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Vikram borrowed ₹. 6450 at 5% simple interest repayable in 4 equal instalments. What will be the annual instalment payable by him?

Correct Answer: ₹ 1810

Explanation:

Let the annual instalment be Rs. P.
Amount of ₹ 100 after 4 yr = 100 + (100 x 5 x 4)/100 = ₹ 120
∴ Present Value (PV) of ₹ 120 due after 4 yr = ₹ 100
Present Value (PV) of ₹ due after 4 yr = 100P/120 = 5P/6
Similary, PV of ₹ P due after 3 yr = 20P/23
PV of ₹ P due after 2 yr = 10P/11
PV of ₹ P due after 1 yr = 20P/21
∴ 5P/6 + 20P/23 + 10P/11 + 20P/11 = 6450
⇒ P = ₹ 1810


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