Question

a) Suppose you have borrowed Rs 10,00,000 from your employer for 3 years at 9% rate of interest to buy a car. If your employer requires you to pay back in 3 equal end of year instalments, prepare the loan amortisation schedule.
b) Assume to finance your post graduate studies in an executive weekend programme, you undertake a part time job for 5 years. Your employer fixes your annual salary at Rs 10,00,000 with a provision that you will get an annual increment of 10%. If you will save it all and be able to make your investment grow @ 12% p.a., calculate the present value of your salary? What amount will be able to accumulate by the end of 5th year?

Answer 1

Step-1:Calculation of annual payment
Annual payment		=	Loan amount	/	Present value of annuity of 1
		=	₹ 10,00,000.00	/	2.531294666
		=	₹    3,95,054.76
Working:
Present value of annuity of 1		=	(1-(1+i)^-n)/i		Where,
		=	(1-(1+0.09)^-3)/0.09		i	=	9%
		=	2.531294666		n	=	3
Step-1:Calculation of amortization Schedule
Year	Beginning loan		Interest Expense	Annual Payment	Reduction of Liability	Ending Loan
	a		b=a*9%	c	d=c-b	e=a-d
1	₹ 10,00,000.00		₹        90,000.00	₹    3,95,054.76	₹    3,05,054.76	₹ 6,94,945.24
2	₹    6,94,945.24		₹        62,545.07	₹    3,95,054.76	₹    3,32,509.69	₹ 3,62,435.56
3	₹    3,62,435.56		₹        32,619.20	₹    3,95,054.76	₹    3,62,435.56	₹                0.00
Total			₹    1,85,164.27	₹ 11,85,164.27	₹ 10,00,000.00