Question

A man borrows 6000 at 5% interest, on reducing balance, at the start of the year. If he repays 1200 at the end of each year, find the amount of loan outstanding, in ₹, at the beginning of the third year.

• A. 3162.75
• B. 4125.00
• C. 4155.00
• D. 5100.00
• E. 5355.00

Hint:

- For reducing balance loans, always add interest on the current outstanding before subtracting the repayment.
- Organize calculations year by year for clarity.

Answer 1

The Correct Option is C

Step 1: Initial Loan
The man borrows ₹ 6000. Interest is 5% per year on the reducing balance.
Step 2: End of Year 1
Interest on ₹ 6000 = \(6000 \times \frac{5}{100} = 300\).
So, amount before repayment = \(6000 + 300 = 6300\).
Repayment = ₹ 1200.
Outstanding after repayment = \(6300 - 1200 = 5100\).
Step 3: End of Year 2
Interest on ₹ 5100 = \(5100 \times \frac{5}{100} = 255\).
So, amount before repayment = \(5100 + 255 = 5355\).
Repayment = ₹ 1200.
Outstanding after repayment = \(5355 - 1200 = 4155\).
Step 4: Beginning of Year 3
At the beginning of the third year, the outstanding loan is ₹ 4155.
\[ \boxed{4155.00} \]