An automobile financier claims to be lending money at S.I., but he includes the interest every six months for calculating the principal. If he is charging an interest of 8%, the effective rate of interest becomes ?

Question

Accepted Answer

Let the sum be Rs. 100. Then,
S.I. for first 6 months = (100 x 8 x 1) / (100 x 2) = Rs. 4
S.I. for last 6 months = (104 x 8 x 1) / (100 x 2) = Rs. 4.16
So, amount at the end of 1 year = (100 + 4 + 4.16) = Rs. 108.16
Effective rate = (108.16 - 100) = 8.16%.

An automobile financier claims to be lending money at S.I., but he includes the interest every six months for calculating the principal. If he is charging an interest of 8%, the effective rate of interest becomes ?

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