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
Answer
Answer (as printed): B
Explanation
Let the sum be ₹ 100. Then, S.I. for first 6 months $=₹\left(\frac{100 \times 10 \times 1}{100 \times 2}\right)=₹ 5$. S.I. for last 6 months $=₹\left(\frac{105 \times 10 \times 1}{100 \times 2}\right)=₹ 5.25$. So, amount at the end of 1 year $=₹(100+5+5.25)$ = ₹ 110.25. ∴ Effective rate $=(110.25-100)=10.25 \%$.
Explanation as extracted from the printed page; notation may be imperfect.