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Time Value of Money

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Question : 72 of 99

Marks: +1, -0

Anil bought a motor cycle costing Rs. 1,30,000 by making a down payment of Rs. 30,000 and agreeing to make equal annual payment for five years. How much would be each payment if the interest on unpaid amount be

10\%

compounded annually? [

P(5,0.10)=3.7908

)

Rs.28379.70
Rs.26300.70
Rs.26500.70
Rs.26379.70

Solution:

Concept:

Equal annual payment is found by dividing the loan amount by the present value annuity factor.

Explanation:

1. Loan amount = Cost - Down payment =

1,30,000 - 30,000 = Rs. 1,00,000

.

2. Given

P(5, 0.10) = 3.7908

, which is the present value annuity factor for 5 years at 10%.

3. Each equal payment = Loan amount ÷ Annuity factor =

1,00,000 / 3.7908

.

4. Calculate:

1,00,000 \div 3.7908 \approx 26,379.70

.

Answer:

Rs. 26,379.70

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