Mathematics of FinanceMCQPYQ May 18Question 1433 of 512
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Mr. X invest 10,000\displaystyle 10,000 every year starting from today for next 10\displaystyle 10 years suppose interest rate is 8%\displaystyle 8\% per annual compounded annually. Calculate future value of the annuity.

Options

A1,56,454.88\displaystyle 1,56,454.88
B1,56,554.88\displaystyle 1,56,554.88
C1,44,865.625\displaystyle 1,44,865.625
DNone of these
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Correct Answer

Option a1,56,454.88\displaystyle 1,56,454.88

All Options:

  • A1,56,454.88\displaystyle 1,56,454.88
  • B1,56,554.88\displaystyle 1,56,554.88
  • C1,44,865.625\displaystyle 1,44,865.625
  • DNone of these

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Detailed Solution & Explanation

Given parameters: * Annual Payment (A\displaystyle A) = Rs. 10,000\displaystyle \text{Rs. }10,000 * Time (n\displaystyle n) = 10\displaystyle 10 years * Interest Rate (r\displaystyle r) = 8%\displaystyle 8\% p.a. compounded annually, so i=0.08\displaystyle i = 0.08 Since the payments start today (at the beginning of each year), this is an annuity due. The formula for the Future Value of an annuity due (FVdue\displaystyle FV_{\text{due}}) is: FVdue=A×(1+i)n1i×(1+i)FV_{\text{due}} = A \times \frac{(1+i)^n - 1}{i} \times (1+i) Substituting the values: FVdue=10,000×(1.08)1010.08×1.08FV_{\text{due}} = 10,000 \times \frac{(1.08)^{10} - 1}{0.08} \times 1.08 First, let's calculate (1.08)10\displaystyle (1.08)^{10}: (1.08)102.158925(1.08)^{10} \approx 2.158925 Substituting this back: FVdue=10,000×2.15892510.08×1.08FV_{\text{due}} = 10,000 \times \frac{2.158925 - 1}{0.08} \times 1.08 FVdue=10,000×1.1589250.08×1.08FV_{\text{due}} = 10,000 \times \frac{1.158925}{0.08} \times 1.08 FVdue=10,000×14.48656×1.08=1,56,454.88FV_{\text{due}} = 10,000 \times 14.48656 \times 1.08 = 1,56,454.88 Thus, the future value of the annuity is Rs. 1,56,454.88\displaystyle \text{Rs. }1,56,454.88. 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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