Mathematics for FinanceMTP Dec 23 Series IQuestion 1526 of 512
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Paul borrows 20,000\displaystyle 20,000 on condition to repay it with compound interest at 5%\displaystyle 5\% p.a. in annual installment of 2,000\displaystyle 2,000 each. Find the number of years in which the debt would be paid off:

Options

A10\displaystyle 10 years
B12\displaystyle 12 years
C14\displaystyle 14 years
D15\displaystyle 15 years
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Correct Answer

✅ Option c — 14\displaystyle 14 years

All Options:

  • A10\displaystyle 10 years
  • B12\displaystyle 12 years
  • C14\displaystyle 14 years
  • D15\displaystyle 15 years

Detailed Solution & Explanation

The present value (PV\displaystyle PV) of the loan is: PV=A×[1−(1+i)−ni]PV = A \times \left[ \frac{1 - (1+i)^{-n}}{i} \right] Given: * Loan amount (PV\displaystyle PV) = 20,000\displaystyle 20,000 * Annual instalment (A\displaystyle A) = 2,000\displaystyle 2,000 * Interest rate (i\displaystyle i) = 5%\displaystyle 5\% p.a. = 0.05\displaystyle 0.05 Substituting the values: 20,000=2,000×[1−(1.05)−n0.05]20,000 = 2,000 \times \left[ \frac{1 - (1.05)^{-n}}{0.05} \right] 10=1−(1.05)−n0.0510 = \frac{1 - (1.05)^{-n}}{0.05} 0.50=1−(1.05)−n  ⟹  (1.05)−n=0.500.50 = 1 - (1.05)^{-n} \implies (1.05)^{-n} = 0.50 −nln⁡(1.05)=ln⁡(0.50)-n \ln(1.05) = \ln(0.50) n=0.6931470.048790≈14.2 yearsn = \frac{0.693147}{0.048790} \approx 14.2 \text{ years} Thus, it will take approximately 14\displaystyle 14 years to pay off the debt. Hence, **Option C** is the correct answer.

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