A Person has invested Rs. 10000, at an interest of 10% p.a. How much amount will receive After 2 years if the compounding is done.
Question:
A Person has invested Rs. 10000 in a bank at an interest of 10% per annum. How much amount will receive After 2 years if the compounding is done?
a) Annually.
b) Semi-Annually.
c)Quarterly.
d)Monthly.
e)Daily
Answer:
FVn = PV ( 1+ r/m )mn
Where, FVn = Future value after n years
n = Number of years [In the above math, n = 2]
m = Number of times compounding is done in a year
a) Annually.
Here, r = 0.10 (10%), m = 1.
FV = PV ( 1+ 0.10/1 )1×2 = 10000(1+0.10)2= 10000 × (1.10)2 = 12100 Rs.
b) Semi-Annually.
Here, r = 0.10 (10%), m = 2.
FV = PV ( 1+ 0.10/2 )2×2 = 10000(1+0.05)4= 10000 × (1.05)4 = 12155 Rs.
c) Quarterly.
Here, r = 0.10 (10%), m = 4.
FV = PV ( 1+ 0.10/4 )4×2 = 10000(1+0.025)8= 10000 × (1.025)8 = 12184 Rs.
d) Monthly.
Here, r = 0.10 (10%), m = 12.
FV = PV ( 1+ 0.10/12 )12×2 = 10000(1+0.0083)24= 10000 × (1.0083)24 = 12194 Rs.
e) Daily
Here, r = 0.10 (10%), m = 365.
FV = PV ( 1+ 0.10/365 )365×2 = 10000(1+0.000274)730= 10000 × (1.000274)730 = 12214 Rs.
