CS Executive · Corporate Accounting and Financial Management · Time Value of Money
A loan of ₹5,00,000 at 10% p.a. is repaid by 5 equal year-end instalments of about ₹1,31,899. What is the approximate outstanding loan balance immediately after the second instalment is paid?
The outstanding balance after the second instalment is about ₹3,28,012. After year one the balance falls to ₹4,18,101, and in year two interest of ₹41,810 is charged so principal repaid is ₹90,089. Principal repayment rises each year because interest declines.
- A₹3,28,012Correct
- B₹3,36,202
- C₹2,36,202
- D₹4,18,101
Explanation
Year 1: interest 50,000, principal 81,899, balance 4,18,101. Year 2: interest 41,810, principal 90,089, balance ≈ ₹3,28,012. ₹3,36,202 wrongly assumes the principal repaid stays at ₹81,899 each year, ₹2,36,202 subtracts whole instalments ignoring interest, and ₹4,18,101 is the balance after only one instalment.
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