A loan has to be returned in two equal yearly instalments each of ₹44,100. If the rate of interest is 5% p.a.. compounded annually, then the total interest paid is:
Loan amount = $$\frac{installment}{1 + \frac{r}{100}} + \frac{installment}{(1 + \frac{r}{100})^2}$$
= $$\frac{44100}{1 + \frac{5}{100}} + \frac{44100}{(1 + \frac{5}{100})^2}$$
= $$44100 \times \frac{105}{100} + 44100 \times (\frac{105}{100})^2$$
= 42000 + 40000 = 82000
Installment amount = 44100 $$\times$$ 2 = 88200
The total interest paid = 88200 - 82000 = Rs.6200
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