What annual payment will discharge a debt of Rs. 1025 due in 2 years at a rate of 5% compound interest?

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Rs. 550

Rs. 551.25

Rs. 560

Rs. 560.75

answer is B.

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Detailed Solution

A = P {(1 + \frac{R}{100})}^{n}

amount has to be paid is

{1025 (1 + \frac{5}{100})}^{2}

.
we have to take x to be the annual installment which discharges the debt. So, according to the annual installment amount paid is

{x (1 + \frac{5}{100})}^{2 - 1} + {x (1 + \frac{5}{100})}^{2 - 2}

{1025 (1 + \frac{5}{100})}^{2} = x (1 + \frac{5}{100}) + x

\Rightarrow {1025 (\frac{21}{20})}^{2} = x (\frac{21}{20}) + x

\Rightarrow x = 551.25

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