Question 11.I-B.3: For the facts in Illustration 11-B.1, compute interest rebat......
For the facts in Illustration 11-B.1, compute interest rebate (IR) assuming that the HFL calculates the rebate on the basis of modified rule of 78, which provides for a deferment period of 3 months. If the borrower wants to repay the outstanding loan after paying the 33^\mathrm{rd} instalment, calculate the amount of interest rebate and the rate of interest on the completed transaction.
(a) IR = \frac{(12 − 3)(12 − 3 + 1)}{36 × 37} × Rs 312 = Rs 21.1
\, The implicit rate of interest for the completed transaction would work
\, out to be 27 per cent.
(b) Since the number of remaining unpaid instalments is equal to the deferment period, IR would be = 0.
\, The effective rate of interest on the completed transaction (E_\mathrm{i}) would be
\, given by the following equation: Rs 30.89 × 12 × PVIFA_\mathrm{m} (E_\mathrm{i},2.75)
\, + Rs 92.67 × PVIF (E_\mathrm{i},2.75) = Rs 800. E_\mathrm{i} = 26 per cent