Multiple choice

A loan of Rs. 2000 is to be paid back in 3 equal annual instalments. How much is each instalment to the nearest whole rupee, if the interest is compounded annually at 12½% p.a?

  1. Rs. 750

  2. Rs. 790

  3. Rs. 810

  4. Rs. 840

  5. Rs. 960
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Using the annuity formula for present value P = A * [1 - (1+r)^-n] / r, where P=2000, r=0.125, n=3. 2000 = A * [1 - (1.125)^-3] / 0.125. Solving for A gives approximately 840.

AI explanation

Using the present value formula for equal installments at compound interest, we set 2000 equal to x divided by 1.125 plus x divided by 1.265625 plus x divided by 1.423828125. Finding a common denominator allows us to combine the terms, simplifying the equation to 2000 equals x multiplied by 2.379. Solving for x yields 2000 divided by 2.379, which results in an installment of approximately Rs. 840.

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