EXAMPLE : A gas cooking range is available for Rs. 2500 cash or for Rs. 520 cash down payment followed by 4 equal monthly instalments. If the rate of interest charged is 25% per annum, calculate the monthly instalment.
SOLUTION
Let the monthly instalment be of Rs. P. We have,
Cash price of cooking range = Rs. 2500
Cash down payment = Rs. 520.
Balance due (B.D.) = Rs,2500 — Rs. 520 = Rs. 1980.
Also, we have
n = Number of monthly instalments = 4
R = Rate of interest = 25% per annum.
At the end of instalment scheme, we must have Amount of balance due = Future value of all instalments
P = 520
Hence the value of each monthly instalment is Rs. 520.