Mr Deepanshu wants to make an investment of 10000 for 5 years. He has two options. First option fetches him a return of 8% compounded semiannually and second option fethches him a return of 7.5% compounded quartely. Which investment option should he go for ?
[Use $(1.04)^2=1.0816$ and $(1.01875)^4=1.0771$]
Answer & explanation
Correct answer: option 3
The correct answer is option (3) : First option
First option :
Given r = 8% p.a
P= 2 half year
So, effective (per rupee) = $\left(1+\frac{8}{200}\right)^2-1$
$= (1.04)^2-1$
$= 1.0816-1= 0.0816$
Hence effective rate $= 0.0816×100$% == 8.16%
Second option
Given r = 7.5% p.a, p = 4 quarters
So, effective rate ( per rupee) $=\left(1+\frac{7.5}{400}\right)^4-1$
$= (1.01875)^4-1= 1.0771-1= 0.0771$
Hence effective rate $= 0.077×100$%= 7.71 %
Hence, Mr Deepanshu should go for first option