Multiple choice

A loan has to be returned in two equal yearly installments each of Rs. 44,100. If the rate of interest is 5% p.a. compounded annually, then the total interest paid is

  1. Rs. 5,840

  2. Rs. 6,000

  3. Rs. 6,200

  4. Rs. 6,280
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Each installment P = 44100, r = 5%. Using the formula for installments: P = X / (1+r) + X / (1+r)^2. Total paid = 2 * 44100 = 88200. Principal = 44100 / 1.05 + 44100 / (1.05)^2 = 42000 + 40000 = 82000. Interest = 88200 - 82000 = 6200.

AI explanation

Using the present value of annuity formula, the principal is calculated as 44100 divided by 1.05 plus 44100 divided by 1.05 squared, which equals 42000 plus 40000, giving a total loan of 82000. The total amount paid back is the installment of 44100 multiplied by 2, which equals 88200. Subtracting the principal of 82000 from the total payment of 88200 gives the total interest paid of 6200.

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