A person took a loan at 5% per annum simple interest during the first year and with an increase of 0.5% simple interest every year from the second year onwards. After 4 years, he paid ₹4,600 as a total interest to settle the loan completely. How much was the loan?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is Option 1 i.e. ₹ 20,000.
Rate of interest for the first year = 5%
Formula used:
Simple interest (S.I) = (P × R × T)/100
Where, P = principal; R = rate; T = time
According to the question:
⇒ (P × 5 × 1)/100 + (P × 5.5 × 1)/100 + (P × 6 × 1)/100 + (P × 6.5 × 1)/100 = 4600
⇒ P/100 [5 + 5.5 + 6 + 6.5] = 4600
⇒ 23P = 4600 × 100
⇒ P = Rs.20000