DSE A 2012 first question

[indranil1993]

A rural landlord can deposit his savings in a commercial bank and receive an annual interest rate of 8%. Alternatively he can lend to the villagers who need credit. If all loans are of the same size and only sixty percent of them are repaid , the interest rate that would make his earnings the same as from depositing in a bank is      A)8% B)48% C)80% D) 120% .        

Can anyone please tell me how to solve it. The answer is given option C in the question paper. But I couldn't solve it .

[Granpa Simpson]

Suppose that the landowner has got 100 Rs with him...so if the rate of interest is 8% he would earn Rs8 at the end of the year....however if he gives loan then only 60% is repaid which means out of rs100, 60rs is repaid...now from this 60 rs he will have to earn an interest income of Rs 8 plus Rs 40 to keep his earning same as in bank savings..so the total amount which he has to earn from 60 Rs is Rs 48 i.e 40(unpaid amount)+8(interest)...so the rate of interest must be 80%..!!!!

[indranil1993]

thank you