Mathematics of FinanceMCQMTP Apr 21, ICAI SMQuestion 1322 of 512
All Questions

A sum of money amounts to 20,800\displaystyle 20,800 in 5\displaystyle 5 years and 22720\displaystyle 22720 in 7\displaystyle 7 years. Find the principle and rate of interest.

Options

A5000,6%\displaystyle 5000, 6\%
B16000,8%\displaystyle 16000, 8\%
C80000,8%\displaystyle 80000, 8\%
D10000,10%\displaystyle 10000, 10\%
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Correct Answer

Option b16000,8%\displaystyle 16000, 8\%

All Options:

  • A5000,6%\displaystyle 5000, 6\%
  • B16000,8%\displaystyle 16000, 8\%
  • C80000,8%\displaystyle 80000, 8\%
  • D10000,10%\displaystyle 10000, 10\%

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Detailed Solution & Explanation

**Derivation of Principal and Rate of Simple Interest** Given: - Amount in 5\displaystyle 5 years (A5\displaystyle A_5) = Rs. 20,800\displaystyle \text{Rs. }20,800 - Amount in 7\displaystyle 7 years (A7\displaystyle A_7) = Rs. 22,720\displaystyle \text{Rs. }22,720 **Step 1: Calculate Simple Interest for 2 years (SI2\displaystyle SI_2)** SI2=A7A5=2272020800=Rs. 1,920SI_2 = A_7 - A_5 = 22720 - 20800 = \text{Rs. }1,920 **Step 2: Calculate Simple Interest for 1 year (SI1\displaystyle SI_1)** SI1=19202=Rs. 960SI_1 = \frac{1920}{2} = \text{Rs. }960 **Step 3: Calculate the Principal (P\displaystyle P)** P=A5(5×SI1)=20800(5×960)=208004800=Rs. 16,000P = A_5 - (5 \times SI_1) = 20800 - (5 \times 960) = 20800 - 4800 = \text{Rs. }16,000 **Step 4: Calculate the Rate of Interest (R\displaystyle R)** SI1=P×R×1100SI_1 = \frac{P \times R \times 1}{100} 960=16000×R×1100960 = \frac{16000 \times R \times 1}{100} 960=160R    R=960160=6% per annum960 = 160 R \implies R = \frac{960}{160} = 6\% \text{ per annum} *(Note: The exam option B (16000,8%\displaystyle 16000, 8\%) has a typo listing 8% instead of 6%. The principal of 16,000 uniquely identifies Option B as correct).* Hence, **Option B** 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

Exam Strategy Tip

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