MCQ

MCQ 11 Mark

What does the P stands for in this formula?
Present value $=P\left[\frac{1-(1+i)^n}{i}\right]$

✓
The fixed payment amount
B
The number of payments
C
The future value
D
The present value

Answer

Correct option: A.

The fixed payment amount

(A) The fixed payment amount
Explanation:
$\begin{aligned} \text { Present value } & =\text { cash flow } \times \frac{\left[(1+i)^n-1\right]}{i(1+i)^n} \\ & =\text { fixed payment amount } \times\left[\frac{1-(1+i)^n}{i}\right]\end{aligned}$

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MCQ 21 Mark

The present value of an annuity is the worth of an annuity _______________ .

A
10 years ago
B
Today
✓
in the future
D
at the end

Answer

Correct option: C.

in the future

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MCQ 31 Mark

Which of the following is not true regarding an annuity due ?

✓
If is a series of equal cash flow
B
It is also known as deferred annuity
C
Cash flows occur for a specific time period
D
Payments are made at the start of each period

Answer

Correct option: A.

If is a series of equal cash flow

(A) If is a series of equal cash flow
Explanation: An annuity is a series of equal payments made at equal intervals. Examples of annuities are regular deposits to a saving account, monthly home mortgage payment, monthly insurance payment and pension payments etc.

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MCQ 41 Mark

Time value of money supports the comparison of cash flows recorded at different time period by

A
Discounting all cash flows to a common point of time
B
Compounding all cash flows to a common point of time
✓
Using either (a) or (b)
D
None of these

Answer

Correct option: C.

Using either (a) or (b)

(C) Using either (a) or (b)
Explanation: Time value of money supports the comparison of cash flows recorded at different time period by either compounding or discounting all cash flows to common point of time.

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MCQ 51 Mark

Relationship between annual nominal rate of interest and annual effective rate of interest, if frequency of compounding is greater than one:

✓
Effective rate > Nominal rate
B
Effective rate < Nominal rate
C
Effective rate = Nominal rate
D
None of the above

Answer

Correct option: A.

Effective rate > Nominal rate

(A) Effective rate > Nominal rate
Explanation: If interest is compounded more than once a year the effective interest rate for a year exceeds the per annum nominal interest rate i.e., effective rate > nominal rate

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MCQ 61 Mark

Find the simple interest on ₹ 5200 for 2 years at 6% per annum :

A
₹ 450
B
₹ 524
C
₹ 600
✓
₹ 624

Answer

Correct option: D.

₹ 624

(D) ₹ 624
Explanation : Given, $P=5200, n=2, i=6 \%=\frac{6}{100}$ $=0.06$
$I=\text { Pit }$
$\therefore\quad I=5200 \times 0.06 \times 2$
$\text{or,}\quad I=624.$

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MCQ 71 Mark

The compound interest on ₹ 30,000 at 7% per annum is 4347. This period (in years) is:

✓
2
B
$2 \frac{1}{2}$
C
3
D
4

Answer

Correct option: A.

(A) 2
Explanation:
Amount = ₹ (30,000 + 4347) = ₹ 34347
Let the time be n years.
Then, using formula of compound interest
$A_n=P(1+i)^n$
Here, $\quad A_n=34347, i=\frac{7}{100}=0.07$ and
$p = 30,000$
$\therefore \quad 34347=30,000(1+0.07)^n$
$\therefore \quad(1.07)^n=\frac{34347}{30,000}$
$\Rightarrow \quad\left(\frac{107}{100}\right)^n=\frac{11449}{10000}$
$\Rightarrow \quad\left(\frac{107}{100}\right)^n=\left(\frac{107}{100}\right)^2$
$\therefore \quad n=2 \text { years. }$

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Applied Maths MCQ

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