Mathematics of FinanceMCQPYQ Dec 23Question 1472 of 512
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Calculate the present value of 2,000\displaystyle 2,000 to be required after 10\displaystyle 10 years compounded annually at 5%\displaystyle 5\% per annum given (1.05)10=1.62889\displaystyle (1.05)^{10} = 1.62889

Options

A1,227.82\displaystyle 1,227.82
B1,282.48\displaystyle 1,282.48
C1,328.35\displaystyle 1,328.35
D1,822.65\displaystyle 1,822.65
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Correct Answer

Option c1,328.35\displaystyle 1,328.35

All Options:

  • A1,227.82\displaystyle 1,227.82
  • B1,282.48\displaystyle 1,282.48
  • C1,328.35\displaystyle 1,328.35
  • D1,822.65\displaystyle 1,822.65

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Detailed Solution & Explanation

Let the principal amount be P=Rs. 100\displaystyle P = \text{Rs. }100. Given parameters: * Nominal Rate (r\displaystyle r) = 4.5%\displaystyle 4.5\% p.a. =0.045\displaystyle = 0.045 Let's calculate the effective annual rate under the two cases: 1. **Compounded quarterly (m=4\displaystyle m=4):** Eq=(1+r4)41E_q = \left(1 + \frac{r}{4}\right)^4 - 1 Eq=(1+0.0454)41E_q = \left(1 + \frac{0.045}{4}\right)^4 - 1 Eq=(1.01125)41E_q = (1.01125)^4 - 1 First, let's calculate (1.01125)4\displaystyle (1.01125)^4: (1.01125)21.02262656(1.01125)^2 \approx 1.02262656 (1.01125)4=(1.02262656)21.045765(1.01125)^4 = (1.02262656)^2 \approx 1.045765 So: Eq4.5765%E_q \approx 4.5765\% 2. **Compounded annually (m=1\displaystyle m=1):** Ea=r=4.5%E_a = r = 4.5\% The gain per Rs. 100\displaystyle \text{Rs. }100 when compounded quarterly over compounding annually is the difference between their effective rates: Gain per Rs. 100=EqEa=4.5765%4.5%=0.0765%\text{Gain per Rs. 100} = E_q - E_a = 4.5765\% - 4.5\% = 0.0765\% This corresponds to Rs. 0.076\displaystyle \text{Rs. }0.076 (or 0.0765\displaystyle 0.0765 rupees) per Rs. 100\displaystyle \text{Rs. }100. Hence, **Option C** 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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