A loan is to be returned in two equal yearly instalments. If the rate of interest is 10% p.a., compounded annually, and each instalment is Rs. 5,808, then the total interest charged in this scheme is:

Each instalment of Rs. 5,808 covers both principal and interest. Working backwards: Present value of second instalment = 5808 ÷ 1.1 = 5280. This leaves 5808 - 5280 = 528 as interest in year 2. Present value of first instalment = 5808 ÷ 1.1² = 5808 ÷ 1.21 = 4800. Total loan = 5280 + 4800 = 10080. Total repayment = 5808 × 2 = 11616. Interest = 11616 - 10080 = 1536. The discounting method accounts for compound interest.