Multiple choice

Rs. 5000 is paid every year for 10 years to pay off a loan. What is the loan amount if interest be 14% per annum compounded annually? (P(10, 0.14) = 5,21611)

  1. Rs. 26,000.33

  2. Rs. 26,080.55

  3. Rs. 27,080.55

  4. Rs. 28,080.55
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The present value of an annuity is P = A * [(1 - (1+r)^-n) / r]. Given A = 5000, r = 0.14, n = 10. The provided factor P(10, 0.14) = 5.21611 corresponds to the annuity factor. Loan = 5000 * 5.21611 = 26080.55.

AI explanation

To find the loan amount, we calculate the present value of an ordinary annuity using the formula P multiplied by (1 minus (1 + i) raised to -n) divided by i. Given the present value interest factor for an annuity P(10, 0.14) is 5.21611, we multiply this factor by the annual payment of Rs. 5000. The loan amount equals 5000 multiplied by 5.21611, which is Rs. 26080.55.

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