Question

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

Options

• 10%

• 10.25%

• 10.5%

• None of these

Answer 1

10.25%
Explanation : 
Let the sum be ₹100. Then,

SI for the first 6 months = ₹`((100xx10xx1)/(100xx2))=₹5`

SI for the last 6 months = ₹`((105xx10xx1)/(100xx2))=₹5.25`

So, the amount at the end of 1 yr 

 = ₹(100 + 5 + 5.25) = ₹110.25

∴ Effective rate = (110.25 - 100) = 10.25%