CAT Quant: Compound Interest Installments
After completing the basics of compound interest, we now focus on the application of this important CAT Quant topic. In fact, installments is one of the most important application of Compound Interest and it is a tricky topic too. In our lesson on Simple Interest, we covered details for installment questions based on that topic. In this topic, we use the concept of instalments for Compound Interest.
CAT Quant Important Formula: Calculating installments using Compound Interest
Let us say a person takes a loan from bank at r% rate of interest and he agrees to pay the loan in equal installments in ‘n’ years. Then. the value of each installment ‘X’ will be given by
How did we arrive at this formula? Read the full article here.
Let’s take up an example question to understand how this CAT quant formula operates:
Example Question-1: Alka borrowed a sum of Rs. 5880 from Rajan as a loan. She promised Rajan that she will pay it back in two equal installments. If the rate of Interest be 10% per annum compounded annually, find the amount of each installment.
Solution: Here the principal amount is Rs 5880 and the rate is 10% per annum.
Now there are two equal installments, so the value of ‘n’ = 2.
We have
What kind of questions to expect in the CAT Quant exam?
In the CAT Quant section and other competitive exams, you can expect to find questions where you have to find increase in the value of the property or the depreciation in the value of an article. There may be some questions where the population of a town is given in a particular year and you have to find the population ‘n’ years ahead or ‘n’ years back. In all these questions, the formula for the compound interest will be used. In order to understand how these questions would be formulated in the CAT quant section, let us take up an example:
Example Question-2: The value of a property in 2015 is Rs 90000 and it is increasing by 8% annually. What will be the value of the property after three years?
Solution: Now if you compare it with the normal compound interest problems, you will notice that Rs 90000 is the principal amount which is increasing by 8% annually.
Hence, we have to find the amount after three years.
Hence, we have
