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Sourabh borrows rs 25,00,000 at 12% compound interest from a bank and invests in shares. The investment gives him a return of 20% per annum and he repays rs 5,00,000 at the end  of first year. How much does he make for himself after paying all the outstanding amount at the end of the second year?

a 424000                                         b 356241.50

c 525000                                         d 484241.80

Let’s divide the problem in terms of cash inflows and outflows. Profit earned=Inflows-Outflows

Initial Inflow=25,00,000

After 1st year:-

1. Inflow=20%of25,00,000=5,00,000
2. Outflow=5,00,000(As he paid off this amount of loan at the end of 1st year)
3. Net gain=Inflow-Outflow=0
4. Loan amount at the end of 1st year= 25,00,000(1.12)=28,00,000
5. Amount after repayment of 5,00,000=23,00,000

As CI is calculated annually, the new amount will be calculated on the outstanding amount after the end of 1st year.

Amount to be paid off at the end of 2nd year=23,00,000(1.12)=2576000

After 2nd year:-

1. Inflow=20% of 25,00,000-5,00,000
2. Outflow=2576000

Overall gain=Initial Inflow+Inflow in 2 yrs – outflow at the end of 2nd year= 25,00,000+5,00,000-2576000= 424000

262 points

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