Question

A ram has taken loan from bank rs.42000.if company charges compound interst of rs.10% in first year and 10+1/2% in second year .how much ram will have to pay after two years

Answer 1

How does the concept of equal installments work for Compound interests? Well, in this case, the problem basically tells us that a certain sum of money is borrowed on compound interest for a certain period and it is returned with the help of equal installments.

Let us derive a formula where the amount is returned in two equal installments for a time period of two years.

Assume P to be the principal and r the rate of interest.

Step 1: P[{1+r/100}]= PI (amount of one year)

Step 2: New Principal

Now let X be the first installment. After giving the first installment, the principal value will change and the new principal will be = P1 – X

Step 3: Amount and Interest for the second year

Now the interest charged will be charged on this amount.

Amount at the end of second year is P2 = (P1 –X ){1+r/100}

compound interest examples

Step 4: Since the installments are equal, this new amount has to be equal to X.

Hence,

[P(1+r/100)-X][1+r/100]=X

On solving, we have

P (1+R/100)2-X (1+R/100)]= X

P (1+R/100)2]= X+X (1+R/100)

Divide both sides by (1+r/100)2

where X is the installment and n refers to the number of installments.

Answer 2

How does the concept of equal installments work for Compound interests? Well, in this case, the problem basically tells us that a certain sum of money is borrowed on compound interest for a certain period and it is returned with the help of equal installments.

Let us derive a formula where the amount is returned in two equal installments for a time period of two years.

Assume P to be the principal and r the rate of interest.

Step 1: P[{1+r/100}]= PI (amount of one year)

Step 2: New Principal

Now let X be the first installment. After giving the first installment, the principal value will change and the new principal will be = P1 – X

Step 3: Amount and Interest for the second year

Now the interest charged will be charged on this amount.

Amount at the end of second year is P2 = (P1 –X ){1+r/100}

compound interest examples

Step 4: Since the installments are equal, this new amount has to be equal to X.

Hence,

[P(1+r/100)-X][1+r/100]=X

On solving, we have

P (1+R/100)2-X (1+R/100)]= X

P (1+R/100)2]= X+X (1+R/100)

Divide both sides by (1+r/100)2

where X is the installment and n refers to the number of installments.