Explanation:

- Let's break this down by calculating how much of the principal is repaid through the instalments.

- We're given an annual interest rate of 10%, compounded annually.

- Each instalment is Rs 6534.

- Use the formula for the present value of an annuity to find the original loan amount (P):

$$

P = \frac{6534}{(1 + 0.10)^1} + \frac{6534}{(1 + 0.10)^2}

$$

- Once calculated, this gives us the principal that was initially borrowed.

- To find the total interest, subtract the principal from the total paid in the two instalments.

- Let's calculate:

- First, find the present value of each instalment:

- \( \frac{6534}{1.10} = 5940 \)

- \( \frac{6534}{1.1^2} = 5400 \)

- Sum these values for the principal amount:

- \( 5940 + 5400 = 11340 \)

- Total loan repayment = \(6534 \times 2 = 13068\)

- Interest charged = Total loan repayment - Principal = \(13068 - 11340 = 1728\)

- Correct Answer: Option 3: 1728