QA – Placement Quizzes | Compound Interest | Question 13

A sum of money is borrowed and paid back in two annual installments of Rs. 882 each allowing 5% compound interest. The sum borrowed was:
(A) 1540
(B) 1640
(C) 1580
(D) 1680


Answer: (B)

Explanation: Principal = Present worth of the installment at the end of first year + Present worth of the installment at the end of second year
= 882/(1 + 5%) + 882/(1 + 5%)^2
= 882/(1 + 5/100) + 882/(1 + 5/100)^2
= 882/(105/100) + 882/(105/100)^2
= 882/(21/20) + 882/(21/20)^2
= 882*20/21 + 882*400/441
= 42*20 + 2*400
= 840 + 800
= 1640.

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