Test Index

Time Value of Money

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Question : 67 of 99

Marks: +1, -0

Rs. 1000 is invested at the end of each month in an account paying interest

6\%

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

(1.005)^{10}=1.0511)

Rs. 10220
Rs. 1022
Rs. 20000
Rs. 1020

Solution:

Concept:

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

Explanation:

Monthly interest 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

(1+r)^n - 1 = 1.0511 - 1 = 0.0511

.

Then

\frac{0.0511}{0.005} = 10.22

.

FV = 1000 \times 10.22 = 10220

.

Answer:

Rs. 10220

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