Using flat rate method, the EMI to repay a loan of ₹ 20,000 in 221 years at an interest rate of 8% per annum is :
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Step-by-Step Solution
Step 1: Calculate Total Interest
First, we need to calculate the total interest accrued over the loan period. The principal amount is ₹20,000, the annual interest rate is 8%, and the loan duration is 221 years.
Step 2: Substitute Values and Compute Interest
Substitute the given values into the formula: Principal = ₹20,000, Rate = 8% or 0.08, and Time = 2.5 years. This gives us a total interest of ₹4,000.
Step 3: Calculate Total Amount Payable
Next, we find the total amount that needs to be repaid, which is the sum of the principal loan amount and the total interest calculated.
Step 4: Compute Total Amount
Adding the principal of ₹20,000 and the total interest of ₹4,000, we get a total payable amount of ₹24,000.
Step 5: Calculate Number of Months
To calculate the Equated Monthly Installment (EMI), we need to determine the total number of months over which the loan will be repaid. The loan duration is 221 years.
Step 6: Compute Total Months
Multiplying 2.5 years by 12 months per year gives us a total of 30 months.
Step 7: Calculate EMI
Finally, to find the EMI, we divide the total amount payable by the total number of months.
Step 8: Compute EMI Value
Dividing ₹24,000 by 30 months, we find that the EMI is ₹800.