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 an interest of 10%, the effective rate of interest becomes :_________?
Options:
A . 10%
B . 10.25%
C . 10.50%
D . None of these
Answer: Option B LET THE SUM BE RS. 100. THEN, S.I. FOR FIRST 6 MONTHS = RS. ( 100 X 10 X 1/100 X 2 ) = RS. 5. S.I. FOR LAST 6 MONTHS = RS. ( 105 X 10 X 1/100 X 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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