Rajan borrowed Rs. 4000 at 5% p.a. compound interest, paid Rs. 2210 after 2 years, and settled the rest 2 years later. What total interest did he pay?
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Answer: A. Rs.635.50
Explanation
Calculating the compound interest for the first two years gives the total accumulated debt before payment. Subtracting the partial payment of two thousand two hundred ten rupees leaves the remaining principal balance. Computing compound interest on this remaining balance for two more years determines the final total interest. Compound interest calculates periodic growth based on the principal plus previously accumulated interest charges. Partial loan repayments reduce the active principal balance upon which future interest charges are computed. Financial mathematics formulas govern how loans accrue expenses over multi-stage repayment schedules.
Borrowers must understand multi-year loan amortization schedules to evaluate the true cost of credit agreements. Banking institutions apply these exact compound interest principles to personal loans and mortgages daily. Accurate interest calculations protect consumers from unexpected financial burdens during debt repayment. Option B results from minor arithmetic errors during the secondary interest period calculation steps. Option C overestimates the accrued interest by misapplying the compounding frequency parameters. Option D misses the exact decimal value due to rounding intermediate figures prematurely during computation.
- Subject
- Mathematics
- Category
- Mathematics
- Topic
- —
- Difficulty
- medium
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