CA Foundation Exam > CA Foundation Notes > Quantitative Aptitude for CA Foundation > MCQ - Simple and Compound Interest - 2
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Page 2 1. You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to • A.$32,000 • B.$39,272 C.$40,000 • D.$80,000 Answer: Page 3 1. You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to • A.$32,000 • B.$39,272 C.$40,000 • D.$80,000 Answer: A.$34,898 B.$40,171 C.$164,500 D.$328,282 Answer: Page 4 1. You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to • A.$32,000 • B.$39,272 C.$40,000 • D.$80,000 Answer: A.$34,898 B.$40,171 C.$164,500 D.$328,282 Answer: A. fall B. rise C. remain unchanged D .cannot be determined without more information. Answer: Page 5 1. You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to • A.$32,000 • B.$39,272 C.$40,000 • D.$80,000 Answer: A.$34,898 B.$40,171 C.$164,500 D.$328,282 Answer: A. fall B. rise C. remain unchanged D .cannot be determined without more information. Answer: 4. For $1,000 you can purchase a 5-year ordinary annuity that will pay you a yearly payment of $263.80 for 5 years. The compound annual interest rate implied by this arrangement is closest to • A.8 percent • B.9 percent • C.10 percent • D.11 percent Answer:Read More
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FAQs on MCQ - Simple and Compound Interest - 2 - Quantitative Aptitude for CA Foundation
| 1. What is simple interest and how is it calculated? |  |
Ans. Simple interest is a type of interest calculated only on the principal amount of a loan or investment. It is not compounded over time. The formula to calculate simple interest is:
Simple Interest = Principal amount x Interest rate x Time period.
| 2. What is compound interest and how is it different from simple interest? | |
Ans. Compound interest is a type of interest calculated on both the principal amount and the accumulated interest from previous periods. Unlike simple interest, compound interest is compounded over time. The formula to calculate compound interest is:
Compound Interest = Principal amount x (1 + Interest rate)^Time period - Principal amount.
| 3. What are the factors that affect the amount of interest earned in compound interest? | |
Ans. The factors that affect the amount of interest earned in compound interest are the principal amount, the interest rate, and the time period. A higher principal amount, a higher interest rate, and a longer time period will result in a higher amount of interest earned.
| 4. Can you provide an example of how to calculate compound interest? | |
Ans. Sure! Let's say you invest $10,000 in a bank account with an annual interest rate of 5% for a period of 3 years. Using the compound interest formula, the calculation would be:
Compound Interest = $10,000 x (1 + 0.05)^3 - $10,000 = $10,000 x (1.05)^3 - $10,000 = $11,576.25 - $10,000 = $1,576.25.
Therefore, the compound interest earned would be $1,576.25.
| 5. What are the advantages of compound interest over simple interest? | |
Ans. The advantages of compound interest over simple interest are that compound interest allows for the growth of the principal amount over time, as the interest is added back to the principal. This results in a higher overall amount earned compared to simple interest. Compound interest is commonly used in investments and savings accounts to maximize returns.
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