Simple Interest-Data Intensity 1 Questions and Answers Discussion Page.

7.	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 Above

Answer: Option B

Explanation:

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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Published by:Michael Daani

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