Chintan has borrowed Rs. 5,00,000 from a bank to purchase a car and decided to repay the loan in equal monthly installments in 10 years. If bank charges interest at 6% per annum compounded monthly, the EMI on reducing balance method will be : (Given (1.005)120 = 1.82)
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 5548.78
On the reducing balance method,
\( \displaystyle EMI=\frac{P\,i\,(1+i)^n}{(1+i)^n-1} \)
Here P = 5,00,000, the monthly rate \( i=\frac{6}{12\times 100}=0.005 \) and the number of instalments n = 12 × 10 = 120.
\( \displaystyle EMI=\frac{500000\times 0.005\times 1.82}{1.82-1} \)
\( \displaystyle =\frac{2500\times 1.82}{0.82} \)
\( \displaystyle =\frac{4550}{0.82}=5548.78 \)
The EMI is Rs. 5548.78.