1.  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: Option B

Explanation:

Let the sum be ₹ 100. Then,

S.I. for first 6 months = ₹ 100 x 10 x 1
100 x 2
= ₹ 5

S.I. for last 6 months = ₹ 105 x 10 x 1
100 x 2
= ₹ 5.25

So, amount at the end of 1 year = ₹ (100 + 5 + 5.25) = ₹ 110.25

Effective rate = (110.25 - 100) = 10.25%