Question 11.I.17 (Flat and Effective Rates of Interest): The Hypothetical Consumer Finance Ltd (HFCL) has structured ......
The Hypothetical Consumer Finance Ltd (HFCL) has structured a consumer credit deal for Rs 4,00,000 on the following basis:
Required: Compute the flat and effective rates of interest for each alternative/option.
| Equated\>monthly\>instalment | Monthly\>repayment\>period |
| Rs 38,000 | 12 |
| Rs 21,400 | 24 |
Working Notes
1. Total annual charge for credit = (Rs 38,000 × (12)) – = [Rs 21,400 × 24) –
\, Rs 4,00,000 (Rs 4,00,000)] ÷ 2
\, = Rs 56,000 = Rs 56,800
2. Flat rate of interest = \frac{\mathrm{Rs \>56, 000}}{\mathrm{Rs \>4, 00, 000}} × 100 = 0.14 =\frac{\mathrm{Rs \>56, 000}}{\mathrm{Rs \>4, 00, 000}} × 100 = 0.142
3. Effective rate of interest = \frac{\mathrm{n}}{\mathrm{n+1}} × 2F
\, =\frac{12}{13} ×28 =28.85 per cent =\frac{24}{25} ×28.4 =27.26 per cent
Flat and Effective Rates of Interest
| Repayment\>period\>(months) | \qquad\qquad\qquad\qquad\qquad\qquad | |
| 24 | 12 | |
| Rs 56,800 | Rs 56,000 | Total charge for credit |
| 0.142 | 0.14 | Flat rate of interest (%) |
| 0.2726 | 0.2585 | Effective rate of interest (%) |