Question

John borrowed Rs.2,10,000 from a bank at an interest rate of 10% per annum, compounded annually. The loan was repaid in two equal installments, the first after one year and the second after another year. The first installment was interest of one year plus part of the principal amount, while the second was the rest of the principal amount plus due interest thereon. Then each installment, in Rs., is

Answer 1

Calculation:

Let P = Principle, R = rate of interest and N = time period

Compound interest = P(1 + R/100)ⁿ - P

Let each installment be Rs.A.

⇒ 210000 = A/(1 + 10/100)² + A/(1 + 10/100)

⇒ A = 121000

∴ The amount of each installment is Rs.121000.