Question 151 markMCQSection A

Using flat rate method, the EMI to repay a loan of Rs 20,000 in 2122\frac{1}{2} years at an interest rate of 8% per annum is :

Financial Mathematics
EMI by Flat Rate Method

Options

(A)Rs 700
(B)Rs 800
(C)Rs 900
(D)Rs 100

Official answer

The correct option is (B) Rs 800.


Calculation

  • Simple interest = P×r×t=20000×0.08×2.5P \times r \times t = 20000 \times 0.08 \times 2.5 = Rs 4,000.
  • Total amount = 20000+400020000 + 4000 = Rs 24,000.
  • Number of months = 2.5×12=302.5 \times 12 = 30.
  • EMI = 24000÷3024000 \div 30 = Rs 800.
Answer keywords:flat rate methodEMIsimple interestloan repaymentprincipal plus interest30 monthsRs 800financial mathematics

Marking scheme

  1. 1.1 mark: correct option (B) Rs 800.
  2. 2.Working (not required for MCQ but expected in a subjective version): interest 4,000; total 24,000; 30 months; EMI 800.

Hint

Flat rate: total interest = P×r×tP \times r \times t on the whole principal; EMI = (P + interest) / total months.

Quick oral answer

Under the flat rate method the interest of four thousand rupees is added to the twenty-thousand principal, and the twenty-four thousand total is divided by thirty months, giving an EMI of eight hundred rupees.

Common mistakes

  1. 1.Computing interest for only 1 year instead of 2.5 years, giving Rs 700.
  2. 2.Using 24 or 25 months instead of 30 months for 2.5 years.
  3. 3.Confusing the flat rate method with the reducing-balance EMI formula.

Analysis and explanation

In the flat rate method, interest is charged on the full original principal for the entire tenure, then principal plus interest is split into equal monthly instalments.


Concept

  • Flat-rate interest = P×r×tP \times r \times t (simple interest on the original principal).
  • EMI = (Principal + Total interest) / (number of months).

Working

  • Interest = 20000×8/100×2.520000 \times 8/100 \times 2.5 = Rs 4,000.
  • Total repayable = 24,000 over 30 months.
  • EMI = 24000/3024000/30 = Rs 800.

Why the key is right

  • (B) Rs 800 follows exactly from the flat-rate steps.

Why the distractors are wrong

  • (A) Rs 700 = 21000/3021000/30, understating the interest.
  • (C) Rs 900 = 27000/3027000/30, overstating the interest.
  • (D) Rs 100 ignores the principal entirely.

Interesting facts

The flat rate method makes a loan look cheaper than it is; the effective (reducing-balance) rate is often nearly double the quoted flat rate.

Because flat-rate interest is charged on the full principal throughout, even after part of the loan is repaid, regulators encourage disclosure of the annual percentage rate for fair comparison.

Question details

Q15 of 44 questions

Board
CBSE
Class
Class 12
Subject
Applied Mathematics
Year
2026
Section
Section A
Marks
1
Type
MCQ
Chapter
Financial Mathematics
Topic
EMI by Flat Rate Method
Bloom's level
apply
Syllabus topic
Unit: Financial Mathematics — EMI Calculation: Flat Rate Method
Author
CBSE
Reviewed by
Padhantu Academic Team

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Frequently asked questions

How does flat rate EMI differ from reducing balance EMI?

Flat rate charges simple interest on the full original principal for the whole tenure, so EMI = (P+P×r×tP + P \times r \times t)/months. Reducing balance charges interest only on the outstanding balance, giving lower total interest and a different EMI formula.

Why use 30 months for 2.5 years?

Because 2.5 years = 2.5×12=302.5 \times 12 = 30 months, and EMI is a monthly instalment, so the total repayable amount is divided by 30.