Multiple choice

Lata takes a loan of Rs. 10,000 at an annual compound interest rate of 10%, compounded annually, and agrees to repay it in 3 equal yearly installments. What is the approximate amount of each installment?

  1. Rs. 3,550

  2. Rs. 3,675

  3. Rs. 4,021

  4. Rs. 4,120

  5. Rs. 4,240
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The installment formula for compound interest is P = X / (1+r) + X / (1+r)^2 + X / (1+r)^3. Solving 10000 = X(1/1.1 + 1/1.21 + 1/1.331) gives X = 10000 / 2.48685 = 4021.15.

AI explanation

For a loan repaid in equal installments, the present value of the installments equals the loan amount. Let each installment be x; then 10000 equals x divided by 1.10, plus x divided by 1.10 squared, plus x divided by 1.10 cubed. This gives the equation 10000 equals x multiplied by 2.4868. Solving for x by dividing 10000 by 2.4868 yields an approximate installment of Rs. 4,021.

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