CS Executive · Corporate Accounting and Financial Management · Time Value of Money
Kaveri Industries borrows ₹5,00,000 at 10% p.a., repayable in 5 equal annual instalments at each year-end. Each instalment is about ₹1,31,899 (PVIFA 10%, 5 years = 3.7908). What approximate amount of the first instalment goes towards repaying principal?
About ₹81,899 of the first instalment repays principal. The first year's interest is 10% of ₹5,00,000, which is ₹50,000, and this is deducted from the total instalment of ₹1,31,899. The remainder reduces the loan balance.
- A₹81,899Correct
- B₹1,00,000
- C₹50,000
- D₹1,31,899
Explanation
Interest for year 1 = 10% of 5,00,000 = ₹50,000. Principal part = 1,31,899 − 50,000 = ₹81,899. ₹1,00,000 wrongly assumes equal principal each year, ₹50,000 is only the interest, and ₹1,31,899 is the whole instalment.
Did you get it right without looking?
One question tells you little. A timed set on Time Value of Money shows your real accuracy, how long you take and where you lose marks.
More Time Value of Money questions
- Using a discount rate of 10% per annum, Meera is to receive Rs 1,10,000 exactly one year from today. What is the present value of this singl…
- Meera Traders can pay ₹1,00,000 at the beginning of each year for 5 years towards a loan carrying 10% p.a. (PVIFA 10%, 5 years = 3.7908). Wh…
- Ramesh deposits ₹50,000 in a bank for 2 years at 10% per annum compounded annually. What will be the amount at the end of 2 years?
- When the number of compounding periods per year increases, with the nominal annual rate and the time period unchanged, what happens to the f…
- Meera invests Rs 10,000 at 12% per annum compounded half-yearly. What is the amount at the end of 1 year?
- Sundaram Textiles must accumulate ₹10,00,000 at the end of 5 years to redeem a liability. It will deposit equal amounts at the end of each y…