Question

Q. Mr Balan, a very industrious person, wants to establish his own unit. For this he needs an instant loan of 5,00,000. If he had to clear all his outstanding’s in 20 years, and he repays the principal of the first loan equally over the 20 years, find what amount he would have to pay as interest on his initial borrowing if the rate of interest is 10% p.a. Simple Interest.

• A. Rs 5,25,000
• B. Rs 5,45,000
• C. Rs 5,50,000
• D. Rs 5,75,000

Answer 1

The correct option is A Rs 5,25,000

To repay the total loan amount in 20 years
The principal amount reduces by $\frac{500000}{20}=25000$ each year
The principle amount at the end of 1st year is 5,00,000
The interest on it is =$500000\times \frac{10}{100}=50000$
The principal amount at the end of 2nd year = 4750000
The interest on that amount = $475000\times \frac{10}{100}=475000$
On 20th year the principle amount =50000-25000 = 25000
The interest paid at the end of 20th year = $25000\times \frac{10}{100}=2500$
Total interest paid = 50000+475000+45000….. 2500 =
$=\frac{20}{2}(5000+2500)=525000$