Test Index

Time Value of Money

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Question : 73 of 99

Marks: +1, -0

Shoba borrows Rs .50,00,000 to buy a house. If he pays equal instalments for 20 years and

10\%

interest on outstanding balance, what will be the equal annual instalment? [Given :

P(20,0.10)=8.51356]

Rs.687298.4
Rs.685298.4
Rs.585298.4
Rs.587298.4

Solution:

Concept:

The present value of an annuity formula: Loan amount = Annual instalment × Present value annuity factor for 20 years at 10%.

Explanation:

Given: Loan

P = 50,00,000

, annuity factor

PVIFA(20, 0.10) = 8.51356

.

Annual instalment

A = \frac{50,00,000}{8.51356}

.

Calculate:

50,00,000 \div 8.51356 \approx 587298.4

.

Answer:

Rs.587298.4

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