Mathematics of FinanceMCQPYQ Jun 23Question 1465 of 512
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A company want to replace its existing tool room machine at the end of 10\displaystyle 10 years, the expected cost of machine would be 10,00,000\displaystyle 10,00,000. If management of the company creates a Sinking Fund, how much provision needs to be made out of revenue each year which can earn at the rate of 10%\displaystyle 10\% compounded annually?

Options

A74,625\displaystyle 74,625
B72,514\displaystyle 72,514
C62,745\displaystyle 62,745
D67,245\displaystyle 67,245
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Correct Answer

Option a74,625\displaystyle 74,625

All Options:

  • A74,625\displaystyle 74,625
  • B72,514\displaystyle 72,514
  • C62,745\displaystyle 62,745
  • D67,245\displaystyle 67,245

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Detailed Solution & Explanation

Given parameters: * Simple Interest (SI\displaystyle SI) = 0.125P\displaystyle 0.125 P * Rate of interest (r\displaystyle r) = 10%\displaystyle 10\% p.a., so i=0.10\displaystyle i = 0.10 The formula for Simple Interest is: SI=P×i×tSI = P \times i \times t Substituting the values: 0.125P=P×0.10×t0.125 P = P \times 0.10 \times t 0.125=0.10t0.125 = 0.10 t Solving for t\displaystyle t: t=0.1250.10=1.25 yearst = \frac{0.125}{0.10} = 1.25 \text{ years} Thus, the time period is 1.25\displaystyle 1.25 years. 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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