The question is from CAT Simple and compound interest. CAT exam is known to test on basics rather than high funda ideas. 2IIMs CAT question bank provides you with CAT questions that can help you gear for CAT Exam CAT 2020. Simple Interest and Compound Interest is an important topic for CAT Preparation. This problem will help you to choose between SI and CI when you plan to save money!!
Question 17: Ram deposits Rs. P with a bank at r% compound interest and sees it reach Rs.16P in 20 years. If he had invested the same amount at r% simple interest for 20 years, what would be the amount?
P (1 + r)20 = 16P
(1 + r)20 = 16
((1 + r)10)2 = 42
(1 + r)10 = 4
((1 + r)5)2 = 22
((1 + r)5) = 2
In order for the money to double, the approximate formula for r = 72/n = 14.4% .
Rate of interest should be roughly 14 – 15%
If he had invested this in simple interest,
A = P + P * 20 *(14 to 15 %)/100 = 3.8P to 4P
The question is " If he had invested the same amount at r% simple interest for 20 years, what would be the amount?"
Choice D is the correct answer.
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