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'X' borrows money at CI and pays 4800 at the end of the 1st yr and 6820 at the end...

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donydera | Student, Grade 10

Posted September 27, 2011 at 11:40 PM via web

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'X' borrows money at CI and pays 4800 at the end of the 1st yr and 6820 at the end of the 2nd yr. If the RoI is 10% pa, find the sum borrowed.

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justaguide | College Teacher | (Level 2) Distinguished Educator

Posted September 28, 2011 at 12:56 AM (Answer #1)

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X pays 4800 at the end of the first year and 6820 at the end of the second year.

At a compound rate of interest of 10% per annum:

The 4800 paid at the end of the first year is equivalent to an initial amount borrowed of 4800/1.1 = 4363.63

The 6820 paid at the end of the second year is equivalent to an initial amount borrowed of 6820/(1.1)^2 = 5636.36

The total amount borrowed is 4363.63 + 5636.36 = 10,000

The sum borrowed initially is 10,000.

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