A loan is to be returned in two equal yearly instalments. If the rate of interest is 10% p.a. compounded annually, and each instalment is Rs 5,808, then the total interest charged in this scheme is:
Show answer & explanation
Correct answer: B
Explanation
The correct answer is option 2 i.e. Rs 1,536
We can use a direct formula as,
P = I/(1 + r/100) + I/(1 + r/100)2
P = 5808/(1 + 10/100) + 5808/(1 + 10/100)2
P = 5808/1.1 + 5808/1.21
P = 5280 + 4800 = 10080.
Total amount paid in 2 installments = 5808 + 5808 = 11616.
Interest earned = 11616 - 10080 = 1536.