2015 · Q32
An automobile financer 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 at the rate of 10%, the effective rate of interest becomes
Elementary MathematicsSimple and Compound Interest
- A10.25%
- B10.5%
- C10.75%
- D11 %
Explanation
Interest added half-yearly at 10% nominal: effective rate = (1 + 0.05)² − 1 = 0.1025 = 10.25% (option A).