Session SI & CI

SI & CI – II

If we go through the past years’ CAT papers which are in public domain, it becomes apparent that hardlyany question from SI/CI was asked during the period 2000 to 2008. But due to increased weightage ofarithmetic in the new avatar of CAT, questions from the topic have made appearance in various slots of lastfew years CAT exams after a long hiatus.

Key concepts discussed:

• Simple Interest (S.I.) = P r n

100× ×

• Amount in case of S.I. = nr

P 1100

+

• Amount in case of C.I. (interest being compounded annually) = n

rP 1

100 +

• Amount in case of C.I. (interest being compounded every k months) =

12n

kr12 /k1100

× +

• Present value (P) in case of S.I. = A

nr1

100 +

• Present value (P) in case of C.I. = n

A

r1

100 +

• Installment value = n

P r

100100 1

100 r

×

− +

• Doubling period = 72,

r where r 15%≤ and margin of error is less than 5%.

Highlight: This session deals with questions which are based on elementary concepts of SI/CI. Couple ofquestions in the session are inspired from questions that have frequently appeared in various managementexams.

SessionSI & CI

The questions discussed in the session are given below along with their source.

Q1. Pawan retires at the age of 60 years and his employer gives him a pension of Rs. 3600/- a year paidin half yearly installments for the rest of his life. Assuming life expectancy in India is 70 years andinterest is 6% per annum payable half yearly, determine the present value of the pension.[Given, 1.0320 – 1 = 0.55362].(a) 26,428.50 (b) 24,782.80 (c) 23,744.40 (d) 26,782.80

(IIFT 2008-10)

Q2. If the annual compounding rate of interest is 10% on an investment, what is the present value of Rs.50,000 that is to be received after two years?(a) Rs. 40936.54 (b) Rs. 41037.33 (c) Rs. 41322.31 (d) Rs. 40000

(FMS 2009)

Q3. The difference between compound interest and simple interest at the same interest at the same ratefor Rs. 5,000 for 2 years is Rs. 72. The rate of interest per annum is(a) 6% (b) 8% (c) 10% (d) 12%

(FMS 2006)

Q4. The market price of a machine depreciates at an annual compound rate of 10%. If the currentmarket price of the machine is Rs. 8748 then what was its market price 3 years ago?(a) Rs. 12500 (b) Rs. 12000 (c) Rs. 20000 (d) Rs. 20500

(FMS 2007)

Q5. A sum of money doubles itself in 10 years at simple rate of interest. The number of years it will taketo triple itself would be:(a) 25 years (b) 17.5 years (c) 15 years (d) 20 years

(FMS 2008)