Mr. Sanjay borrowed Rs. 10,00,000 from a bank to purchase a car on reducing balance payment for period of 10 year. If bank charges interest at 9% per annum compounded monthly and EMI as Rs. 12,668 to be paid by him. Then principal outstanding after payment of \( 12^{th} \) EMI is: (Use \( (1.0075)^{-108}=0.4462 \))
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 9,35,405
The monthly rate is i = 9%/12 = 0.0075. After 12 EMIs, 120 − 12 = 108 EMIs remain, and the principal outstanding is the present value of the remaining EMIs:
\( \displaystyle P=\text{EMI}\times\frac{1-(1+i)^{-108}}{i} \)
\( \displaystyle =12668\times\frac{1-0.4462}{0.0075} \)
\( \displaystyle =12668\times 73.84 \)
\( \displaystyle \approx 935405 \)
So the principal outstanding is about Rs. 9,35,405.