CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities
Arjun borrows ₹12,00,000 at 12% p.a. with monthly rests, repayable by an EMI of ₹26,700. Interest for the first month is charged on the full loan amount. What is the outstanding principal immediately after the first EMI is paid?
The outstanding principal is ₹11,85,300. First month interest is 1% of ₹12,00,000, which is ₹12,000. The remaining ₹14,700 of the ₹26,700 EMI reduces principal, so the balance falls from ₹12,00,000 to ₹11,85,300.
- A₹11,73,300
- B₹11,85,300Correct
- C₹11,88,000
- D₹12,12,000
Explanation
Monthly rate = 12%/12 = 1%. First month interest = 12,00,000 × 1% = ₹12,000. Principal repaid = 26,700 − 12,000 = ₹14,700. Outstanding = 12,00,000 − 14,700 = ₹11,85,300. Deducting the whole EMI (₹11,73,300) wrongly treats interest as principal repayment.
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