I M Virani (N.A.)     15 June 2021

# Financial Management Decision

Let's say I can take a loan of ₹ 3 lakhs @ 6.85% p.a. on 01-01-2022 with 36 EMIs starting from 01-02-2022 to be deducted from my salary

I wish to invest those ₹ 3 lakhs lumpsum in fixed deposit @ 6.3% p.a. (compounded quarterly) for a period of 36 months.

Can someone provide guidance (with calculations, if possible) whether I will be making a gain or loss out of the above transactions?

yasaswi gomes (My grammar is 💯 good I)     15 June 2021

When you took the loan,

3,00,000/ 3rd year annuity factor @ 6.85= interest+principle repayments/36 months= EMI

when you give a loan

Quarterly Interest= 3 lakhs* 6.3= Quarterly interest income

quarterly monthly income * 6.3= Quarterly interest income.

you have to have to do PV amortisation for both and find out how much the lump sum earns and how much you have to repay back. Online calculators are available.

yasaswi gomes (My grammar is 💯 good I)     15 June 2021

Forgot, if your paying only interest on borrowed money then calculate interest cash outflows discounted to PV at 6.85

yasaswi gomes (My grammar is 💯 good I)     15 June 2021

Use 12 months instead of 36 in the denominator value. Cheers

I M Virani (N.A.)     16 June 2021

yasaswi gomes (My grammar is 💯 good I)     16 June 2021

Your welcome, the main idea is how much interest your paying and how much your earning and the gain. From your scenario, you will get 320166 approximately without discounting and 334650 is what you will pay wi5out discounting used. Considering you have benefits like interest allowance on loans, you can break even or marginally get a gain.

I M Virani (N.A.)     16 June 2021

But according to my calculation:

EMI = ₹ 9,243/-

Total EMI Payments = ₹ 3,32,748/-

FD Maturity Value = ₹ 3,61,879/- (quarterly compounded cumulative value)

At what rate should i discount 6.3% or 6.85%?

What present values do you get?

yasaswi gomes (My grammar is 💯 good I)     16 June 2021

I also did it online just now and your numbers are tallying, I made rough calculation above. You need to discount when you want to know future value in PV.

yasaswi gomes (My grammar is 💯 good I)     17 June 2021

You know, I sorted this problem and the difference in your calculations and mine and online arises due to discount rates used. That is why I don't like to analyse real life finance questions because there definitely will be loads of asymmetric information related to market rates. I have attached the screen shots for your convenience. Loan is sorted out my way and online calculator way.

yasaswi gomes (My grammar is 💯 good I)     17 June 2021

The second part of the problem is here. all the best

yasaswi gomes (My grammar is 💯 good I)     17 June 2021

 compound  interest Annual Formula 360347.1 1 300000 18900 318900 2 318900 20090.7 338990.7 3 338990.7 21356.41 360347.11

Similarly, the compounding must be one done on monthly interest rate calculations. It is not mentioned anywhere.

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