Multiple choice

A sum of Rs 16,400 is borrowed to be paid back in 2 years by two equal annual payments, allowing 5% compound interest. The annual payment is

  1. Rs 8,000

  2. Rs 8,050

  3. Rs 8,820

  4. Rs 9,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Let annual payment be x. 16400 = x/(1.05) + x/(1.05)^2. 16400 = x(1/1.05 + 1/1.1025) = x(1.05/1.1025 + 1/1.1025) = x(2.05/1.1025). x = 16400 * 1.1025 / 2.05 = 8820.

AI explanation

Let the equal annual payment be x. The present value of the first payment is x divided by 1.05, and the present value of the second payment is x divided by 1.05 squared. The sum of these present values equals 16400, so x divided by 1.05 plus x divided by 1.1025 equals 16400. Solving for x gives 2.0479x equals 16400, so the annual payment is Rs. 8,820.

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