Question 84

A sum of Rs.16400 is borrowed to be paid back in 2 years by equal payments allowing 5% Compound Interest. Find the annual payment.

Solution

Let x be the instalment amount

As we know that for equal instalment,

P = $$\frac{x}{(1+\frac{r}{100})^{1}} + \frac{x}{(1+\frac{r}{100})^{2}}$$

16400 = $$\frac{x}{(1+\frac{5}{100})^{1}} + \frac{x}{(1+\frac{5}{100})^{2}}$$

16400 = $$\frac{20x}{21}+\frac{400x}{441}$$

16400 = $$\frac{820x}{441}$$

x = $$\frac{16400\times441}{820}$$

x = 8820

Required annual payment = Rs 8820

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