Interest Question Answers

Quant/Math - CAT 2008

Question 4 the day: March 29, 2004

The question for the day is from the topic simple and compound interest. Shawn invested one half of his savings in a bond that paid simple interest for 2 years and received Rs.550 as interest. He invested the remaining in a bond that paid compound interest, interest being compounded annually, for the same 2 years at the same rate of interest and received Rs.605 as interest. What was the value of his total savings before investing in these two bonds?

(1)	Rs.5500			(2)	Rs.11000
(3)	Rs.22000			(4)	Rs.2750

Correct choice - (4)

---

Solution:

Explanatory Answer

Shawn received an extra amount of (Rs.605 � Rs.550) Rs.55 on his compound interest paying bond as the interest that he received in the first year also earned interest in the second year.

The extra interest earned on the compound interest bond = Rs.55
The interest for the first year =550/2= Rs.275

Therefore, the rate of interest =(55/275) * 100 = 20% p.a.

20% interest means that Shawn received 20% of the amount he invested in the bonds as interest.

If 20% of his investment in one of the bonds = Rs.275, then his total investment in each of the bonds = (275/20)*100 = 1375.

As he invested equal sums in both the bonds, his total savings before investing = 2*1375 = Rs.2750.