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Question
An equipment is purchased on an installment basis such that ₹ 5000 on the signing of the contract and four-yearly installments of ₹ 3000 each payable at the end of first, second, third and the fourth year. If the interest is charged at 5% p.a find the cash down price. [(1.05)–4 = 0.8227]
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Solution
Given a = ₹ 3000, i = 0.05, n = 4
P = `"a"/"i" [1 - (1 + "i")^(-"n")]`
= `3000/0.05 [1 - (1 + 0.05)^(-4)]`
= `3000/0.05 [1 - (1.05)^(-4)]`
= 60,000 [1 − 0.8227] .......[∵ (1.05)–4 = 0.8227]
= 60,000 (0.1773)
= ₹ 10,638
Given that the cash down payment is ₹ 5000
∴ Cash down price of the equipment = 5000 + 10,638 = ₹ 15,638
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