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Simple Interest

Q1: 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:

A 10%

B 10.25%

C 10.5%

D None of these

ANS:B - 10.25%

Let the sum be Rs. 100. Then,

S.I. for first 6 months = Rs. 100 x 10 x 1 = Rs. 5
100 x 2
S.I. for last 6 months = Rs. 105 x 10 x 1 = Rs. 5.25
100 x 2
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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