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Pocket Money - SEBI Investor Awareness Website - Securities and ...

Pocket Money - SEBI Investor Awareness Website - Securities and ...

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COST OF BORROWINGFollowing are three advertisements.Which one is the best for the borrower? ________________Why does any business enterprise lend money?___________________________________________________Interesting Interest <strong>and</strong> EMIAmrita, a class X student, studies in a residential school. Sheis a very good painter <strong>and</strong> wants to gift a oil on canvas paintingto her parents on their marriage anniversary. She needs Rs.1200to buy the equipments. She does not have the money but alsodoes not want to ask her parents for the money as she wantedto surprise them with the gift.Amrita decides to borrow the money from her friend Ritu whohas some money to spare. Amrita offers to repay the amountin 12 monthly installments. Ritu agrees to lend Rs.1200 butsays that she will charge some interest."How much interest will you charge <strong>and</strong> how much do I haveto pay you every month?," Amrita asks.Ritu cames up with this calculation.Principal: Rs.12001 year's interest @10% p.a. on Rs.1200 : Rs.120Total: Rs.1320EMI: Rs.110Amrita, being a meticulous person as she is, sets out to workout the interest herself. The following is her worksheet.84

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