A money lender charges Rs. 10 for Rs. 100 per month in advance then effective rate of interest per annum charged by money lender is: [given $(\frac{10}{9})^{12} = 3.541$]

25.41%

The correct answer is Option (2) → 25.41%

Note: there is a mistake in this question of NTA. The correct answer should be 254.1% which is not there in any of the options. the detailed calculation is given below:

Normally, if you borrow ₹100 and pay ₹10 interest at the end of the month, the rate is $10\%$. However, because the money lender charges the interest in advance, you don't actually get ₹100.

• Principal Borrowed: ₹100

• Interest Paid Upfront: ₹10

• Actual Amount Received: $100 - 10 = ₹90$

Since you are paying ₹10 to use ₹90 for one month, the monthly interest rate ($r$) is: 

$$r = \frac{10}{90} = \frac{1}{9}$$

The effective annual rate accounts for compounding monthly. The formula for the effective rate is:

 $$E = (1 + r)^n - 1$$

Where:

• $r = \frac{1}{9}$

• $n = 12$ months

Using the value given in the question $(\frac{10}{9})^{12} = 3.541$:

To get the percentage, multiply by 100: $$E = 2.541 \times 100 = 254.1\%$$