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CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities

Rohit has a loan of ₹10,00,000 at 12% p.a. with monthly rests and an EMI of ₹22,000. Interest is calculated each month on the opening balance. What is the outstanding principal after the second EMI is paid?

The outstanding principal is ₹9,75,880. After the first EMI, ₹12,000 of principal is repaid, leaving ₹9,88,000. In month two, interest is ₹9,880, so ₹12,120 of principal is repaid, reducing the balance to ₹9,75,880.

  1. A₹9,56,000
  2. B₹9,76,000
  3. C₹9,75,880Correct
  4. D₹9,88,000

Explanation

Month 1: interest = 10,00,000 × 1% = ₹10,000; principal = 12,000; balance = ₹9,88,000. Month 2: interest = 9,88,000 × 1% = ₹9,880; principal = 22,000 − 9,880 = 12,120; balance = 9,88,000 − 12,120 = ₹9,75,880. ₹9,76,000 wrongly keeps interest at ₹10,000 in month 2, and ₹9,88,000 is the balance after only one EMI.

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