Question

An automobile financier claims to be lending money at simple interest, but he includesthe interest every six months for calculating the principal. If he is charging an interest of10%, the effective rate of interest becomes:

Answer 1

Solution:

Let the sum be Rs. 100

Then:

Simple interest for first 6 months:

$\implies$ Rs.[ (100 x 10 x 1)/(100 x 2) ]

$\implies$ Rs.[ (1000)/(200) ]

$\implies$ Rs. 5

Simple interest for last 6 months:

$\implies$ Rs. [(102 x 10 x 1)/(100 x 2) ]

$\implies$ Rs. [(1020)/(200) ]

$\implies$ Rs. 5.25

So:

Amount at the end of 1 year:

$\implies$ Rs. (100 + 5 + 5.25)

$\implies$ Rs. (105 + 5.25)

$\implies$ Rs. 110.25

Effective rate:

$\implies$ (110.25 - 100)

$\implies$ 10.25%

Final answer: 10.25%

Answer 2

Answer:

...10.25

Step-by-step explanation:

Simple interest for first 6 months

⟹ Rs.[ (100 x 10 x 1)/(100 x 2) ]

⟹ Rs.[ (1000)/(200) ]

⟹ Rs. 5

. Simple interest for last 6 months

⟹ Rs. [(102 x 10 x 1)/(100 x 2) ]

⟹ Rs. [(1020)/(200) ]

⟹ Rs. 5.25

Amount of the end of 1 year

⟹ Rs. (105 + 5.25)

⟹ Rs. 110.25

Effective rate .

⟹ (110.25 - 100)

⟹ 10.25%