Question

A company borrows 10000 on condition to repay it with compound interest at 5% p.a by annual installment of 1000 each. The number of years by which the debt will be clear is

Answer 1

Let the annual installments be X each year.

The formula is given as follows :

X(1 + i)^n = L

Where :

L = loan

i = interest rate

N = time in years

Doing the substitution we have :

1000(1.05)^n = 10000

We work out for n :

(1.05)^n = 10

n log 1.05 = log 10

0.02119n = 1

n = 1/0.02119

n = 47.19 years.

Answer 2

Answer:

a)14.2yrs

Step-by-step explanation:

solutions

Present value of annuity regular

pv=A* [((1+I)^n -1)/(I*(1+I)^n]

10000=1000* [((1+0.05)^n -1)/(0.05*(1+0.05)^n]

(1.05)^n-0.5*(1.05)^n=1

(1.05)^n=2

Taking log both sides

n=log2/log 1.05r

Answer n= 14.2 years