A person bought a refrigerator worth ₹ 22,800 with 12·5% interest compounded yearly. At the end of first year he paid ₹ 8,650 and at the end of second year ₹ 9,125. How much will he have to pay at the end of third year to clear the debt?

(a) ₹ 9,990
(b) ₹ 10,000
(c) ₹ 10,590
(d) ₹ 11,250 ✓ UPSC's answer

Why the answer is (d)

• The initial debt of ₹ 22,800 accrues 12.5% interest, resulting in a balance of ₹ 25,650 at the end of the first year.

• After the payment of ₹ 8,650, the remaining principal for the second year is ₹ 17,000.

• This balance accrues 12.5% interest, increasing the debt to ₹ 19,125 at the end of the second year.

• After the payment of ₹ 9,125, the remaining principal for the third year is ₹ 10,000.

• The final payment required to clear the debt is the remaining principal of ₹ 10,000 plus 12.5% interest, which equals ₹ 11,250.

Why the other options are wrong

(a) ₹ 9,990: ₹ 9,990 is incorrect because it does not account for the full 12.5% interest on the remaining balance of ₹ 10,000.
(b) ₹ 10,000: ₹ 10,000 is incorrect because it represents only the principal balance without the accrued interest for the third year.
(c) ₹ 10,590: ₹ 10,590 is incorrect because it results from a miscalculation of the interest or principal balance in the preceding years.

Asked in the CSAT Paper II of the UPSC Civil Services Preliminary Examination 2018, held on 3 June 2018. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.