The total amount due to Kabir is Rs. 1,00,000, which will be paid in 4 equal yearly installments.
Equal installment = 41,00,000 = Rs. 25,000
Interest is charged on the unpaid balance at the end of each year. Let's trace the unpaid balance:
At the end of Year 1:
- Unpaid balance after paying Rs. 25,000 = 1,00,000 - 25,000 = Rs. 75,000
At the end of Year 2:
- Unpaid balance after paying Rs. 25,000 = 75,000 - 25,000 = Rs. 50,000
At the end of Year 3:
- Unpaid balance after paying Rs. 25,000 = 50,000 - 25,000 = Rs. 25,000
At the end of Year 4:
- Opening unpaid balance = Rs. 25,000
- Interest on Rs. 25,000 @ 12% p.a. = 25,000×10012 = Rs. 3,000
After this payment and the final installment of Rs. 25,000, Kabir's account will be fully settled.
The amount of interest payable at the end of fourth year = Rs. 3,000