A man borrows ₹ 6000 at 5% compound interest. If he repays ₹ 1200 at the end of each year, find the amount outstanding at the beginning of the third year.
Solution:
It is given that
Principal = ₹ 6000
Rate of interest = 5% p.a.
We know that
Interest for the first year = Prt/100
Substituting the values
= (6000 × 5 × 1)/ 100
= ₹ 300
So the amount after one year = 6000 + 300 = ₹ 6300
Principal for the second year = ₹ 6300
Amount paid = ₹ 1200
So the balance = 6300 – 1200 = ₹ 5100
Here
Interest for the second year = (5100 × 5 × 1)/ 100 = ₹ 255
Amount for the second year = 5100 + 255 = ₹ 5355
Amount paid = ₹ 1200
So the balance = 5355 – 1200 = ₹ 4155
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