A sum of ₹12,000 is to be paid in 2 equal annual installments at 5% simple interest per annum. Find the amount of each installment.
Show answer & explanation
Correct answer: A
Explanation
Let each annual installment = ₹x
At the time the loan was taken, the present value of both installments would be ₹12,000.
Present value of the first installment = x / 1.05
Present value of the second installment = x / 1.10
x/1.05 + x/1.10 = 12000
x × (20/21 + 10/11) = 12000
x × 430/231 = 12000
x = 12000 × 231 / 430
= ₹6,446.51 (approximately)