I absolutely agree with your table which is calculated on the basis of 17% p.a. and that is your actual cost of funds.

Now the Flat interest calculation
If you simply calculate interest on 100000@17% you will pay every year Rs. 17000 so Rs. 68000 for 4 years. but actually you are paying 38504, why? because simultaneously you are paying back the principle also.

I would be paying total interest over 4 years 38504, that means
I have to pay Rs. 9626 per year. (38504/4)

That means I have to pay 9.63% every year on Rs. 100000 amount

that is called as flat calculation. This will give you idea if your borrowed funds generate more returns than 9.63% every year, at he end of the 4th year you will have surplus on the money you never owned.

Now last argument..

If you could club this into your home loan. the formula =PMT(10.25%/12,240,100000) gives amount Rs.982
where

10.25%/12 = 0.85%
240 = 20 Yrs=Loan tenure
100000 = Loan Amount

The benefit of this workout is that you get tax relief as well as some returns from the market.

Hope we are on the same page now.

Thanks

           You Earn @ 14.42%           
                    
                @9.63       you pay back
                    
1st year      100,000.00      14.42%      14,420.00       34,596.00
2nd year      79,824.00      14.42%      11,510.62       34,596.00
3rd year      56,738.62      14.42%      8,181.71       34,596.00
4th year      30,324.33      14.42%      4,372.77       34,596.00
                                      38,485.10       138,384.00

           You Pay @9.63%       38,504.00      
                    
           Net Loss       (18.90)
you have to earn more that 14.42% pa for break even.
Even more as i have calculated payback amount on y-o-y basis and not monthly which will furthur increase you % of cost of borrowing.so you have to earn around 17% appr.to break even only.    


Edited by Chetan Panchal - 19/Jan/2010 at 11:31am