What will be the maturity amount of an investment of Rs. 25,000 invested for 3 years at varying rates of compound interest of 6%, 8% and 10% in the successive years?

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OSSC Soil Conservation Extension Worker Official Paper II (Held on 22nd Oct 2017)
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  1. Rs. 28,620
  2. Rs. 29,150
  3. Rs. 29,150
  4. Rs. 30,178
  5. Rs. 31,482

Answer (Detailed Solution Below)

Option 5 : Rs. 31,482

Detailed Solution

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Solution:

Compound interest can be calculated using the formula:

A = P(1 + r/n)^(nt)

Where: A = the amount of money accumulated after n years, including interest. P = principal amount (the initial amount of money) r = annual interest rate n = number of times that interest is compounded per year t = time the money is invested for, in years

Since the rates are changing yearly, we'll compound the interest annually and calculate it year by year.

1st year: A = 25000(1 + 6/100)^1 A = 25000 * 1.06 = Rs. 26,500

2nd year: A = 26,500(1 + 8/100)^1 A = 26,500 * 1.08 = Rs. 28,620

3rd year: A = 28,620(1 + 10/100)^1 A = 28,620 * 1.1 = Rs. 31,482

So, the maturity amount of the investment of Rs 25000 at the end of 3 years would be 5) Rs 31,482.

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