Multiple choice

A man borrows 10500 from a finance company and repays it in two equal annual instalments. If the rate of interest being compounded annually is 10% p.a., then find the value of each instalment.

  1. 6000

  2. 6050

  3. 6100

  4. 6150
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B Correct answer
Explanation

For a loan P repaid in two equal annual installments X at interest rate r, the formula is P = X / (1+r) + X / (1+r)^2. With P=10500 and r=0.1, 10500 = X/1.1 + X/1.21. Solving for X gives 6050.

AI explanation

Let the value of each instalment be x. The present value formula gives 10500 equals x divided by 1.10 plus x divided by 1.21. Combining the terms yields 10500 equals 1.21x plus 1.10x divided by 1.331, which simplifies to 10500 equals 2.10x divided by 1.21. Solving for x results in an instalment value of Rs. 6050.

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