You bank statement shows a current balance of AED 100,000 as a result of a single...

You bank statement shows a current balance of AED 100,000 as a result of a single deposit made 10 years previously. Over this period the interest rate has been 5%. The original deposit is nearest to

		AED 39,000
		AED 42,000
		AED 32,550
		AED 48,550

Expert Solution

Since the compounding frequency isn't provided in the question, we can assume that the Principle (single deposit that was made 10 years back) was compounded annually over the past 10 years at an interest rate of 5% per annum.

The formula for compounding is as given below:

Amount = Principle * (1 + Interest Rate)^(Tenure)

100,000 = Principle* (1 + 5%)^10

Thus,

Principle = 100,000 / (1 + 5%)^10

Principle (single deposit that was made 10 years back) = AED 61,391.33

Note: The options provided are very distant from the answer that was arrived at. I have checked my solution again for the same and it seems correct as per the fundamentals of compounding and I hence request the student to kindly re-check if these are the options pertaining to the question. Another thing that could be checked is the data provided in the question; either the interest rate would be much higher than what is stated here or the tenure ought to be much higher so as to arrive at an answer closer to the options provided. Please let me know so that we can re-work the solution as per the revised data.

jeff jeffy answered 1 year ago

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