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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
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
An automobile financier claims to be lending money at simple interest,...
B is the correct option. Solution
6 months interest will be 5%
next 6 months interest will be 5%
percentage effect = 5 + 5 +25/100
= 10.25 Ans
6 months interest will be 5%
next 6 months interest will be 5%
percentage effect = 5 + 5 +25/100
= 10.25 Ans
Most Upvoted Answer
An automobile financier claims to be lending money at simple interest,...
6 months interest will be 5%
next 6 months interest will be 5%
percentage effect = 5 + 5 +25/100
= 10.25 Ans
next 6 months interest will be 5%
percentage effect = 5 + 5 +25/100
= 10.25 Ans
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Community Answer
An automobile financier claims to be lending money at simple interest,...
Calculation of Interest
Simple Interest Calculation:
- The formula for simple interest is I = PRT, where I = Interest, P = Principal, R = Rate of interest, and T = Time.
- Here, the principal remains constant throughout the loan tenure, and the interest is calculated only on the initial principal amount.
Interest Calculation by the Financier:
- The financier claims to be lending money at simple interest, but he includes the interest every six months for calculating the principal.
- Let's consider a loan of Rs. 100 for one year at 10% simple interest.
- According to simple interest, the interest charged for one year would be Rs. 10.
- But the financier calculates interest every six months and adds it to the principal.
- After six months, the interest charged would be Rs. 5 (10% of Rs. 100/2).
- The principal for the second half of the year would be Rs. 105 (Rs. 100 + Rs. 5).
- At the end of the year, the interest charged would be Rs. 10.5 (10% of Rs. 105).
- Hence, the total amount to be repaid would be Rs. 115.5 (Rs. 100 + Rs. 10.5).
Effective Rate of Interest
- The effective rate of interest is the actual interest rate charged on a loan or investment.
- It takes into account the compounding of interest over a period of time.
- In this case, the interest is compounded every six months, and hence, the effective rate of interest would be higher than 10%.
Calculation of Effective Rate of Interest:
- Let's consider the same loan of Rs. 100 at 10% simple interest, but calculated as per the financier's method.
- The principal for the first half of the year would be Rs. 100.
- After six months, the interest charged would be Rs. 5 (10% of Rs. 100/2) and added to the principal, making it Rs. 105.
- The principal for the second half of the year would be Rs. 105.
- At the end of the year, the interest charged would be Rs. 5.25 (10% of Rs. 105/2).
- Hence, the total amount to be repaid would be Rs. 110.25 (Rs. 100 + Rs. 5.25).
- The effective rate of interest can be calculated using the formula: ((Total amount to be repaid / Principal) - 1) x 100
- In this case, the effective rate of interest would be ((110.25/100) - 1) x 100 = 10.25%
Hence, the correct answer is option B, i.e., 10.25%.
Simple Interest Calculation:
- The formula for simple interest is I = PRT, where I = Interest, P = Principal, R = Rate of interest, and T = Time.
- Here, the principal remains constant throughout the loan tenure, and the interest is calculated only on the initial principal amount.
Interest Calculation by the Financier:
- The financier claims to be lending money at simple interest, but he includes the interest every six months for calculating the principal.
- Let's consider a loan of Rs. 100 for one year at 10% simple interest.
- According to simple interest, the interest charged for one year would be Rs. 10.
- But the financier calculates interest every six months and adds it to the principal.
- After six months, the interest charged would be Rs. 5 (10% of Rs. 100/2).
- The principal for the second half of the year would be Rs. 105 (Rs. 100 + Rs. 5).
- At the end of the year, the interest charged would be Rs. 10.5 (10% of Rs. 105).
- Hence, the total amount to be repaid would be Rs. 115.5 (Rs. 100 + Rs. 10.5).
Effective Rate of Interest
- The effective rate of interest is the actual interest rate charged on a loan or investment.
- It takes into account the compounding of interest over a period of time.
- In this case, the interest is compounded every six months, and hence, the effective rate of interest would be higher than 10%.
Calculation of Effective Rate of Interest:
- Let's consider the same loan of Rs. 100 at 10% simple interest, but calculated as per the financier's method.
- The principal for the first half of the year would be Rs. 100.
- After six months, the interest charged would be Rs. 5 (10% of Rs. 100/2) and added to the principal, making it Rs. 105.
- The principal for the second half of the year would be Rs. 105.
- At the end of the year, the interest charged would be Rs. 5.25 (10% of Rs. 105/2).
- Hence, the total amount to be repaid would be Rs. 110.25 (Rs. 100 + Rs. 5.25).
- The effective rate of interest can be calculated using the formula: ((Total amount to be repaid / Principal) - 1) x 100
- In this case, the effective rate of interest would be ((110.25/100) - 1) x 100 = 10.25%
Hence, the correct answer is option B, i.e., 10.25%.
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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 theseCorrect answer is option 'B'. Can you explain this answer?
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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 theseCorrect answer is option 'B'. Can you explain this answer? for Quant 2024 is part of Quant preparation. The Question and answers have been prepared according to the Quant exam syllabus. Information about 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 theseCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Quant 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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 theseCorrect answer is option 'B'. Can you explain this answer?.
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 theseCorrect answer is option 'B'. Can you explain this answer? for Quant 2024 is part of Quant preparation. The Question and answers have been prepared according to the Quant exam syllabus. Information about 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 theseCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Quant 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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 theseCorrect answer is option 'B'. Can you explain this answer?.
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