CT1- Flat rate

[Bharti Singla]

Hii all
Here's a qus. of flat rate. I tried this qus. differently with the logic that the initial loan amount is 15000 but we are paying the instalments monthly in advance. So, as we are paying a part of loan on the same day it has been taken, the initial loan amount is reduced by that amount and it will be (15000-697.27)= 14302.73 and also we are left with 23 monthly instalments now. But I'm getting a different flat rate in this way. Could anyone please explain why can't we use that logic here?
(See the qus. attached below)
Many Thanks.

 

[Mark Mitchell]

Your only difference in the calculation is what you take as the original loan amount, and the term of the loan. I can see where you're coming from, and you could perhaps argue it that way, but there's no indication in the Examiner's Report that your approach would have been acceptable.

To be honest, my advice would be to try not to over-think things. We're told that the loan of 15,000 is repaid over 24 months, so use 15,000 as the loan amount and 2 years as the term.

The issue really is that the repayments are in advance, and this is rare in practice, and in exam questions.

 

[Bharti Singla]

Okay sir. At the end, we have to do according to examiners viewpoint. Ok, thankyou sir.