I M Virani (N.A.) (97 Points)
15 June 2021Let's say I can take a loan of ₹ 3 lakhs @ 6.85% p.a. on 01-01-2022 with 36 EMIs starting from 01-02-2022 to be deducted from my salary
I wish to invest those ₹ 3 lakhs lumpsum in fixed deposit @ 6.3% p.a. (compounded quarterly) for a period of 36 months.
Can someone provide guidance (with calculations, if possible) whether I will be making a gain or loss out of the above transactions?
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 15 June 2021
When you took the loan,
3,00,000/ 3rd year annuity factor @ 6.85= interest+principle repayments/36 months= EMI
when you give a loan
Quarterly Interest= 3 lakhs* 6.3= Quarterly interest income
quarterly monthly income * 6.3= Quarterly interest income.
you have to have to do PV amortisation for both and find out how much the lump sum earns and how much you have to repay back. Online calculators are available.
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 15 June 2021
Forgot, if your paying only interest on borrowed money then calculate interest cash outflows discounted to PV at 6.85
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 15 June 2021
Use 12 months instead of 36 in the denominator value. Cheers
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 16 June 2021
Your welcome, the main idea is how much interest your paying and how much your earning and the gain. From your scenario, you will get 320166 approximately without discounting and 334650 is what you will pay wi5out discounting used. Considering you have benefits like interest allowance on loans, you can break even or marginally get a gain.
I M Virani
(N.A.)
(97 Points)
Replied 16 June 2021
But according to my calculation:
EMI = ₹ 9,243/-
Total EMI Payments = ₹ 3,32,748/-
FD Maturity Value = ₹ 3,61,879/- (quarterly compounded cumulative value)
At what rate should i discount 6.3% or 6.85%?
What present values do you get?
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 16 June 2021
I also did it online just now and your numbers are tallying, I made rough calculation above. You need to discount when you want to know future value in PV.
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 17 June 2021
You know, I sorted this problem and the difference in your calculations and mine and online arises due to discount rates used. That is why I don't like to analyse real life finance questions because there definitely will be loads of asymmetric information related to market rates. I have attached the screen shots for your convenience. Loan is sorted out my way and online calculator way.
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 17 June 2021
The second part of the problem is here. all the best
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 17 June 2021
| compound interest | |||||||
| Annual | Formula | 360347.1 | |||||
| 1 | 300000 | 18900 | 318900 | ||||
| 2 | 318900 | 20090.7 | 338990.7 | ||||
| 3 | 338990.7 | 21356.41 | 360347.11 | ||||
Similarly, the compounding must be one done on monthly interest rate calculations. It is not mentioned anywhere.
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