Test Index

Time Value of Money

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Question : 93 of 99

Marks: +1, -0

Sanjana borrows

\text{Rs. }5,00,000

to buy a house. If she pays equal instalments for 20 years and

10\%

interest on outstanding balance what will be the equal annual installment?

([P(20,0.10)=8.51356)

Rs. 58,729.84
Rs. 58,792.54
Rs. 85,729.54
Rs. 85,792.45

Solution:

Concept:

The equal annual installment is found by dividing the loan amount by the present value annuity factor.

Explanation:

Given: Loan amount

PV = \text{Rs. }5,00,000

, interest rate

10\%

, term

20

years, and annuity factor

P(20,0.10) = 8.51356

.

The formula is:

\text{Installment} = \frac{PV}{\text{Annuity factor}}

.

So,

\text{Installment} = \frac{5,00,000}{8.51356} = 58,729.84

(approximately).

Answer:

Rs. 58,729.84

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