Question

A sum of Rs. 6,600 was taken as a loan for SBI Bank. This is to be repaid in two equal annual installments. If the rate of interest is 20% compounded annually then find the value of each installment.

1. Rs. 7000
2. Rs. 6000
3. Rs. 4320
4. Rs. 3500

Answer 1

Correct Answer - Option 3 : Rs. 4320

Given

 Principal = Rs. 6,600

 Rate of interest = 20%

 Time period = 2 years

Formula used

Principal =  Annual Installment/(1 + R/100)^t

Calculation

Let the installment be X

⇒ { X / (1 + 20/100)¹} +{ X / (1 + 20/100)²} = 6600

⇒  Installment = Rs. 4320

∴ the value of each installment is Rs. 4320