Question
An automobile financier claims to be lending money at simple interest , but he includes the interest every six months for calculating the principal .If he is charging as interest of 10% , the effective rate of interest becomes :
Answer: Option B
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Let the sum be Rs. 100 , Then
S.I. for first 6 months = Rs.`((100 xx 10 xx 1)/(100 xx 2))` = Rs . 5.
S.I. for last 6 months = Rs. `((105 xx 10 xx 1)/(100 xx 2))` = Rs. 5.25
So, amount at the end of 1 year = Rs. (100 + 5 + 5.25) = Rs. 110.25
`:.` Effective rate = (110.25 - 100) = 10.25%
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