An agent allows a rebate of 4% to an investor while the bank pays an interest…

2023

An agent allows a rebate of 4% to an investor while the bank pays an interest of 14% on the investment. What is the actual rate of interest earned by the investor on his investment?

  1. A.

    18.75%

  2. B.

    18%

  3. C.

    17.75 %

  4. D.

    16%

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Show answer & explanation

Correct answer: A

Step-by-Step Solution

To find the actual rate of interest earned, we calculate the return based on the investor's actual out-of-pocket investment.

  1. Define the investment scenario:

    • Assume the face value of the investment is Rs. 100.

    • The agent allows a 4% rebate. This means the investor pays less to acquire the investment.

    • Actual investment = 100 - 4 = Rs. 96.

  2. Calculate the interest earned:

    • The bank pays 14% interest on the face value (Rs. 100).

    • Interest earned = 14% of 100 = Rs. 14.

  3. Calculate the actual rate of interest:

    • The actual rate is the interest earned divided by the actual investment made, expressed as a percentage.

    • Actual Rate = (Interest / Actual Investment) * 100

    • Actual Rate = (14 / 96) * 100

    • Actual Rate = 1400 / 96 = 18.75%

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