Mr. Arora invested Rs. 2,40,000 in a no-fee fund. The nominal rate of return on the investment for the year was 12.5%. The value of his investment at the end of the year was
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 2,70,000
The nominal rate of return is the gain as a percentage of the original investment, so the gain is
\(12.5\% \text{ of } 240000 = 0.125 \times 240000 = 30000\)
The value at the end of the year is the original investment plus the gain:
\(240000 + 30000 = 270000\)
So the investment was worth Rs. 2,70,000.
Why the other options are incorrect
Option (1) Rs. 2,64,000 — Incorrect. This is a gain of Rs. 24,000, which is a 10% return, not 12.5%.
Option (2) Rs. 2,13,333.33 — Incorrect. This is 240000 ÷ 1.125, which takes 12.5% off instead of adding it.
Option (4) Rs. 30,000 — Incorrect. This is only the gain; the value of the investment also includes the Rs. 2,40,000 put in.