An automobile financier claims to be lending money at S.I., but he includes the interest every six months for calculating the principal. If he is charging an interest of 10%, the effective rate of interest becomes?
Options:
A . 10%
B . 10.25%
C . 10.5%
D . None of these
Answer: Option B
Let the sum be Rs. 100. Then,S.I. for first 6 months = (100 * 10 *1) / (100 * 2) = Rs. 5S.I. for last 6 months = (105 * 10 * 1) / (100 * 2) = Rs. 5.25So, amount at the end of 1 year = (100 + 5 + 5.25) = Rs. 110.25Effective rate = (110.25 - 100) = 10.25%.
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