PareshGmat wrote:
A mobile phone is available for $39000 cash or $17000 as down payment followed by five equal monthly instalments of $4800 each. The simple rate of interest per annum under the instalment plan would be
A: 18%
B: 19%
C: 21.2%
D: 21.81%
E: 22.07%
Source: CMAT Preparation
Dear
PareshGmat,
I'm happy to respond
but I have a few criticisms of this question. I am not familiar with this particular source.
First of all, GMAT questions all are scrupulously realistic in terms of the numbers they use in a problem. Perhaps if the currency were something other than US dollars, these numbers would be plausible, but the idea of a mobile phone that costs $39,000 is not realistic in the least -- most automobiles cost less than that! That's one aspect that is not GMAT like. Also, NOBODY walks around with $39,000
in cash on them. That would be wads and wads of bills.
Second, the answers are very close together --- if the answers were spread out, we could use estimation, which the GMAT often would employ in a problem of this sort. See:
https://magoosh.com/gmat/2012/the-power- ... mat-quant/In order to get the exact answer here, presumably one would need a calculator or have to do tedious long division --- this is another aspect that is quite unlike the GMAT.
Finally, in my calculation, I get an answer very different from the answers here.
Under the installment plan, we pay 5*(4800) = 24,000 plus $17,000 for a total of $41,000. That means, we pay $2000 more under the installment plan than we would have paid up front in cash. I understand the question to ask --- the extra $2000 would be what percent of interest on the original $39,000 cost? That would be
2000/39,000 *100% = 2/39 * 100%
Well, 2/40 = 1/20 = 0.05 = 5%. If we make the denominator smaller, the whole fraction gets bigger. Thus,
2/39 should be slightly larger than 5%
Indeed, a calculator gives
2/39 = 5.1282051282 ...%
None of the answer choices are in this range. Something is funny here.
Mike