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Interest calculation
If i borrow 1 lakh rupees nd i pay installment of rs. 13000 which comprises of 10000 principal amount and 3000 interest every month for 10 month then what is effective rate of interest....
Replies (4)
3% p.m. so 36% per annum...
Effective rate of return is 80.82% p.a
@ 5.06 % pm compounding monthly. Interest will be payable on reducing balance . Interest should be paid on reducing balance which is always reducing. Installment is Rs. 13000 pm which is not comprises of 3000 of interest every month
Like for e.g interest is always calculated on reducing balance i.e on balance outstanding. Rs. 100000 is the balance oustanding for first month . Interest will be @ 5.06% i.e Rs. 5060. total balance = Rs. 100000+5060= 105600. Repaid = Rs 13000. So outstanding for next month will be Rs 105600 - 13000 = Rs. 92060. Interest for next month will be on Rs. 92060 @ 5.06% i.e Rs.4658. Total = 92060+ 4658 = 96718. Repaid Rs. 13000 . Outstanding for next month will be Rs96718-13000= 83718. This will be done till 10th month.
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