Question

A loan of rs 62496 is to be paid back in three equal annual installments . If the interest is compounded annually at 12 1/2% then each installments will be of

Answer 1

The installment paid per year will be Rs 26245

The installment to be paid every month is given by the formula,

P = L[r(1+r)ⁿ/[(1+r)ⁿ-1]

The given data,

L = loan taken = 62496

r = rate of interest = 12.5% = 0.125

n = number of terms = 3

hence,

P = 62496[0.125(1+0.125)³/[(1+0.125)³-1]

=> P = 62496 x 0.125 x 1.4238/0.4238

=> P = 26245

Hence the installment paid per year will be Rs 26245