This question appeared in the XAT 2012 quant section. Question 65.

Question

A man borrows Rs. 6000 at 5% interest, on reducing balance, at the start of the year. If he repays Rs. 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

Correct Answer : Choice C. Rs.4155.00

Explanatory Answer

Interest payable @ the end of the first year @ 5% interest on Rs 6000 =

Amount payable @ the end of the first year = Rs 6000 + Rs 300 = Rs 6300

Amount paid @ the end of the first year = Rs 1200

Therefore, Principal for the second year = Rs 6300 – Rs 1200 = Rs 5100

Interest payable @ the end of the second year @ 5% interest on Rs 5100 =

Amount payable @ the end of the second year = Rs 5100 + Rs 255 = Rs 5355

Amount paid @ the end of the second year = Rs 1200

Therefore, Principal for the third year = Rs 5355 – Rs 1200 = Rs 4155

Thus, the amount of loan outstanding at the beginning of the third year = Rs 4155.

Question

A man borrows Rs. 6000 at 5% interest, on reducing balance, at the start of the year. If he repays Rs. 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

Correct Answer : Choice C. Rs.4155.00

Explanatory Answer

Interest payable @ the end of the first year @ 5% interest on Rs 6000 =

Amount payable @ the end of the first year = Rs 6000 + Rs 300 = Rs 6300

Amount paid @ the end of the first year = Rs 1200

Therefore, Principal for the second year = Rs 6300 – Rs 1200 = Rs 5100

Interest payable @ the end of the second year @ 5% interest on Rs 5100 =

Amount payable @ the end of the second year = Rs 5100 + Rs 255 = Rs 5355

Amount paid @ the end of the second year = Rs 1200

Therefore, Principal for the third year = Rs 5355 – Rs 1200 = Rs 4155

Thus, the amount of loan outstanding at the beginning of the third year = Rs 4155.