** i=rm=8%4=2%=0.02 per quarteri = \frac{r}{m} = \frac{8\%}{4} = 2\% = 0.02 \text{ per quarter} **Step 2: Calculate the effective annual interest rate (E\displaystyle E)** E=(1+i)m1E = (1 + i)^m - 1 E=(1+0.02)41E = (1 + 0.02)^4 - 1 E=(1.02)41E = (1.02)^4 - 1 Using (1.02)41.0824\displaystyle (1.02)^4 \approx 1.0824: E=1.08241=0.0824 or 8.24%E = 1.0824 - 1 = 0.0824 \text{ or } 8.24\% Hence, **Option D** is the correct answer.

About This Chapter: Mathematics of Finance

Paper

Paper 3: Quantitative Aptitude

Weightage

12-16 Marks

Key Topics

Simple & Compound Interest, Annuity, Perpetuity

The most important mathematical chapter in the entire syllabus. It covers Simple Interest (SI), Compound Interest (CI), Nominal vs Effective rates, Present and Future Value, Annuities (Ordinary and Due), Sinking Funds, and Perpetuities. The concepts learned here are applied heavily in CA Intermediate and Final.

View Official ICAI Syllabus

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