Question

Raghav borrows Rs. 2550 to be paid back with compound interest at the rate of 4% per annum by the end of 2 years in two equal yearly installments. How much will each installment be?

a) Rs. 1300
b) Rs. 1250
c) Rs. 1200
d) Rs. 1100

Answer 1

To calculate the equal yearly installments for the compound interest, use the formula for the present value of an annuity.

Step-by-step explanation:

To calculate the equal yearly installments for the compound interest, we need to use the formula for the present value of an annuity. The formula is A = P * (1 - (1 + r)^-n) / r, where A is the annuity, P is the initial amount borrowed, r is the interest rate per period, and n is the number of periods. In this case, the initial amount borrowed is Rs. 2550, the interest rate per period is 4% (0.04), and the number of periods is 2.

Using the formula, A = 2550 * (1 - (1 + 0.04)^-2) / 0.04 = Rs. 1285.25. Therefore, each installment will be approximately Rs. 1285.25.