CMA Final · Strategic Financial Management · Digital Finance
A digital lending startup in Hyderabad disburses a Rs 1,00,000 loan for 3 months and deducts an upfront processing fee of Rs 2,000 from the disbursal. The borrower repays Rs 1,00,000 plus simple interest of 12% per annum at the end of 3 months. What is the borrower's effective simple annualised cost, based on the net amount received?
The effective simple annualised cost is 20.41%. Total cost is Rs 3,000 interest plus Rs 2,000 fee, Rs 5,000, on the net amount received of Rs 98,000. That is 5.102% for three months, multiplied by four to annualise.
- A12.00%
- B20.41%Correct
- C16.33%
- D14.29%
Explanation
Interest for 3 months = 1,00,000 x 12% x 3/12 = Rs 3,000. Total cost = 3,000 + 2,000 = Rs 5,000. Net received = Rs 98,000. Cost for 3 months = 5,000/98,000 = 5.102%; annualised x4 = 20.41%. Using Rs 1,00,000 as base gives 20% and ignoring the fee gives 12%.
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