an overdraft of rs. 50000 to be paid back in equal annual installments over a period of 20 years. find the value of installment, if interest is compounded annually at 14% per annum.
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An overdraft of rs. 50000 will be paid back in Equal Annual installment of Rs 7550 in 20 Years at the rate of 14 % per annum Compounded annually
Step-by-step explanation:
An overdraft of rs. 50000 to be paid back in equal annual installments over a period of 20 years
EAI = [P x (R/100) x (1+R/100)ⁿ]/[(1+R/100)ⁿ-1]
EAI = Equated Annual Installments
P = 50000
R = 14 ( rate of interest per Annum)
n = 20
EAI = 50000 * (14/100) * (1 + 14/100)²⁰/ ((1 + 14/100)²⁰ -1)
=> EAI = 50000 * 0.14 * (1.14)²⁰ / ((1.14)²⁰ - 1)
=> EAI = 7000 * (1.14)²⁰ / ((1.14)²⁰ - 1)
=> EAI = 7549.3
=> EAI ≈ 7550
the value of installment = Rs 7550
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