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.