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If a man saves Rs. 1000 each year and invests at the end of the year at 5% compound interest, how much will the amount be at the end of 15 years? (a) Rs 21,478 (b) Rs 21,578 (c) Rs 22,578 (d) Rs 22,478 |
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Answer» Correct option (b) Rs 21,578 Explanation: This is an intensive calculation, problem and you are not supposed to know how to do the calculations in this question mentally. The problem has been put here to test your concepts about whether you recogsize how this is a question of GPs. If you feel like, you can use a calculator/computer spreadsheet to get the answer to this question. The logic of the question would hinge on the fact that the value of the investment of the fifteenth year would be 1000. At the end of the 15th year, the investment of the 14th year would be equal to 1000 × 1.05, the 13th year’s investment would amount to 1000 × 1.052 and so on till the first year’s investment which would amount to 1000 × 1.0514 after 15 years. Thus, you need to calculate the sum of the GP: 1000, 1000 × 1.05, 1000 × 1.052 , 1000 × 1.053 for 15 terms. |
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