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CMA Final · Strategic Financial Management · Digital Finance

A digital lending app, LoanKart, disburses Rs 1,00,000 for 6 months and charges a processing fee of 2% deducted upfront plus interest of 12% p.a. flat, paid in six equal monthly instalments of principal plus interest computed on the original principal. Net amount received is Rs 98,000. Total repayment is Rs 1,06,000. Approximate the simple annualised cost on the net amount received, using total charges divided by net proceeds and scaled to a year (ignore declining balance).

The simple annualised cost is about 16.3%. Total charges are Rs 8,000 (Rs 2,000 fee plus Rs 6,000 interest) on net proceeds of Rs 98,000, giving 8.16% for six months, which doubles to roughly 16.3% for a year.

  1. A16.3%Correct
  2. B12.0%
  3. C8.2%
  4. D14.0%

Explanation

Total charges = fee 2,000 + interest 6,000 = Rs 8,000 over 6 months. On net proceeds: 8,000/98,000 = 8.163% for 6 months; annualised x2 = 16.3%. 12% ignores the fee; 8.2% fails to annualise.

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