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 :_________?

Question

Accepted Answer

10.25%

Answer

10%

Answer

10.50%

Answer

None of these 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%.

MCQs Knowledge

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 :_________?

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