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Assertion (A): If the nominal rate of interest is 12.5% and the inflation is 2%, then the effective rate of interest is 10.5%

Reason (R): If the interest is calculated only at the end of an year, then the effective rate of interest is same as the nominal rate of interest.

(i) Both A and R are true and R is the correct explanation of the assertion

(ii) Both A and R are true but R is not the correct explanation of the assertion

(iii) A is true, but R is false

(iv) A is false, but R is true

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(ii) Both A and R are true but R is not the correct explanation of the assertion

Effective rate of interest = Nominal rate – inflation rate = 12.5 – 2 = 10.5%

Assertion is correct

Reason is true but not supportive of assertion

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