What yearly installment extinguishes a liability of Rs. 1025 maturing over 2 years at a 5% compound interest rate?
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Answer: B. Rs. 551.25
Explanation
Annual installment formulas for compound interest liabilities account for future value discounting. Applying the two year amortization equation at five percent interest determines the exact payment. Calculating the expression yields five hundred fifty one point twenty five rupees per annual payment. Amortization schedules divide loan liabilities into equal periodic payments covering principal and interest. Compound interest installment calculations discount future cash flows back to present value terms. Financial mathematics uses geometric series formulas to compute loan repayment structures.
Banking institutions use amortization formulas to structure consumer mortgage and auto loan payments. Corporate finance relies on installment calculations to manage multi year bond redemption liabilities. Personal budgeting requires understanding how interest accrues on structured debt repayment plans. Option A suggests five hundred fifty rupees which underestimates the exact compounding payment. Option C proposes five hundred sixty rupees which overestimates the required installment amount. Option D offers five hundred sixty point seventy five rupees which fails to match the precise formula.
- Subject
- Mathematics
- Category
- Mathematics
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- Difficulty
- medium
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