• To calculate the rate of interest per annum charged under the instalment plan, we need to calculate the equivalent annual rate of interest (EAR).
• The equivalent annual rate of interest (EAR) is the rate of interest that is equivalent to the series of payments made during the year.
• The equivalent annual rate of interest (EAR) is used to compare different loans and investments.
• The EAR is the rate of interest which would be earned if the payments were made in the same order but in one year.
• To calculate the equivalent annual rate of interest (EAR), the following formula can be used:

EAR = [P(1+i)n -1] / [P (n-1)]

Where:
P = Principal amount
i = periodic rate
n = number of payments

• In the given question, we are given the following information:
Cash price = Rs.120
Cash down payment = Rs. 25
Number of payments = 4

• We need to calculate the periodic rate (i)
• Substituting the given values in the formula, we get:

EAR = [25 (1+i)4 -1] / [25 (4-1)]

• Solving for i, we get

i = (1.2609 - 1) / (1 + 4)

i = 0.0609

• Therefore, the periodic rate (i) is 0.0609

• To calculate the rate of interest per annum (EAR), we need to convert the periodic rate (i) to annual rate (EAR).

• To convert the periodic rate (i) to annual rate (EAR), the following formula can be used:

EAR = (1 + i)n – 1

• Substituting the given values in the formula, we get:

EAR = (1 + 0.0609)4 – 1

EAR = (1.2609 – 1)

EAR = 0.2609

• Therefore, the rate of interest per annum charged under the instalment plan is 26.09%.

Hence, the correct answer is Option C: 26.09%.

If you think the solution is wrong then please provide your own solution below in the comments section .