Test Index

Time Value of Money

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Question : 53 of 99

Marks: +1, -0

Rs. 200 invested at the end of each month in an account paying interest

6\%

per year compounded monthly. What is the future value of this annuity after 10 th payment? [Given that

(1.005)^{10}=1.0511]

Rs. 2045
Rs.5055
Rs.2044
Rs.2065

Solution:

Concept:

Future value of an ordinary annuity (payments at end of each period).

Explanation:

Given:

P = 200

, annual rate

6\%

compounded monthly, so monthly rate

r = \frac{6\%}{12} = 0.5\% = 0.005

.

Number of payments

n = 10

.

Future value formula:

FV = P \times \frac{(1+r)^n - 1}{r}

.

Given

(1.005)^{10} = 1.0511

, so

FV = 200 \times \frac{1.0511 - 1}{0.005} = 200 \times \frac{0.0511}{0.005} = 200 \times 10.22 = 2044

.

Answer:

The future value is Rs. 2044.

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