Hari is interested in buying a motor bike. He is applying for Rs. 125,000, 3 year loan. The loan will be fully amortized over the next 3 years. Current interest rate is 12 percent. How much should…

To calculate the yearly installment for Hari's loan, we use the annuity formula for loan amortization:

The formula for the fixed annual payment $PMT$ is:

$$PMT=\frac{P\times r\times (1+r{)}^n}{(1+r{)}^n-1}$$

Where:

• $P=125,000$ (loan amount)
• $r=0.12$ (annual interest rate)
• $n=3$ (loan term in years)

Substituting the values:

$$PMT=\frac{125,000\times 0.12\times (1+0.12{)}^3}{(1+0.12{)}^3-1}$$

$$PMT=\frac{125,000\times 0.12\times 1.404928}{1.404928-1}$$

$$PMT=\frac{21,061.32}{0.404928}$$

$$PMT=52,023.46$$

Thus, Hari should pay Rs. 52,023.46 per year.