One of the most important topics in the CAT Quantitative Aptitude section is “simple interest”. The questions from these topics are easily solvable but require the candidates to be thoroughly acquainted with the basic concepts and related formulas. To help the candidates prepare for this topic effectively, a detailed lesson is given here, along with some solved simple interest problems.
What Is Simple Interest?
Simple interest can be defined as the interest that is paid only on the principal amount. Unlike compound interest, simple interest does not consider the “interest on interest” concept, and the value is obtained by multiplying the interest rate by the principal amount and the number of days that elapse between payments.
=> Simple Interest (SI) = P x I x T / 100/
P = Principal Amount
I = Interest Rate
T = Time Period
To be able to solve SI questions easily, one has to get acquainted with certain terms and definitions. Some of such important terms are mentioned below.
Terms Related to Simple Interest
- Principal Amount
Principal (sum) can be defined as the cash obtained or loaned out for a specific period. In other terms, it can be defined as the face value of a debt security or the original investment amount. It is indicated by P.
An amount (A) is just the sum of the principal amount and the interest of a loan. This is the total amount that is due at the end of a loan period.
Amount = P + SI
=> A = P + (P x I x T / 100)
- Time and Rate of Interest
Time period (T) is simply the term for which cash is deposited or borrowed. This can be either quarterly, half-yearly, annually, etc. The rate of interest (ROI) is the per cent of interest that one pays for the borrowed money or earns from the deposited money.
Simple Interest Questions
What would be the simple interest on Rs. 5000 after 5 years if the rate of interest is 10% per annum?
In this question, the principal amount is given as Rs. 5000, the time period is 5 years, and the rate of interest is 10% per annum.
The basic formula for Simple interest is = P x I x T / 100.
=> SI = 5000 x 10 x 5 / 100
= Rs. 2500.
How much would a person repay after 5 years if he borrowed Rs. 15000 at the rate of 25% per annum?
By repayment, it can be understood that the “amount” has to be calculated. In this problem, the following are the available data:
Principal = Rs. 15000
Interest Rate = 25%
Time Period = 5 years
So, SI =15000 x 25 x 5 /100
=> SI = 18750.
Now, Amount = P + SI
So, Repayment Amount (A) = 15000 + 18750
Calculate the ratio of simple interest that is earned by a particular amount at the same rate of interest for 2 and 3 years, respectively.
It is given that the principal amount and rate of interest are the same. So, SI can be calculated as follows for both cases.
SI (with t = 2 years) = P x R x 2 / 100 and,
SI (with t = 3 years) = P x R x 3 / 100.
Now, the ratio of both the simple interests will be SI (with t = 2 years) / SI (with t = 3 years) = 2:3.
These were some of the basic concepts and examples of simple interests. To excel in this topic, one needs basic knowledge and proper practice. Simple interest, along with compound interest, holds good weightage in the exam, and multiple questions from them are repeated every year. Candidates can also access compound interest for CAT to learn it effectively.
CAT aspirants can get more such study materials and practice questions and can also take free mock tests at BYJU’S. Stay tuned and comment on any CAT 2023 related queries below.