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Mohan borrowed Rs 25,000 at 10% p.a. compound interest. If he pays back Rs 7,500 every year, find the amount of loan outstanding at the beginning of the fourth year.

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Question

Mohan borrowed Rs 25,000 at 10% p.a. compound interest. If he pays back Rs 7,500 every year, find the amount of loan outstanding at the beginning of the fourth year.

Sum
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Solution

P = Rs. 25,000, R = 10°/o p.a.
Interest for first year 

`= ("Rs"  25000 xx 10 xx 1)/100`

= Rs2,500 
Amount due after 1st year

= Rs. 25,000 + Rs. 2,500

=Rs 27,500 

Amount paid after 1st year= Rs. 7,500 

Balance amount = Rs. 27,500 - Rs. 7,500 = Rs. 20,000 

Interest for seoond year 

`= ("Rs"  20000 xx 10 xx 1)/100`

= Rs 2000

Amount due after 2nd year

= Rs. 20,000 + Rs. 2,000 =Rs 22,000 

Amount paid after 2nd year= Rs. 7,500 

Balance amount= Rs. 22,000 - Rs. 7,500 = Rs. 14,500 

Interest for third year 

`= ("Rs"  14500 xx 10 xx 1)/100`

= Rs 1, 450 
Amount due after 3rd year

= Rs. 14,500 + Rs. 1,450 = Rs 15,950 

Amount paid after 3rd year= Rs. 7,500 

Balance amount = Rs. 15, 950 - Rs. 7 ,500 =Rs. 8,450 

Loan outstanding at the beginning of the fourth year = Rs 8,450. 

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Concept of Compound Interest - Compound Interest as a Repeated Simple Interest Computation with a Growing Principal
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