CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities
Rohan Enterprises took a loan of ₹1,00,000 at 12% p.a., charged on the monthly reducing balance, repayable by an EMI of ₹10,000 at each month-end. What is the outstanding principal after the second EMI is paid?
The outstanding principal is ₹81,910. In month one, interest is ₹1,000 and principal repaid ₹9,000, leaving ₹91,000. In month two, interest on ₹91,000 is ₹910, so principal repaid is ₹9,090, leaving ₹81,910. Interest falls as the balance reduces.
- A₹80,000
- B₹82,000
- C₹81,910Correct
- D₹91,000
Explanation
Month 1 interest = 1% of 1,00,000 = ₹1,000, so principal repaid is ₹9,000 and the balance is ₹91,000. Month 2 interest = 1% of 91,000 = ₹910, so principal repaid is ₹9,090 and the balance is ₹81,910. ₹82,000 wrongly charges interest on the original loan in both months.
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