Answers
answer a)
FREQUENCY=1
| YEAR | principal | interest | closing balance |
| 1 | 10000 | ₹ 340.00 | ₹ 10,340.00 |
| 2 | ₹ 10,340.00 | ₹ 351.56 | ₹ 10,691.56 |
FREQUENCY=2
| Year | principal | interest | closing balance |
| 1 | 10000 | ₹ 170.00 | ₹ 10,170.00 |
| 2 | ₹ 10,170.00 | ₹ 172.89 | ₹ 10,342.89 |
| 3 | ₹ 10,342.89 | ₹ 175.83 | ₹ 10,518.72 |
| 4 | ₹ 10,518.72 | ₹ 178.82 | ₹ 10,697.54 |
FREQUENCY=4
| Year | principal | interest | closing balance |
| 1 | 10000 | ₹ 85.00 | ₹ 10,085.00 |
| 2 | ₹ 10,085.00 | ₹ 85.72 | ₹ 10,170.72 |
| 3 | ₹ 10,170.72 | ₹ 86.45 | ₹ 10,257.17 |
| 4 | ₹ 10,257.17 | ₹ 87.19 | ₹ 10,344.36 |
| 5 | ₹ 10,344.36 | ₹ 87.93 | ₹ 10,432.29 |
| 6 | ₹ 10,432.29 | ₹ 88.67 | ₹ 10,520.96 |
| 7 | ₹ 10,520.96 | ₹ 89.43 | ₹ 10,610.39 |
| 8 | ₹ 10,610.39 | ₹ 90.19 | ₹ 10,700.58 |
Therefore it is evident that higher the frequency more the amount u will be paid therefore best option is to choose option of frequency 4
(B) john McDormat is right inflation reduces the risk adjusted return therefore in the present case if the rate of interest is 3.4% then on annual basis it will risk adjusted to 3.4%-2% = 1.4%
p.s. please neglect rupee symbol i dont have microsoft spreadsheets i use WPS it doesnt have dollar symbol
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