Question

A person borrowed a certain sum on compound interest and agreed to return it in two years in two equal annual instalments. If the rate of interest is 10% p.a. and each annual instalment is ₹4,840, then the interest paid by him was:

• A. ₹1,260
• B. ₹1,280
• C. ₹1,320
• D. ₹1,340

Hint:

In compound interest problems involving instalments, use the compound interest formula and relate it to the total repayment to find the original sum and interest paid.

Answer 1

The Correct Option is C

Let the sum borrowed be \( P \). The total repayment amount over two years is \( 2 \times 4840 = 9680 \). Using the formula for compound interest, the sum borrowed and the interest will relate to the annual repayment and interest rate.
Use the compound interest formula: \[ A = P(1 + \frac{r}{100})^t \] where \( A \) is the amount after \( t \) years, and solve for \( P \). The difference between the total repayment and the borrowed amount will give the interest paid.