Aptitude - Simple Interest - Discussion
Discussion Forum : Simple Interest - General Questions (Q.No. 7)
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:
Answer: Option
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%
Discussion:
118 comments Page 7 of 12.
Patel said:
9 years ago
It was S.I. not a compound interest. then why you have consider the 105rs as a sum of next 6 months?
It should be 100 only.
It should be 100 only.
Konok said:
8 years ago
We can find effective interest rate by the following formula.
EAR (effective annual rate) = [(1+r/m)^m]-1.
Where r means interest rate.
Here, m means the number of compounding period.
Here our require ans is [(1+.10/2)^2]-1.
= .1025.
where r = 0.10.
m= 2 ( it is 2 because every six months come two time in a year).
= 10.25 %.
EAR (effective annual rate) = [(1+r/m)^m]-1.
Where r means interest rate.
Here, m means the number of compounding period.
Here our require ans is [(1+.10/2)^2]-1.
= .1025.
where r = 0.10.
m= 2 ( it is 2 because every six months come two time in a year).
= 10.25 %.
Riya das said:
8 years ago
Why we subtract the final amount from the sum to get effective rate?
Arpit said:
8 years ago
Hi all,
I understood that we got 105 as we have assume 10% as interest for whole year so if we assume principal as Rs. 100 for 6 month @ 5% and then for remaining month we add 5% to Rs. 100 we get Rs. 105, but my question here is that if we follow this concept why we took complete 10% for calculation of 6 months?
I understood that we got 105 as we have assume 10% as interest for whole year so if we assume principal as Rs. 100 for 6 month @ 5% and then for remaining month we add 5% to Rs. 100 we get Rs. 105, but my question here is that if we follow this concept why we took complete 10% for calculation of 6 months?
Ram said:
8 years ago
The solution has compounded the interest instead of simple interest.
Monica said:
8 years ago
Well said @Sushmitha.
Vaibhav kadu said:
8 years ago
Here, it is not mentioned to calculate for one year tenure.
Seyedali Fathima said:
8 years ago
How do consider amount p=100?
Maggi said:
8 years ago
6 months is considered 1/2 (Time =1/20).
In the question the person charges for 6 months instead of 1 year.
So effective interest is asked 5% in first 6 and 5.25 in next.
In the question the person charges for 6 months instead of 1 year.
So effective interest is asked 5% in first 6 and 5.25 in next.
HaRiKa said:
8 years ago
Superb explanation. Thank you all.
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