Ms. Debjani after her MBA graduation wants to have a start-up of her own. For this, she uses ₹ 8,00,000 of her own savings and borrows ₹ 12,00,000 from a public sector bank under MUDRA Scheme. As per the agreement with the bank, she is supposed to repay the principle of this loan equally over the period of the loan which is 25 years. Two years after taking the first loan, she borrowed an additional loan of ₹8,00,000 to finance expansion plan of her start-up. If Ms. Debjani clears all her loans in 25 years from the date of taking the first loan, how much total interest she has to pay on her initial borrowing ? Assume simple interest rate at 8 percent per annum.
Explanation:
Since the principal is to be paid equally over 25 years, principal amount paid per year = (12 lakhs)/25 = Rs. 48000.
For the first year, interest to be paid = (12 lakhs) × 0.08 ....(I)
For the second year, amount remaining = (12 lakhs) − 48000 = Rs. 11,52,000.
So interest for the second year = (Rs. 11,52,000) × 0.08 .... (II)
On similar lines, interest for the third year = (48000) × 0.08
Total interest = [(12 lakhs) × 0.08] + [(Rs. 11,52,000) × 0.08] + ...... [(48000) × 0.08]
This is an AP with first term as (48000) × 0.08 = 3840 with 25 terms and common difference of Rs. 3840. [{(12 lakhs) × 0.08} − {(Rs. 11,52,000) × 0.08} = Rs. 3840]
∴ Total interest = (25/2)[(2 × 3840) + {(25 − 1) × 3840}]
= Rs. 12,48,000.
Hence option (a).
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