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A sum of rupees 6000 is paid back in 3 annual installments. How much is the sum of all installments if the interest is compounded annually on the balance at 10% per annum and is to be included in each installment?

A sum of rupees 6000 is paid back in 3 annual installments. How much is the sum of all installments if the interest is compounded annually on the balance at 10% per annum and is to be included in each installment? Correct Answer 7200

Calculation:

The sum is to be paid back in 3 annual installments

Each installment = 6000 / 3 = 2000

Amount payable at the end of 1st year A1 = 2000 + (10% of 6000) = 2600

A2 = 2000 + (10% of (6000 – 2000)) = 2400

A3 = 2000 + (10% 0f (4000 – 2000)) = 2200

∴ Total sum = 2600 + 2400 +2200 = 7200

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