Question

A man borrows Rs 4000 at 15% compound interest. At the end of each year he pays back Rs 1500. How much amount is required to pay at the end of third year to clear all his dues :

• A. Rs.775.75
• B. Rs.973.85
• C. Rs.1500
• D. Rs.874.75

Answer 1

The Correct Option is D

To solve the problem of determining how much amount is required to pay at the end of the third year to clear all dues, we need to consider the nature of compound interest and the timing of payments.

Step-by-Step Solution:

1. Initial Borrowing: The man borrows an amount of Rs. 4000 at a compound interest rate of 15% per annum.
2. First Year:
   • Interest for the first year = \(4000 \times \frac{15}{100} = 600\). 
   • Total amount at the end of the first year = \(4000 + 600 = 4600\).
   • After paying Rs. 1500, the balance = \(4600 - 1500 = 3100\).
3. Second Year:
   • Interest for the second year = \(3100 \times \frac{15}{100} = 465\).
   • Total amount at the end of the second year = \(3100 + 465 = 3565\).
   • After paying Rs. 1500, the balance = \(3565 - 1500 = 2065\).
4. Third Year:
   • Interest for the third year = \(2065 \times \frac{15}{100} = 309.75\).
   • Total amount at the end of the third year = \(2065 + 309.75 = 2374.75\).
   • Since Rs. 1500 is regularly paid, the remaining amount = \(2374.75 - 1500 = 874.75\).

Hence, the amount required to pay at the end of the third year to clear all dues is Rs. 874.75.

Correct Answer: Rs. 874.75