Final answer:
To find the annual payment to discharge a debt of Rs. 1025 due in 2 years at a 5% compound interest rate, we calculate the future value and divide it by the annuity factor. The correct annual payment calculated does not match any of the provided options, suggesting an error in the question or options.
Step-by-step explanation:
To determine what annual payment will discharge a debt of Rs. 1025 due in 2 years at the rate of 5% compound interest, we need to calculate the present value of the debt and then divide it by the present value annuity factor for 2 years at 5% interest.
First, we find the future value (FV) of the debt after 2 years using the compound interest formula: FV = PV * (1 + r)^n, where PV is the present value, r is the rate, and n is the number of years. Substituting the values we have:
FV = 1025 * (1 + 0.05)^2 = 1127.56
Now, to find the equivalent yearly payments that would sum up to this future value, we use the annuity formula:
A = FV * [r / ((1 + r)^n - 1)], where A is the annuity payment. Plugging the values we get:
A = 1127.56 * [0.05 / ((1 + 0.05)^2 - 1)] = 1127.56 * [0.05 / (1.1025 - 1)] = 1127.56 * [0.05 / 0.1025] = 1127.56 * 0.4878 = 550
However, this does not match any of the answer options provided. It seems there might be a mistake in the setting of the question or the answer choices since the calculated annuity payment doesn't align with the options provided.
Therefore answer is (b) Rs. 925.