A takes a loan of ₹5,00,000 at an interest rate for 5 years. The EMI paid by him is ₹10,000. The effective interest rate for A is : (Under flat rate system)
Answer & explanation
Correct answer: option 4
Loan amount $=500000$.
EMI $=10000$ per month.
Time $=5$ years $=60$ months.
Total amount paid:
$=10000\times60=600000$
Total interest paid:
$=600000-500000=100000$
Under flat rate system, effective interest rate:
$=\frac{\text{Total Interest}}{\text{Principal}\times\text{Time}}$
$=\frac{100000}{500000\times5}$
$=\frac{100000}{2500000}=0.04$
$=4\%$ per annum.
final answer: $4\%$ per annum