Simple and Compound Interest Practice Questions for CAT 2026 — Installments with Solutions

Simple and Compound Interest (SI/CI) with installments are tested frequently in CAT and other management entrance exams. This blog provides comprehensive practice questions on this topic.

SI/CI Installment Questions for CAT 2026

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Frequently Asked Questions — Simple & Compound Interest (Installments) for CAT 2026

What is the difference between Simple Interest and Compound Interest?

Simple Interest (SI) is calculated on the original principal: SI = PRT/100. Compound Interest (CI) adds interest to the principal each period: CI = P(1+r/100)^n - P. CI is always greater than or equal to SI for the same principal and rate.

How are installment-based SI/CI questions structured in CAT?

Installment questions ask you to find equal installments that repay a loan with interest. For SI-based installments: use the formula for total payment over n years. For CI-based installments: use the present value concept where each installment's present value sums to the loan amount.

What is the formula for equal annual installments under Compound Interest?

If loan = P, rate = r%, and n = number of installments, then each installment X satisfies: P = X/(1+r/100) + X/(1+r/100)^2 + ... + X/(1+r/100)^n. Solving gives: X = P × r/100 / (1 - (1+r/100)^-n).

How many SI/CI questions appear in CAT each year?

CAT typically has 1–2 questions from SI/CI, often focusing on installment calculations, effective rate of interest, or comparing SI and CI. The topic overlaps with percentage and ratio questions.

What shortcuts exist for CI calculations in exam conditions?

For 2 years: CI = P[(1+r/100)^2 - 1]. The extra amount CI earns over SI for 2 years = P(r/100)^2. For 10% rate over 2 years: CI = P × 0.21, SI = P × 0.20, difference = P × 0.01.

What is the rule of 72 and is it useful for CAT?

The Rule of 72 says money doubles in approximately 72/r years at r% CI. For example, at 8% CI, money doubles in ~9 years. While not directly tested in CAT, it helps quickly estimate time-value scenarios in DI sets.

How do I solve installment problems without a calculator?

Use the Present Value method: each installment X discounted back to today must sum to the loan. For 2 installments at r%: Loan = X/(1+r/100) + X/(1+r/100)^2. Solve for X. Practice with common rates (10%, 20%, 25%) to build speed.

Is Simple and Compound Interest tested in IPMAT and CMAT?

Yes. Both IPMAT and CMAT test SI/CI regularly. IPMAT questions tend to be more conceptual (installments, effective rate), while CMAT questions are more formula-application based. Preparing for CAT-level SI/CI questions covers both exams well.

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Frequently Asked Questions — Simple & Compound Interest (Installments) for CAT 2026

What is the difference between Simple Interest and Compound Interest?

Simple Interest (SI) is calculated on the original principal: SI = PRT/100. Compound Interest (CI) adds interest to the principal each period: CI = P(1+r/100)^n - P. CI is always greater than or equal to SI for the same principal and rate.

How are installment-based SI/CI questions structured in CAT?

Installment questions ask you to find equal installments that repay a loan with interest. For SI-based installments: use the formula for total payment over n years. For CI-based installments: use the present value concept where each installment's present value sums to the loan amount.

What is the formula for equal annual installments under Compound Interest?

If loan = P, rate = r%, and n = number of installments, then each installment X satisfies: P = X/(1+r/100) + X/(1+r/100)^2 + ... + X/(1+r/100)^n. Solving gives: X = P × r/100 / (1 - (1+r/100)^-n).

How many SI/CI questions appear in CAT each year?

CAT typically has 1–2 questions from SI/CI, often focusing on installment calculations, effective rate of interest, or comparing SI and CI. The topic overlaps with percentage and ratio questions.

What shortcuts exist for CI calculations in exam conditions?

For 2 years: CI = P[(1+r/100)^2 - 1]. The extra amount CI earns over SI for 2 years = P(r/100)^2. For 10% rate over 2 years: CI = P × 0.21, SI = P × 0.20, difference = P × 0.01.

What is the rule of 72 and is it useful for CAT?

The Rule of 72 says money doubles in approximately 72/r years at r% CI. For example, at 8% CI, money doubles in ~9 years. While not directly tested in CAT, it helps quickly estimate time-value scenarios in DI sets.

How do I solve installment problems without a calculator?

Use the Present Value method: each installment X discounted back to today must sum to the loan. For 2 installments at r%: Loan = X/(1+r/100) + X/(1+r/100)^2. Solve for X. Practice with common rates (10%, 20%, 25%) to build speed.

Is Simple and Compound Interest tested in IPMAT and CMAT?

Yes. Both IPMAT and CMAT test SI/CI regularly. IPMAT questions tend to be more conceptual (installments, effective rate), while CMAT questions are more formula-application based. Preparing for CAT-level SI/CI questions covers both exams well.