Mathematics of FinanceMCQMTP May 18Question 1275 of 512
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Nominal rate of Interest 9.9%\displaystyle 9.9\% p.a. If Interest is compounded monthly. What will be the effective rate of Interest? (Given (40334000)12=1.1036\displaystyle \left( \frac{4033}{4000} \right)^{12} = 1.1036 )

Options

A10.36%\displaystyle 10.36\%
B9.36%\displaystyle 9.36\%
C11.36%\displaystyle 11.36\%
D9.9%\displaystyle 9.9\%
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Correct Answer

Option a10.36%\displaystyle 10.36\%

All Options:

  • A10.36%\displaystyle 10.36\%
  • B9.36%\displaystyle 9.36\%
  • C11.36%\displaystyle 11.36\%
  • D9.9%\displaystyle 9.9\%

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Detailed Solution & Explanation

**Derivation of Effective Rate of Interest** Given: - Nominal interest rate (r\displaystyle r) = 9.9%\displaystyle 9.9\% per annum - Compounding Frequency = Monthly (m=12\displaystyle m = 12) - Given: (40334000)12=1.1036\displaystyle \left(\frac{4033}{4000}\right)^{12} = 1.1036 **Step 1: Find the monthly interest rate (i\displaystyle i)** i=rm=9.9%12=0.825%=0.00825 per monthi = \frac{r}{m} = \frac{9.9\%}{12} = 0.825\% = 0.00825 \text{ per month} 1+i=1+0.00825=1.00825=403340001 + i = 1 + 0.00825 = 1.00825 = \frac{4033}{4000} **Step 2: Calculate the effective annual interest rate (E\displaystyle E)** E=(1+i)m1E = (1 + i)^m - 1 E=(40334000)121E = \left(\frac{4033}{4000}\right)^{12} - 1 Using the given value: E=1.10361=0.1036 or 10.36%E = 1.1036 - 1 = 0.1036 \text{ or } 10.36\% Hence, **Option A** 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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