Multiple choice

A man 'A' borrows Rs. 3000 at 6% per annum from 'B'; each year he pays Rs. 400 for interest and part of payment of the debt. What amount does A owe at the end of 3 years?

  1. Rs. 1800.00

  2. Rs. 2299.61

  3. Rs. 2200.00

  4. Rs. 2199.60

  5. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Year 1: Interest = 3000 * 0.06 = 180. Payment = 400. Principal reduction = 400 - 180 = 220. New principal = 2780. Year 2: Interest = 2780 * 0.06 = 166.8. Principal reduction = 400 - 166.8 = 233.2. New principal = 2546.8. Year 3: Interest = 2546.8 * 0.06 = 152.808. Principal reduction = 400 - 152.808 = 247.192. Final amount = 2546.8 - 247.192 = 2299.608.

AI explanation

Using the equation of value at 6% interest, the debt equals the present value of future payments, calculated as 3000 - 400/(1.06) - 400/(1.06)^2 - 400/(1.06)^3. Solving the discounts gives 3000 - 377.36 - 356.00 - 335.85. The resulting amount owed is Rs. 2299.61.

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