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 this topic effectively, a detailed lesson is given here along with some solved simple interest problems.
What is Simple Interest?
Simple interest can be simply 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 (S.I.) = P x I x T / 100/
P = Principal Amount
I = Interest Rate
T = Time Period
To be able to solve S.I 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 (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 + S.I.
=> 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 (R or I) is the percent 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.
=> S.I. = 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, following are the available data:
Principal = Rs. 15000
Interest Rate = 25%
Time Period = 5 years
So, S.I. =15000 x 25 x 5 /100
=> S.I. = 18750.
Now, Amount = P + S.I.
So, Repayment Amount (A) = 15000 + 18750
Calculate the ratio of simple interests 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 is the same. So, S.I. can be calculated as follows for both cases.
S.I. (with t = 2 years) = P x R x 2 / 100 and,
S.I. (with t = 3 years) = P x R x 3 / 100.
Now, the ratio of both the Simple interests will be S.I. (with t = 2 years) / S.I. (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 visit compound interest for CAT to learn it effectively.
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