Discussion
What is the full form of "EMI"?
Answer: B
Correct answer: Equated Monthly Instalment
An equated monthly instalment is a fixed payment made each month over the life of a loan, covering both interest and principal.
The word equated is doing the work: the payment is level, but its composition is not. Early instalments are mostly interest, because the outstanding balance is large; later ones are mostly principal. The amount is
\[ E = \frac{P\,r\,(1+r)^{n}}{(1+r)^{n}-1} \]
with \( P \) the principal, \( r \) the monthly rate and \( n \) the number of instalments - which is why a small change in tenor alters the payment far less than it alters the total interest paid.
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