Question

A man buys a car worth 850,000 rupees. He agrees to pay 350,000 rupees immediately and the balance amount in 60 equal monthly installments with 12% p.a. compounded monthly. What is the amount of the monthly installments?​

Answer 1

The monthly installment amount for this loan is approximately
142956.575 rupees.

Explanation:

• To determine the amount of the monthly installments, we need to calculate the total interest on the loan and add it to the principal amount. The total interest can be calculated using the formula for compound interest, which is:

• Total Interest = Principal x (1 + Interest Rate/Compound Frequency)^(Compound Frequency x Number of Years) - Principal

• In this case, the principal is 850,000 rupees, the interest rate is 12% per year, the compound frequency is monthly (12/1), and the number of years is 5 (60/12). Plugging these values into the formula, we get:

Total Interest = 850,000 x (1 + 0.12/12)^(12 x 5) - 850,000

= 850,000 x (1 + 0.01)^60 - 850,000

= 850,000 x 1.01^60 - 850,000

= 850,000 x 1.675837 - 850,000

= 850,000 x 0.675837

= 573569.45

• To determine the monthly installment amount, we add the total interest to the principal and divide the result by the number of months in the loan period:

• Monthly Installment = (Principal + Total Interest) / Number of Months

= (850000 + 573569.45) / 60

= 142956.575

• Therefore, the monthly installment amount for this loan is approximately 142956.575 rupees.
  

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