Question

9. A man wants to invest Rs 50,000 for 5 years. He may invest the amount at 10% per year compounded each quarterly or he may invest it at 10.5% per year. Which investment will give better return?

Answer 1

Here P = Rs 50000. No of years(n) = 5 years.

For first case, rate of interest = 10%, but compounded quarterly means 3 times in a year. So r = 10/3% and no of times to pay interest = 3*5 = 15.

Now, CI = P(1+r/300)^15 - P

Or, CI = 50000(31/30)^15 - 50000

Or, CI = 50000* 1.635327 - 50000

Or, CI = 81766.35 - 50000

Or, CI = 31766.35

For the second case, r = 10.5%

Now CI = P(1+r/100)n - P

Or, CI = 50000(1+10.5/100)^5 - 50000

Or, CI = 50000*1.647447 - 50000

Or, CI = 82372.35 - 500000

Or, CI = 32372.35.

Obviously second option will give better return.

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