Chapter 6: Instalments

Repayment of loans

In the previous section we dealt with the instalment scheme in which instalment are paid monthly and total period of instalment payment is less than one year. The interest charged is calculated as simple interest. In this section we shall study the problems of repayment of loans or Hire purchase of flats. The instalment is paid quarterly, half yearly or annually

Example 5. A man borrows Rs. 8160 from a bank and has to return in two equal annual instalments. If the rate of interest charged is 12.5% p.a. compounded annually, find the instalment.

Solution: - Let each yearly instalment be x.

As the instalment is equal and it includes principal and interest. Hence the value of principal must be different.

Let it be P₁ and P₂ such that

P₁ + P₂ = 8160

P₁ + P₂ = 8160

Each instalment is Rs. 4860