2. Robert purchases a motor car from Excellent Motors ltd whose cash price is 56,000 on January 1; 2005; Rs. 15,000 paid on signing the contract and the balance is to be paid in three equal annual installments of Rs. 15,000 each. The rate of interest is 5% per annum. Calculate the amount of interest included in each installment
To calculate the amount of interest included in each installment, we need to calculate the total interest paid over the three-year period and then divide it by the number of installments.
Here's how you can do it step by step:
1. Start by calculating the total amount paid for the car. The cash price of the car is Rs. 56,000, and Rs. 15,000 was paid upfront, so the remaining balance to be paid is Rs. 56,000 - Rs. 15,000 = Rs. 41,000.
2. Next, calculate the total interest paid over the three-year period. The interest rate is 5% per annum, so the total interest can be calculated using the simple interest formula: Interest = Principal * Rate * Time.
- Principal: Rs. 41,000 (remaining balance to be paid)
- Rate: 5% per annum
- Time: 3 years
Interest = 41,000 * 0.05 * 3 = Rs. 6,150
3. Now, divide the total interest by the number of installments (3) to find the amount of interest included in each installment.
Amount of interest per installment = Total interest / Number of installments
Amount of interest per installment = Rs. 6,150 / 3 = Rs. 2,050
Therefore, the amount of interest included in each installment is Rs. 2,050.