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A 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 and Feedback
Feedback:Let the sum is 100.
As financier includes interest every six months., then we will calculate SI for 6 months, then again for six months as below:
SI for first Six Months = (100*10*1)/(100*2) = Rs. 5
Important: now sum will become 100+5 = 105
SI for last Six Months = (105*10*1)/(100*2) = Rs. 5.25
So amount at the end of year will be (100+5+5.25)= 110.25
Effective rate = 110.25 - 100 = 10.25

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