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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Debt Management and Loans

Rohit Mehra has a Rs 10,00,000 loan at 12% p.a. interest charged monthly on the reducing balance. Interest for the first month is computed and he pays an EMI of Rs 15,000. What is the outstanding principal after the first EMI?

The outstanding principal is Rs 9,95,000. Monthly interest at 1% on Rs 10,00,000 is Rs 10,000, so only Rs 5,000 of the Rs 15,000 EMI reduces principal, leaving Rs 9,95,000 outstanding after the first instalment.

  1. ARs 9,95,000Correct
  2. BRs 9,85,000
  3. CRs 9,90,000
  4. DRs 9,75,000

Explanation

Monthly rate = 12%/12 = 1%. Interest for month 1 = 1% x 10,00,000 = Rs 10,000. Principal repaid = 15,000 - 10,000 = Rs 5,000, so balance = 10,00,000 - 5,000 = Rs 9,95,000. Rs 9,85,000 results from deducting the full EMI and adding nothing back incorrectly, i.e. subtracting EMI plus interest.

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