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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Debt Management and Loans

A borrower takes a loan of Rs 12,00,000 at 9% per annum, with interest calculated on a reducing balance basis and paid monthly. For the first EMI, how much of the instalment is interest?

The interest component of the first EMI is Rs 9,000. On a reducing balance loan, monthly interest equals the outstanding principal of Rs 12,00,000 multiplied by the monthly rate of 0.75% (9% divided by 12).

  1. ARs 9,000Correct
  2. BRs 10,800
  3. CRs 90,000
  4. DRs 1,08,000

Explanation

Monthly rate = 9% / 12 = 0.75%. Interest for month 1 = 12,00,000 x 0.0075 = Rs 9,000. Rs 10,800 wrongly uses 10.8% per annum-equivalent, and the others use annual interest or wrong scaling.

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