Focus Topic: Simple Interest (Arithmetic/Commercial Mathematics)

CAT Simple Interest Installments Questions: An important concept for the topic

One concept that you should most definitely look into in an in-depth manner is the concept of CAT Simple Interest Installments. Installements is actually a part of both simple and compound interest. Let’s explore what this is concept is all about.

What is an installment?
Well, we all know that at times we don’t have enough money to buy something say a car. That doesn’t stops us from buying it. So, what do we do? We agree to pay the dealer a certain money at the end of a certain time period (this time period may be monthly or yearly). These partial payments which we pay after certain time intervals are called installments.
But is this so simple? Is there any benefit to us or to dealer? Why dealer agrees to receive money in parts rather than the whole money?

But is this so simple? Is there any benefit to us or to dealer? Why dealer agrees to receive money in parts rather than the whole money?
The dealer in this case earns interest on the money he has effectively lent to us. The installments decided in this case consist of two components, which is the principal amount and the interest amount.

Let’s take up a couple of tricky problems to understand how CAT Simple Interest Installments questions work.

Question: A tennis racquet worth Rs. 700 was bought by paying a down payment of Rs.100 and 6 equal installments of Rs. 100 each. Calculate the rate of interest.

1. 300/7
2. 400/7
3. 56
4. 300/11

Solution:
As the amount has to be paid in 6 equal installments, the payment on principal to be made will end on the completion of 6 months. He will have to pay (600/6=Rs.100 per month)
Principal for the first month will be 600, for second month=500, for third month=400 and so on.
Total sum or principal= 600+500+400+300+200+100=2100
Amount= Principal + interest= 600+100=700 (for one month)
Rate = 100* interest/ principal * time
Rate= (100*100)/(2100*1/12)=400/7 %
Hence, option (b)

Question: What annual installment will discharge a loan of Rs. 1025 due in 2 yrs @ 5% per annum?

1. 200
2. 300
3. 400
4. 500

Solution:
Let the installment be equal= x
At the end of the first year, the amount paid will be = 1.05x
At the end of the second year, the amount paid will be= x
Total amount paid is = 2.05x
This is equal to Rs. 1025.
Therefore,
2.05x=1025
x=500
Hence, option (d)

The complete concept notes for this topic are provided in the link below. Kindly read the full concept article to understand the topic.