Question

A man borrows 6000 at 5% interest, on reducing balance, at the start of the year. If he repays 1200 at the end of each year, find the amount of loan outstanding, in rupees, at the beginning of the third year.

A.
3162.75
B.
4125.00
C.
4155.00
D.
5100.00
E.
5355.00

Accepted Answer

C. - Year 1 start: 6000. - Year 1 end interest: $6000 	imes 0.05 = 300$. - Year 1 end total: 6300 - 1200 payment = 5100. - Year 2 start: 5100. - Year 2 end interest: $5100 	imes 0.05 = 255$. - Year 2 end total: 5355 - 1200 payment = 4155. So at the beginning of the third year, outstanding loan = 4155.

Loan Repayment Reducing Balance

Explanation

Practise this under exam conditions