Mr. Kailash borrowed Rs. 40000 from a bank at 10% per annum compound interest. At the end of every year, he paid Rs. 10000. If he wanted to clear his loan at the end the 4 years then what should he pay at the end of the fourth year to clear his loan?
Solution
Correct Answer: Option E
Given that Mr. Kailash borrowed Rs. 40000 from a bank
He takes loan at 10% compound interest per annum.
When interest is compounded annually:
Amount after t years \(= P{\left( {1 + \frac{R}{{100}}} \right)^t}\) (where P = Principal, R = Rate% and t = years)
Amount at the end of 1st year \(= 40000{\left( {1 + \frac{{10}}{{100}}} \right)^1}\)
= 40000 × 11/10 = 44000
Amount to be paid after paying 1st installment = 44000 – 10000 = 34000
Amount at the end of the 2nd year \(= 34000{\left( {1 + \frac{{10}}{{100}}} \right)^1}\)
= 34000 × 11/10 = 37400
Amount to be paid after paying 2nd installment = 37400 – 10000 = 27400
Amount at the end of 3rd year \(= 27400{\left( {1 + \frac{{10}}{{100}}} \right)^1}\)
= 27400 × 11/10 = 30140
Amount to be paid after paying 3rd installment = 30140 – 10000 = 20140
Amount at the end of 4th year \(= 20140{\left( {1 + \frac{{10}}{{100}}} \right)^1}\)
= 20140 × 11/10 = 22154
Amount to be paid at the end of 4th year to clear the lone = 22154
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