A loan has to be returned in two equal yearly instalments each of Rs. 44,100. If the rate of interest is 5% p.a compounded annually, the total interest paid is:
Rs. 6,200
Step 1 — Principal as present value of the two instalments: With \(r=5\%\),
\[P=\frac{44100}{1.05}+\frac{44100}{(1.05)^2}\]
Step 2 — Evaluate each term: \(\tfrac{44100}{1.05}=44100\times\tfrac{20}{21}=42000\) and \(\tfrac{44100}{1.1025}=44100\times\tfrac{400}{441}=40000\).
Step 3 — Principal and interest: \(P=42000+40000=82000\). Total paid \(=2\times 44100=88200\).
Therefore total interest \(=88200-82000=\mathbf{Rs.\ 6{,}200}\).
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