A car is available for 4,98,200 cash payment or 60,000 cash down payment followed by three equal annual instalments. If the rate of interest charged 14% per annum compounded yearly, then total interest charged in the instalment plan is (Given P(2,0.14) 2.32163): a. 21,46,314 C. 1,28,040 b. 1,46,137 d. 1,58,040
Question
A car is available for 4,98,200 cash payment or 60,000 cash down payment followed by three equal annual instalments. If the rate of interest charged 14% per annum compounded yearly, then total interest charged in the instalment plan is (Given P(2,0.14) 2.32163): a. 21,46,314 C. 1,28,040 b. 1,46,137 d. 1,58,040
Solution
To solve this problem, we first need to understand the terms given.
The car is available for a cash payment of 4,98,200 or an alternative payment plan which includes a down payment of 60,000 followed by three equal annual instalments. The rate of interest charged is 14% per annum compounded yearly. We are also given P(2,0.14) = 2.32163, which is the present value factor for 2 years at 14% interest rate.
The total cost of the car under the instalment plan is the down payment plus the present value of the three annual instalments.
Let's denote the annual instalment as 'A'.
The present value of the three instalments is A * P(2,0.14) + A/(1+0.14)^2 + A/(1+0.14)^3.
We know that the total cost of the car under the instalment plan is equal to the cash price, so we can set up the following equation:
60,000 + A * P(2,0.14) + A/(1+0.14)^2 + A/(1+0.14)^3 = 4,98,200.
Solving this equation will give us the value of 'A', the annual instalment.
Once we have 'A', we can calculate the total amount paid under the instalment plan, which is 60,000 + 3*A.
The total interest charged under the instalment plan is then the total amount paid minus the cash price of the car.
Without the actual calculations, we can't determine which of the given options is correct. However, this is the process you would follow to solve this problem.
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