Question

A money lender claims to lend money at the rate of 10% per annum simple interest. However, he takes the interest in advance when he lends a sum for one year. At what interest rate does he lend the money actually?

Answer 1

Sol. Interest Rate = 10%
Let P → 100
Rate ⇒ 10
Actual Principal = 100 – 10 = 90
Rate = 10/90 × 100 = 11(1/9)%

Answer 2

The original interest rate at which the money lender lends money is 11.11%.

• A money lender claims to lend money at 10% per annum simple interest.

• However the money lender takes the interest in advance when he lends the sum for one year.

• Let the principal amount be x.

• Now, the money lender lends money at 10% interest per annum so the interest is 0.1x.

• The money lender takes the interest before lending the sum for one year.

• We have to find the interest rate at which he lends the money,

• Now the new principal amount will be original principal amount - interest = x - 0.1x = 0.9x

• Interest is 0.1x on the principal amount.

• Therefore interest rate in percent = 0.1x / 0.9x × 100 = 11.11%.