Explanation

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

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

Where:

• $P=₹1025$ (debt)

• $r = 5$

• $x$ = annual payment

• Time = 2 years

Substitute values:

​ $$1025 = frac{x}{1.05} + frac{x}{1.1025}$$ $$1025 = x left( frac{1}{1.05} + frac{1}{1.1025} right) = x (0.9524 + 0.9070) = x (1.8594)$$
$$x = frac{1025}{1.8594} ≈ 551.25$$