Simple Interest & Compound Interest
Understanding SI & CI
Money makes the world go round, and it’s no different in the world of CAT. Understanding Simple Interest and Compound Interest is crucial. Simple Interest is like the interest you earn on your savings account, while Compound Interest is the interest you earn on your interest! CAT throws questions at you that require you to calculate interest on loans, investments, and even credit cards. Knowing the difference between these two is your ticket to nailing these questions.
Here’s how mastering Simple Interest and Compound Interest enhances your problem-solving abilities:
- Financial Acumen: CAT assesses your financial understanding by testing your knowledge of Simple Interest and Compound Interest. You’ll need to solve problems related to loans, investments, and savings, which are key in the financial world.
- Rate of Return Analysis: You’ll often encounter questions requiring you to compare different investment options or loan schemes. Knowing how to calculate interest is essential for making wise financial decisions.
- Time-Value of Money: CAT questions on these topics also involve the time-value of money. You’ll have to analyze how the value of money changes over time, which is vital for both personal finance and business decision-making.
- Real-World Applications: Understanding Simple Interest and Compound Interest isn’t just about CAT; it’s a life skill. These concepts are widely applicable in real life when dealing with loans, mortgages, savings, and investments.
Practice Questions for CAT with Solutions
1. CAT - Simple Interest and Compound Interest
Bank A offers 6% interest rate per annum compounded half yearly. Bank B and Bank C offer simple interest but the annual interest rate offered by Bank C is twice that of Bank B. Raju invests a certain amount in Bank B for a certain period and Rupa invests₹ 10,000 in Bank C for twice that period. The interest that would accrue to Raju during that period is equal to the interest that would have accrued had he invested the same amount in Bank A for one year. The interest accrued, in INR, to Rupa is: (CAT – 2021)
1. 1436
2. 3436
3. 2346
4. 2436
2. CAT - Simple Interest and Compound Interest
A person invested a certain amount of money at 10% annual interest, compounded half-yearly. After one and a half years, the interest and principal together became Rs 18522. The amount, in rupees, that the person had invested is: (CAT – 2020)
3. CAT - Simple Interest and Compound Interest
A few years back Bart borrows a certain sum of money at a certain rate of simple interest. Now the same sum becomes 200% of what he had borrowed. After 2 years the amount will increase by 12.5% compared to the present value. After how many years from now will the amount be 5 times the sum?
