Mathematics of FinanceMCQMTP June 22Question 1353 of 512
All Questions

Find the effective rate of interest if an amount of 30,000\displaystyle 30,000 deposited in a bank. For 1\displaystyle 1 year at the rate of 10%\displaystyle 10\% p.a. compounded semi-annually.

Options

A10.05%\displaystyle 10.05\%
B10.10%\displaystyle 10.10\%
C10.20%\displaystyle 10.20\%
D10.25%\displaystyle 10.25\%
For any discrepancies in this question, email contact@cadada.in

Correct Answer

Option d10.25%\displaystyle 10.25\%

All Options:

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

Ad

Detailed Solution & Explanation

**Derivation of Effective Rate of Interest** Given: - Nominal interest rate (r\displaystyle r) = 10%\displaystyle 10\% per annum compounded semi-annually **Step 1: Calculate 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 per half-year. - Compounding periods per year m=2\displaystyle m = 2. **Step 2: Calculate the effective annual interest rate (E\displaystyle E)** E=(1+i)m1E = (1 + i)^m - 1 E=(1+0.05)21E = (1 + 0.05)^2 - 1 E=(1.05)21E = (1.05)^2 - 1 E=1.10251=0.1025 or 10.25%E = 1.1025 - 1 = 0.1025 \text{ or } 10.25\% *(Note: The database lists Option A (10.05%\displaystyle 10.05\%) as correct, which is a typo in the key. The mathematically correct rate is 10.25%, which is Option D.)* 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

Exam Strategy Tip

Guaranteed 12-16 marks. Master your calculator! Learn the 'GT' and compound interest M+/M- tricks to solve annuity questions in 10 seconds without writing long formulas.

Related Comparison Tables

More Questions from Mathematics of Finance

Ready to Master Mathematics of Finance?

Practice all 512 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.

Start Practicing — It's Free