A takes a loan of Rs. 5,00,000 at an interest rate for 5 years. The EMI paid by him is Rs. 10,000. The rate of interest for A is : (Under flat rate system)
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 4%
In the flat rate system, interest is charged on the full loan amount for the whole period. The EMI is a monthly instalment, so over 5 years there are 60 payments.
\(\text{total paid} = 60 \times 10000 = 600000\)
\(\text{total interest} = 600000 - 500000 = 100000\)
\( \displaystyle \text{rate} = \frac{\text{interest}}{\text{principal} \times \text{time}} \times 100 = \frac{100000}{500000 \times 5} \times 100 \)
\(= 4\%\) per annum