Mathematics for FinancePYQ June 24Question 1262 of 512
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Find the effective rate of interest if an amount of 40,000\displaystyle 40,000 deposited in a bank for 1\displaystyle 1 year at the rate of 10%\displaystyle 10\% compounded semi-annually

Options

A10.20%\displaystyle 10.20\%
B10.05%\displaystyle 10.05\%
C10.25%\displaystyle 10.25\%
D10.10%\displaystyle 10.10\%
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Correct Answer

✅ Option c — 10.25%\displaystyle 10.25\%

All Options:

  • A10.20%\displaystyle 10.20\%
  • B10.05%\displaystyle 10.05\%
  • C10.25%\displaystyle 10.25\%
  • D10.10%\displaystyle 10.10\%

Detailed Solution & Explanation

**Derivation of Effective Rate of Interest** Given: - Principal (P\displaystyle P) = Rs. 40,000\displaystyle \text{Rs. }40,000 (Note: Effective rate is independent of Principal) - Nominal Rate (r\displaystyle r) = 10%\displaystyle 10\% per annum compounded semi-annually - Time (t\displaystyle t) = 1\displaystyle 1 year **Step 1: Find periodic rate (i\displaystyle i) and number of periods (m\displaystyle m)** - Periodic rate i=10%2=5%=0.05\displaystyle i = \frac{10\%}{2} = 5\% = 0.05 - Number of periods m=2\displaystyle m = 2 **Step 2: Calculate Effective Rate (E\displaystyle E)** E=(1+i)m−1E = (1 + i)^m - 1 E=(1+0.05)2−1E = (1 + 0.05)^2 - 1 E=(1.05)2−1E = (1.05)^2 - 1 E=1.1025−1=0.1025 or 10.25%E = 1.1025 - 1 = 0.1025 \text{ or } 10.25\% Hence, **Option C** is the correct answer.

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