Problem of a Handbag

           I found a very nice handbag in the shop that I thought I should simply must have. The price was Rs. 10. But I did not have the Rs. 10.

          The storekeeper was known to me. He said that he had a credit system by which I could pay Re. 1 only at the time of purchase and the balance Rs 10 could be paid by me at the rate of Re 1 per week for 10 weeks.

           Can you tell what annual rate of interest the storekeeper was charging me?

Answer:  At the rate of Re. 1/ - for ten weeks we figure that the amount of interest for one year would be Rs. 5.20. But I do not have the use of my Rs. 10/ for the entire period of time- but on the average just half that amount. So we conclude that I paid Rs. 5.20 to use Rs. 5/ - for one year.

5.2 / 5 = 104 / 100 = 104 %

The true simple annual interest is 104%