CMA Final · Strategic Financial Management · Digital Finance
A peer-to-peer lending platform in Bengaluru lists a loan of ₹10,00,000 at 18% p.a. simple interest for one year, with a platform fee of 2% of principal deducted upfront from the amount disbursed to the borrower. What is the borrower's effective annual interest cost on the net amount received, to the nearest 0.01%, assuming interest and principal are repaid at year end?
The effective cost is 20.41%. The borrower receives ₹9,80,000 after the fee but repays ₹11,80,000, so the total cost of ₹2,00,000 on the net amount received works out to 20.41%.
- A20.00%
- B18.00%
- C20.41%Correct
- D22.45%
Explanation
Net disbursed = 10,00,000 − 20,000 = ₹9,80,000. Repayment = 10,00,000 + 1,80,000 = ₹11,80,000. Cost = (11,80,000 − 9,80,000)/9,80,000 = 2,00,000/9,80,000 = 20.41%. Simply adding 2% to 18% gives 20%, which ignores the smaller base.
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