Question

A sum of ô1200 is lent to be paid back in 5 equal annual instalments of ô 264 each. the rate of interest per annum is

Answer 1

5 installments equal 5 × 264 = 1320
Amount lent = 1200
Interest = 1320 - 1200 = 120

Rate of interest = 120/1200 × 100 = 10%

Answer 2

Solution :-

Amount to be paid of each annual installment (with interest) = Rs. 264

Total amount to be paid with interest after five years = 264*5 = Rs. 1320

Principal amount = Rs. 1200

Amount of interest = 1320 - 1200

= Rs. 120 (for five years)

Simple Interest = (P*R*T)/100

⇒ 120 = (1200*R*5)/100

⇒ 12000 = 6000R

⇒ R = 12000/6000

⇒ R = 2 %

Hence, the rate of interest is 2 % per annum. 

We can check our solution.

Simple Interest = (P*R*T)/100

⇒ 120 = (1200*2*5)/100

⇒ 120*100 = 12000

⇒ 12000 = 12000

Our answer is correct.