CA Foundation · Quantitative Aptitude · Mathematics of Finance
Verma Enterprises takes a loan of ₹21,000 at 10% per annum compound interest, to be repaid in two equal installments paid at the end of year 1 and year 2. What is the amount of each installment?
Each installment is ₹12,100. The present values of the two year-end installments at 10% must add up to the loan of ₹21,000. Discounting gives ₹11,000 and ₹10,000, which total ₹21,000, confirming the figure.
- A₹10,500
- B₹11,550
- C₹12,100Correct
- D₹12,600
Explanation
The present value of the two installments must equal the loan. P/1.1 + P/1.21 = P × 2.1/1.21 = 21,000, so P = 21,000 × 1.21 / 2.1 = ₹12,100. Check: 12,100/1.1 = 11,000 and 12,100/1.21 = 10,000, which total ₹21,000. ₹12,600 comes from using simple interest on the full loan.
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