Shanky takes a loan Rs. 4,00,000 at an interest of 6% p.a. for 10 years. He wants to pay back in equal monthly instalments. What is his EMI in Rs. amount when calculated by reduced balanced method ? \(\left(\text{use } \displaystyle\frac{0.005}{1-(1.005)^{-120}}=0.0111\right)\)
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 4440
By the reducing balance method, for a loan P at rate i per instalment period, repaid in n equal instalments,
\( \displaystyle \text{EMI} = \frac{P\,i}{1 - (1 + i)^{-n}} \)
The instalments are monthly, so
\( \displaystyle i = \frac{6}{12 \times 100} = 0.005,\quad n = 10 \times 12 = 120 \)
\( \displaystyle \text{EMI} = 400000 \times \frac{0.005}{1 - (1.005)^{-120}} \)
Using the given value:
\(\text{EMI} = 400000 \times 0.0111 = 4440\)
So his EMI is Rs. 4,440.