Question

A man borrowed Rs.25000 from a bank at 20% compound interest. At the end of every year he paid 8000. At the end of the third year, he wanted to clear the loan. How much should he pay to clear the loan?

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Answer 1

Compound Interest is nothing but Simple interest per year with the amount at the end of every year being the principal for the next year.

For the first year,

Simple Interest SI = $\frac{PNR}{100}$

So, SI = $\frac{25000 \times 1 \times 20}{100}$ = 5000 Rupees

So, Amount A = 25000+5000 = Rs30000

For the second year,

P = 30000−8000 = Rs22000

So, SI = $\frac{22000 \times 1 \times 20}{100}$ = 4400 Rupees

So, Amount A = 22000+4400 = Rs26400

For the Third year,

P = 26400−8000 = Rs18400

So, SI = $\frac{18400 \times 1 \times 20}{100}$ = 3680 Rupees

So, Amount A = 18400+3680 = Rs22080

So, Rs22080 has to paid off to clear the loan.