Mameesh took a loan of ₹9,00,800 from bank at an interest rate of 6% per annum for 10 years. If she has to pay the loan back with the help of equal monthly installments (EMI). Then, the EMI using reduced balance method is (approx):
(Given: $(1.005)^{-120}=0.5496$)
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → ₹10,000 **
Principal $P = 900800$
Annual interest rate = $6\%$
Monthly rate = $\frac{6}{12} = 0.5\% = 0.005$
Loan period = 10 years = 120 months
EMI formula (reducing balance):
$\displaystyle \text{EMI} = P \cdot \frac{r(1+r)^n}{(1+r)^n - 1}$
Here $r=0.005,\;n=120$.
Substitute values:
$\text{EMI} = 900800 \cdot \frac{0.005 \cdot 1.819}{1.819 - 1}$
EMI = $\displaystyle \frac{8184.27}{0.819} \approx 9990$
Approx EMI ≈ ₹10,000 per month