Question
- A sum of Rs 7500 is to be paid back in three equal annual instalments. How much is each instalment if the interest is compounded annually at 4% p.a.?
Answer: Option C
Was this answer helpful ?
The given problem can be solved by using the concept of Present Value (PV) of Annuity.
Present Value of Annuity: Present Value of Annuity (PV) is the present value of the future payments (instalments) which are to be made at regular intervals, discounted at a given rate of interest. Mathematically, it can be expressed as:
PV = A {[1 – (1 + r)-n]/r}
Where,
A = Annuity
r = Rate of Interest
n = Number of Periods
Given,
A = Rs. 7500
r = 4% p.a.
n = 3
Substituting the values in the above formula,
PV = 7500 {[1 – (1 + 0.04)-3]/0.04}
PV = 7500 {[1 – 0.9306]/0.04}
PV = 7500 {[0.0694]/0.04}
PV = 7500 x 17.35
PV = Rs. 13026.25
Therefore, the present value of the three annual instalments of Rs. 7500 is Rs. 13026.25.
The amount of each annual instalment can be calculated by dividing the present value of annuity by the number of periods.
Amount of each Instalment = 13026.25/3
Amount of each Instalment = Rs. 2702.61
Hence, the amount of each annual instalment is Rs. 2702.61.
If you think the solution is wrong then please provide your own solution below in the comments section .
Was this answer helpful ?
More Questions on This Topic :
Latest Videos
Latest Test Papers
Submit Solution