Question 7

# A man borrows Rs 4000 at 15% compound interest. At the end of each year he pays back Rs 1500. How much amount is required to pay at the end of third year to clear all his dues :

Solution

Time value of money Rs 4,000 at the end of 3 years = 4,000$$\left(1\ +\ \frac{15}{100}\right)^3$$ = Rs 6083.5

Value of first installment at the end of 3 years = 1500$$\left(1\ +\ \frac{15}{100}\right)^2$$ = Rs 1983.75

Value of second installment at the end of 3 years = 1500$$\left(1\ +\ \frac{15}{100}\right)$$ = Rs 1725

Value of third installment = 1500

Let us assume he has to pay Rs. x to clear all his dues

1983.75 + 1725 + 1500 + x = 6083.5

x = Rs 874.75