# ECONOMICS (CBSE/UGC NET)

## ECONOMICS

### COMPOUND INTEREST

 Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Allen need to get a loan to replace the air-conditioning in his home. The cost of the replacement, including installation, is \$4, 348.0. He can apply fo a 5-year loan or a 3-year loan. Both loans involve simple interest with an annual interest rate of 6.5%. If Allen applies for the 5-year loan, how much more will he pay in interest than with the 3-year loan?
 A \$5, 652.40 B \$2, 260.96 C \$565.42 D \$565.24
Explanation:

Detailed explanation-1: -Equated Monthly Installment (EMI) Formula The EMI flat-rate formula is calculated by adding together the principal loan amount and the interest on the principal and dividing the result by the number of periods multiplied by the number of months.

Detailed explanation-2: -The important thing to note for Home Loan interest rate is that it is compounded interest and not simple interest. In other words, you don’t pay interest only on the principal amount, but you pay interest on the principal amount plus the interest accrued.

Detailed explanation-3: -Here’s the formula for calculating compound interest: CI = P (1+r/n) ^nt – P. To solve, plug the described information into the designated spots. Then divide the rate (r) by the number of times compounded (n) and add it to one.

Detailed explanation-4: -If you were to look at how the EMI is calculated on loans then you cannot divide it into simple interest rate and compound interest. The reason for this is that you as the borrower do not have to deal with the aspects of simple interest or compound interest.

There is 1 question to complete.