Question

A couple wishes to purchase a house for ₹15,00,000 with a down payment of ₹4,00,000. If they can amortize the balance at an interest rate 9% per annum compounded monthly for 10 years, find the monthly installment (EMI). Also find the total interest paid.

[Given (1.0075)^-120 = 0.4079]

OR

A ₹2000, 8% bond is redeemable at the end of 10 years at ₹105. Find the purchase price to yield 10% effective rate.

[Given (1.1)^-10 = 0.3855]

Answer 1

Amortized Amount i.e., P = Cost of house-Cash down payment

P = 15,00,000 – 4,00,000 = ₹11,00,000

i = \(\frac{0.09}{12}\) = 0.0075

n = 10 × 12 = 120

Total interest paid = nR − R = 13933.5 × 120 − 11,00,000

= ₹5,72,020

OR

Face value of bond, F = ₹2000

Redemption value C = 1.05 × 2000 = ₹2100

Nominal rate = 8%

R = C x i_d = 2000 × 0.08 = ₹160

Number of periods before redemption i.e., n = 10

Annual yield rate, i =10% or 0.1

Thus present value of the bond is ₹1792.