Anil bought a motor cycle costing Rs.1,50,000 by making a down payment...
Calculation of Equal Annual Payment:To calculate the equal annual payment, we need to use the formula for annuity:
PMT = PV x i / (1 - (1 + i)^-n)
Where,
- PV = Present Value of the loan (i.e., Cost of the Motor Cycle - Down Payment)
- i = Interest Rate per period (i.e., 10% compounded annually)
- n = Number of Payment periods (i.e., 5 years)
Calculation of PV:PV = Cost of the Motor Cycle - Down Payment
PV = Rs.1,50,000 - Rs.50,000
PV = Rs.1,00,000
Calculation of PMT:i = 10% compounded annually
n = 5 years
PMT = Rs.1,00,000 x 10% / (1 - (1 + 10%)^-5)
PMT = Rs.26,954 (approx)
Explanation:As per the given information, Anil bought a motor cycle costing Rs.1,50,000 by making a down payment of Rs.50,000 and agreeing to make equal annual payment for five years. Therefore, the loan amount is Rs.1,00,000 (i.e., Cost of the Motor Cycle - Down Payment).
The interest on the unpaid amount is 10% compounded annually. To calculate the equal annual payment, we have used the formula for annuity, which takes into account the present value of the loan, interest rate per period, and the number of payment periods.
Using the formula, we have calculated the present value of the loan as Rs.1,00,000 and the interest rate per period as 10% compounded annually for 5 years. Based on these values, the equal annual payment comes out to be Rs.26,954 (approx).
Therefore, Anil needs to make equal annual payments of Rs.26,954 for the next 5 years to repay the loan amount along with interest.