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What annual payment will discharge a debt of Rs 1025 due in 2 years at a compound interest rate of 5% per annum?

Answer: 551.25
Explanation

We use the compound interest installment formula to find equal annual payments:

P=x(1+r)1+x(1+r)2P = frac{x}{(1 + r)^1} + frac{x}{(1 + r)^2}

Where:

  • (debt)


  • r = 5% = 0.05

  • = annual payment

  • Time = 2 years

Substitute values:

1025=x1.05+x1.10251025 = frac{x}{1.05} + frac{x}{1.1025} 1025=x(11.05+11.1025)=x(0.9524+0.9070)=x(1.8594)1025 = x left( frac{1}{1.05} + frac{1}{1.1025} right) = x (0.9524 + 0.9070) = x (1.8594)
x=10251.8594≈551.25x = frac{1025}{1.8594} ≈ 551.25

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