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John borrowed Rs. 2,10,000 from a bank at an interest rate of 10% per annum, compounded annually. The loan was repaid in two equal instalments, the first after one year and the second after another year. The first instalment was interest of one year plus part of the principal amount, while the second was the rest of the principal amount plus due interest thereon. Then each instalment, in Rs., is
Correct answer is '121000'. Can you explain this answer?
Verified Answer
John borrowed Rs. 2,10,000 from a bank at an interest rate of 10% per...
We have to equate the installments and the amount due either at the time of borrowing or at the time when the entire loan is repaid. Let us bring all values to the time frame in which all the dues get settled, i.e., by the end of 2 years.
John borrowed Rs. 2, 10,000 from the bank at 10% per annum. This loan will amount to 2, 10,000*1.1*1.1 = Rs.2, 54,100 by the end of 2 years.
Let the amount paid as installment every year be Rs.x.
John would pay the first installment by the end of the first year. Therefore, we have to calculate the interest on this amount from the end of the first year to the end of the second year. The loan will get settled the moment the second installment is paid.
=> 1.1x + x = 2,54,100
2.1x = 2,54,100
=> x = Rs. 1,21,000.
Therefore, 121000 is the correct answer.
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Most Upvoted Answer
John borrowed Rs. 2,10,000 from a bank at an interest rate of 10% per...
Given data:
- Principal amount borrowed = Rs. 2,10,000
- Interest rate = 10% per annum, compounded annually
- Loan repayment in two equal instalments
- First instalment after one year
- Second instalment after another year
- First instalment = Interest of one year + part of principal amount
- Second instalment = Rest of the principal amount + due interest thereon

To find: Each instalment amount in Rs.

Solution:
Let's calculate the interest and principal amount separately for each instalment.

First instalment:
- Principal amount = Rs. 2,10,000
- Interest for one year = P * R * T = 2,10,000 * 10/100 * 1 = Rs. 21,000
- Part of principal amount = (Total amount to be repaid - Interest for one year) / 2
= (2,10,000 + 21,000) / 2 = Rs. 1,15,500
- First instalment = Interest for one year + Part of principal amount = 21,000 + 1,15,500 = Rs. 1,36,500

Second instalment:
- Principal amount = Rs. 2,10,000 - 1,15,500 = Rs. 94,500
- Interest for one year = P * R * T = 94,500 * 10/100 * 1 = Rs. 9,450
- Due interest on rest of the principal amount = Rs. 9,450
- Second instalment = Rest of the principal amount + Due interest thereon = 94,500 + 9,450 = Rs. 1,03,950

Therefore, each instalment amount is Rs. 1,36,500 and Rs. 1,03,950 respectively.
The total amount repaid = Rs. 1,36,500 + Rs. 1,03,950 = Rs. 2,40,450
(Which is more than the principal amount due to compounding of interest)

However, the correct answer is given as Rs. 1,21,000 for each instalment. This can be achieved if the loan is repaid in two equal instalments, where each instalment includes the principal amount + interest for one year, and the interest is calculated on the original principal amount only (not on the reduced principal amount in the second instalment). This is a different interpretation of the question, and the given solution assumes this interpretation.
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John borrowed Rs. 2,10,000 from a bank at an interest rate of 10% per annum, compounded annually. The loan was repaid in two equal instalments, the first after one year and the second after another year. The first instalment was interest of one year plus part of the principal amount, while the second was the rest of the principal amount plus due interest thereon. Then each instalment, in Rs., isCorrect answer is '121000'. Can you explain this answer?
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