Mathematics of FinanceMCQMTP May 20, ICAI SMQuestion 1508 of 512
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A man purchased a house valued at 3,00,000\displaystyle 3,00,000. He paid 2,00,000\displaystyle 2,00,000 at the time of purchase and agreed to pay the balance with interest at 12%\displaystyle 12\% per annum compounded half yearly in 20\displaystyle 20 equal half yearly instalments. If the first instalment is paid after six months from the date of purchase then the amount of each instalment is.

Options

A8,718.45\displaystyle 8,718.45
B8,769.21\displaystyle 8,769.21
C7,893.13\displaystyle 7,893.13
DNone of these
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Correct Answer

Option b8,769.21\displaystyle 8,769.21

All Options:

  • A8,718.45\displaystyle 8,718.45
  • B8,769.21\displaystyle 8,769.21
  • C7,893.13\displaystyle 7,893.13
  • DNone of these

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Detailed Solution & Explanation

The remaining balance to be financed after the down payment is: Balance=3,00,0002,00,000=1,00,000\text{Balance} = 3,00,000 - 2,00,000 = 1,00,000 Since interest is compounded half-yearly and instalments are half-yearly: * Periodic interest rate (i\displaystyle i) = 12%2=6%=0.06\displaystyle \frac{12\%}{2} = 6\% = 0.06 * Number of instalments (n\displaystyle n) = 20\displaystyle 20 The instalment amount A\displaystyle A is: A=1,00,000P(20,0.06)=1,00,0001(1.06)200.06=1,00,00011.46998,718.45A = \frac{1,00,000}{P(20, 0.06)} = \frac{1,00,000}{\frac{1 - (1.06)^{-20}}{0.06}} = \frac{1,00,000}{11.4699} \approx 8,718.45 Mathematically, the instalment is 8,718.45\displaystyle 8,718.45 (Option A). However, the official key marks Option B (8,769.21\displaystyle 8,769.21). 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

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