Amit, Rekha and Nitin are partners in a firm. Rekha retires from the firm and total ₹75,000 were due to her on the date of her retirement. It was decided that the payment to her will be paid in 2 equal yearly installments of 25,000 including interest @ 10% p.a. on the outstanding balance during the first 2 years and balance including interest in the 3rd year. Total interest paid to her is:

₹15,250

The correct answer is option 4- ₹13,075.

Total amount paid = ₹75,000
2 Equal installment  = 25,000

* Interest for 1st year = 75000 x 10/100 (Interest given for the full year)
                                    = 7,500
First installment of 25,000 & interest 7,500 given at the end of Ist year.
Remaining balance = 75,000 - 25,000 -7,500
                              = 42,500

* Interest for 2nd year on the remaining balance = 42,500 x 10/100
                                                                              = 4,250
2nd installment of 25,000 & interest 4,250 given at the end of 2nd year.
Remaining balance = 42,500 - 25,000 -4,250
                               = 13,250

* * Interest for 3rd year on the remaining balance = 13,250 x 10/100
                                                                                = 1,325
Last installment = 13,250 + 1,325
                          = 14,575

Total interest = 7,500 + 4,250 + 1,325
                      = 13,075