@Vineeshp: Money makes money by earning interest..So, its not as simple as 500*4=2000
To elaborate: if you make me a payment of 500 at the end of first year..I'll invest that somewhere for 3 years to earn interest..similarly, your second instalment & third instalments would also earn interest..but, not the fourth, because as & when you pay that your term gets over.
@HSPA: Pankaj is explaining more
Now, lets get specific to the question:
Lets assume that the instalment amount is X.
Now, as per the question, one has to pay 4 instalments. The loan gets over as & when you pay the fourth one.
-----after 1 year you pay X-----2nd year you paid X-----3rd year your paid X----fourth year, paid X
and the total of all these payments frees you from the debt
Now, the first instalment that you paid, would earn interest for a period of 3 years (in an ideal world that is what happens, that is how, the whole banking system makes money, although they do a hell lot of other things as well and land us into recession
)
Similarly, your second & third instalments would earn interests for the lender. the fourth won't earn any interest.
Which, in mathematical term simplifies to:
x(1.12)^3+x(1.12)^2+x(1.12)+x=2360
Now, its a pain to simplify for x in this equation. That's why I am hoping for the experts to discuss some less calculation intensive method.
