Mr. Dev wishes to purchase an AC for Rs. 45,000 with a down payment of Rs. 5000 and balance in EMI for 5 years. If Bank charges 6% per annum compounded monthly then monthly EMI is: ( use \(\displaystyle\frac{0.005}{1-(1.005)^{-60}} = 0.0194\) )
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 776
The loan is the balance after the down payment:
\(P = 45000 - 5000 = 40000\)
Monthly rate and number of instalments:
\( \displaystyle i = \frac{6}{12 \times 100} = 0.005,\qquad n = 5 \times 12 = 60 \)
By the reducing balance EMI formula:
\( \displaystyle \mathrm{EMI} = P \times \frac{i}{1 - (1 + i)^{-n}} \)
\( \displaystyle = 40000 \times \frac{0.005}{1 - (1.005)^{-60}} \)
\( = 40000 \times 0.0194 = 776 \)
So the monthly EMI is Rs. 776.