Mr X purchased a house for ₹ 5,00,000. He agrees to pay for the house
in 10 equal instalments at the end of each year. If money worths 8%
effective. What would be the size of each instalment?
(i) If instalment is paid at the end of each year.
(ii) If instalment is paid in the beginning of each year.
(iii) if the first instalment to begin after three years from now.
(iv) What happens in above three cases, if Mr X makes a down payment
of ₹ 1,00,000.
Answers
Given : Mr X purchased a house for ₹ 5,00,000. He agrees to pay for the house in 10 equal instalments at the end of each year. If money worths 8% effective.
To Find : Size of each instalment
i) If instalment is paid at the end of each year.
(ii) If instalment is paid in the beginning of each year.
(iii) if the first instalment to begin after three years from now.
(iv) What happens in above three cases, if Mr X makes a down payment
of ₹ 1,00,000.
Solution:
EMI Formula = [P x (R/100) x (1+(R/100)ⁿ]/[(1+(R/100)ⁿ-1]
P = 50000
R = 8 %
n = 10
=> EMI = [ 500000 x (8/100) x (1 + 8/100)¹⁰]/ ( (1 + 8/100)¹⁰ - 1)
= 7,4514.7
If installment is paid in the beginning of each year.
Let say E is the installment then
P = 500000 - E
n = 9
=> E = [ (500000-E) x (8/100) x (1 + 8/100)⁹]/ ( (1 + 8/100)⁹ - 1)
=> E = (50000 - E) (0.16)
=> E = 6,8965.5
if the first installment to begin after three years from now.
50000 will be at the end of two years/beginning of 3rd year = 500000(1.08)²
Now we can use 1st case using 50000(1.08)² instead of 50000
EMI = [ 500000 x(1.08)² x (8/100) x (1 + 8/100)¹⁰]/ ( (1 + 8/100)¹⁰ - 1)
= 86914
in above three cases, if Mr X makes a down payment of ₹ 1,00,000.
P will be reduced by 100000
so use 400000 instead of 500000
Case 1 : 59612
Case 2 : 55172
Case 3: 69531
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