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Commerce Exam  >  Commerce Tests  >  Test: Compound Interest and Annuity - Commerce MCQ

Test: Compound Interest and Annuity - Commerce MCQ


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15 Questions MCQ Test - Test: Compound Interest and Annuity

Test: Compound Interest and Annuity for Commerce 2024 is part of Commerce preparation. The Test: Compound Interest and Annuity questions and answers have been prepared according to the Commerce exam syllabus.The Test: Compound Interest and Annuity MCQs are made for Commerce 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Compound Interest and Annuity below.
Solutions of Test: Compound Interest and Annuity questions in English are available as part of our course for Commerce & Test: Compound Interest and Annuity solutions in Hindi for Commerce course. Download more important topics, notes, lectures and mock test series for Commerce Exam by signing up for free. Attempt Test: Compound Interest and Annuity | 15 questions in 15 minutes | Mock test for Commerce preparation | Free important questions MCQ to study for Commerce Exam | Download free PDF with solutions
Test: Compound Interest and Annuity - Question 1
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What is compound interest?

Detailed Solution for Test: Compound Interest and Annuity - Question 1

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods.

Test: Compound Interest and Annuity - Question 2
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Which formula represents the compound interest "A" for a principal amount "P" at an annual interest rate "r" compounded annually for "n" years?

Detailed Solution for Test: Compound Interest and Annuity - Question 2

This formula represents compound interest when interest is compounded annually.

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Test: Compound Interest and Annuity - Question 3
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An investment of Rs.5000 grows to Rs.6000 in 2 years. What is the annual interest rate compounded annually?

Detailed Solution for Test: Compound Interest and Annuity - Question 3

Use the formula for compound interest: A = P(1 + r)^n. Solving for r, we get: r = ((A/P)^(1/n) - 1) * 100 = ((6000/5000)^(1/2) - 1) * 100 ≈ 10%.

Test: Compound Interest and Annuity - Question 4
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An amount of Rs.3000 is invested at an annual interest rate of 6%, compounded annually. How much will it be worth after 3 years?
Detailed Solution for Test: Compound Interest and Annuity - Question 4

Use the compound interest formula: A = P(1 + r)^n. A = 3000(1 + 0.06)^3 ≈ 3190.

Test: Compound Interest and Annuity - Question 5
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An amount of Rs.8000 is invested at an annual interest rate of 8%, compounded annually. How much interest is earned after 2 years?
Detailed Solution for Test: Compound Interest and Annuity - Question 5

Use the formula for compound interest: A = P(1 + r)^n. Interest = A - P = 8000(1 + 0.08)^2 - 8000 ≈ 1024.

Test: Compound Interest and Annuity - Question 6
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What is the future value of an annuity with payments of Rs.500 made annually for 5 years at an interest rate of 6% compounded annually?
Detailed Solution for Test: Compound Interest and Annuity - Question 6

Use the formula for the future value of an annuity: FV = PMT * ((1 + r)^n - 1)/r. FV = 500 * ((1 + 0.06)^5 - 1)/0.06 ≈ 2800.

Test: Compound Interest and Annuity - Question 7
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Which formula represents the future value of an annuity "FV" with annual payments "PMT", an interest rate "r", and a number of periods "n"?
Detailed Solution for Test: Compound Interest and Annuity - Question 7

This formula represents the future value of an annuity when payments are compounded annually.

Test: Compound Interest and Annuity - Question 8
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An annuity pays Rs.1000 annually for 10 years with an interest rate of 5% compounded annually. What is the future value of the annuity?
Detailed Solution for Test: Compound Interest and Annuity - Question 8

Use the formula for the future value of an annuity: FV = PMT * ((1 + r)^n - 1)/r. FV = 1000 * ((1 + 0.05)^10 - 1)/0.05 ≈ 12000.

Test: Compound Interest and Annuity - Question 9
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What is the present value of an annuity that pays Rs.2000 annually for 5 years with an interest rate of 8% compounded annually?
Detailed Solution for Test: Compound Interest and Annuity - Question 9

Use the formula for the present value of an annuity: PV = PMT * ((1 - (1 + r)^-n)/r). PV = 2000 * ((1 - (1 + 0.08)^-5)/0.08) ≈ 8000.

Test: Compound Interest and Annuity - Question 10
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Which of the following is true about annuities?
Detailed Solution for Test: Compound Interest and Annuity - Question 10

Annuities involve periodic payments made at regular intervals.

Test: Compound Interest and Annuity - Question 11
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What is the formula to calculate the present value of an annuity "PV" with annual payments "PMT", an interest rate "r", and a number of periods "n"?
Detailed Solution for Test: Compound Interest and Annuity - Question 11

This formula calculates the present value of an annuity when payments are compounded annually.

Test: Compound Interest and Annuity - Question 12
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An annuity pays Rs.500 annually for 8 years with an interest rate of 6% compounded annually. What is the present value of the annuity?
Detailed Solution for Test: Compound Interest and Annuity - Question 12

Use the formula for the present value of an annuity: PV = PMT * ((1 - (1 + r)^-n)/r). PV = 500 * ((1 - (1 + 0.06)^-8)/0.06) ≈ 3500.

Test: Compound Interest and Annuity - Question 13
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What is an annuity?
Detailed Solution for Test: Compound Interest and Annuity - Question 13

An annuity is a financial product that involves a series of payments made at regular intervals, typically monthly, quarterly, or annually.

Test: Compound Interest and Annuity - Question 14
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How does compound interest differ from simple interest?
Detailed Solution for Test: Compound Interest and Annuity - Question 14

Compound interest accumulates interest on both the initial principal amount and any previously earned interest, resulting in a higher overall amount compared to simple interest, which only applies to the initial principal.

Test: Compound Interest and Annuity - Question 15
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What factors affect the future value of an annuity?
Detailed Solution for Test: Compound Interest and Annuity - Question 15

The future value of an annuity is influenced by factoRs. such as the amount of each periodic payment (size), the interest rate at which the annuity is invested, and the duration or number of periods over which payments are made. These factoRs. determine how much the annuity will be worth at a future date.

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