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Whysomeonegivesinstallmentpayingforabuyer?Itgivessomeflexibilityforthebuyerifhegetsincomeona
monthlybasis.Isthereanyadvantagefortheseller?Letusseehowtheinstallmentworks!
Suppose,thereisamobilephoneforsaleatRs.10,000.Therearetwooptionsfortheseller.Acceptingfullmoney
ofRs.10000inonego,ortakesomedownpaymentandreceivingtheremainingamountin"equated
monthly/yearlyinstallments".
Ifthesellerreceivesthetotalamountonthepurchase,hegetssomeinterestonthesalemoney.Ifhesellsitat
monthlyinstallment,hemakessurethathesetstheinstallmentssuchthatherecoverstheinterestinseveral
installments.
Sothelogicworkslikethis:Ifthesellersoldaproductfortmonths,Totalamount+interesthegetsfortmonths
onsaleprice=Totalinstallments+interestsgeneratedonthisinstallmentsfortheremainingperiod.
Forexample,ifthetotalloanfor10months,thesellergets6monthsinterestonthe4thinstallment.

P +

P T R
100 12

xRt

(x +

xR(t 1)
) + (x +

12 100

+ (x +

xR2
12 100

xR(t 2)
) + (x +

12 100

) + (x +

xR
12 100

) +. . . . .
12 100

)+x

Note:Theaboveformulaisformonthlyinstallments.Ifinstallmentisaskedperyear,thennoneedtodividethose
termswith12

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100P

Formulaforinstallmentcalculation:x =

n(n 1)r
100n +
2

1.SamsungmobilephoneisavailableforRs.2500cashorRs.520cashdownpaymentsfollowedby4equal
installments.Iftherateofinterestchargedis25%perannumSimpleinterest,calculatethemonthlyinstallment
a.520b.480c.550d.Noneofthese
Balancepricetobepaidininstallments=Rs.1980
Attherateofr%perannumafter4months,Rs.1980willamounttoRs.
P +

P T R

= 1980 +

1980 4 25

100 12

= 2145

(1)

12 100

Now,thetotalamountforthe4installmentsattheendoffourthmonthwillbe
[(x +

25x 3
12 100

=4x +

25x

25x 2

) + (x +

(1 + 2 + 3) =

25x 1

) + (x +

12 100

) + x]

12 100

33x

1200

.......(2)
From(1)and(2),Rs.2145=

33x
8

x=Rs.520
2.GopalborrowsRs1,00,000fromabankat10%p.a.simpleinterestandclearsthedebtinfiveyears.Ifthe
installmentspaidattheendofthefirst,second,thirdandfourthyearstoclearthedebtareRs10,000,Rs20,000,
Rs30,000andRs40,000respectively,whatamountshouldbepaidattheendofthefifthyeartoclearthedebt?
a.Rs20,000b.Rs24,500c.Rs30,000d.Rs35,900
Sol:Alwaysremember,Inthecaseofsimpleinterest,installmentamountwillalwaysbereducedfromprincipaland
theinterestwillbecalculatedontheremainingprincipal.
Simpleinterestforthefirstyear=

P T R

100000 1 10

100

=Rs.10000

100

Amountafterfirstinstalmentispaid=1,00,00010,000=Rs90,000
Simpleinterestforthesecondyear=

P T R
100

90000 1 10

=Rs.90,000

100

Amountaftersecondinstalmentispaid=90,00020,000=Rs70,000
P T R

Simpleinterestforthethirdyear=

P T R

70000 1 10

100

=Rs.7000

100

Amountafterthirdinstalmentispaid=70,00030,000=Rs40,000
Simpleinterestforthefourthyear=

P T R

40000 1 10

100

=Rs.4000

100

Amountafterfourthinstalmentispaid=40,00040,000=0.
Balanceofdebtforthefifthyear=simpleinterestforfouryears=10,000+9,000+7,000+4,000=Rs30,000

3.AwatchissoldforRs.440cashorforRs.200cashdownpaymenttogetherwithRs.244tobepaidafterone
month.Findtherateofinterestchargedintheinstallmentscheme.
a.10%b.15%c.20%d.25%
Sol:Principalforthenextmonth=440200=240
Amountpaidafternextmonth=244
ThereforeinterestchargedatRs.240=

240 1 R

= 4

12 100

Rateofinterest(R)=20%perannum
4.AcellphoneisavailabaleforRs.600orforRs.300cashdownpaymenttogetherwithRs.360tobepaidaftertwo
months.Findtherateofinterestchargedunderthisscheme.
a.20%b.50%c.120%d.None
Amountasaprincipalforfirstandsecondmonth=600300=Rs.300
Now,Interest=360300=Rs.60
60 =

300 2 r
100 12

r=120%
5.KishorepurchasesatracksuitforRs.2400cashorforRs.1000cashdownpaymentsandtwomonthly
installmentsofRs.800each.Findtherateofinterest.
a.75%b.120%c.50%d.Noneofthese
Sol:Amountasaprincipalfor2month=24001000=1400
Attherateofr%perannumafter2months,Rs.1400willamounttoRs.1400 +

1400 r 2

......(1)

100 12

Againtotalamountforthe2installmentsattheendofsecondmonthwillbeRs.[800 + (800 +

800 r 1
100 12

......(2)

)]

From(1)and(2),weget1400 +

2800 r

= 1600 +

1200

800r
1200

R=120%
6.WhatannualinstallmentwilldischargeadebtofRs2,360dueinfouryearsat12%p.a.simpleinterest?
a.400b.500c.300d.600
Sol:Installmentspaidattheendof1st,2nd,3rdand4thyearsearnasimpleinterestat12%p.a.for3,2,1and0
yearsrespectively.
Hencetherespectiveinstallmentsamountto,(100+3x12),(100+2x12),(100+1x12)and100,whenannual
installmentisRs100.
HenceamountpaidisRs.136+Rs124+Rs112+Rs100i.e.,Rs472,whentheannualinstallmentisRs.100
ForanamountofRs2,360,annualinstallment=

2, 360 100
= Rs500
472

7.HiralalgavealoanofRs.20toRamlalandrecovereditattherateofRs3.50foreightmonths,commencing
fromtheendof1stmonth.Whatistheeffectiverateofsimpleinterest?
a.60%b.80%c.20%d.90%
Sol:Principal=Rs20
Amount=Rs3.50x8=Rs28
Interest=Rs28Rs20=Rs8
Time=8months=8/12years
8=

20 8 r
12 100

r=

12 100

=60%p.a.

20

8.Findtheamountofequalinstallment,annualpaymentofwhichwilldischargeadebtofRs.848duein4yearsat
4%p.a.ofSimpleinterest.
Amountofeachinstallment=

100P
n(n 1)r
100n +
2

848 100
100 4 +

848 100
424

443
2

=Rs.200

9.Findtheamountofdebtthatwillbedischargedby5equalinstallmentsofRs.200each,ifthedebtisduein5
yearat5%p.a.
100P

Weknowthatx =

n(n 1)r
100n +
2
100P

200 =

5(5 1)5
100 5 +
2
P =

200

100P

500 +

5.4.5
2

(500 + 50) = 1100

100

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