Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized for You

we will pick new questions that match your level based on your Timer History

Track Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

It appears that you are browsing the GMAT Club forum unregistered!

Signing up is free, quick, and confidential.
Join other 500,000 members and get the full benefits of GMAT Club

Registration gives you:

Tests

Take 11 tests and quizzes from GMAT Club and leading GMAT prep companies such as Manhattan GMAT,
Knewton, and others. All are free for GMAT Club members.

Applicant Stats

View detailed applicant stats such as GPA, GMAT score, work experience, location, application
status, and more

Books/Downloads

Download thousands of study notes,
question collections, GMAT Club’s
Grammar and Math books.
All are free!

Thank you for using the timer!
We noticed you are actually not timing your practice. Click the START button first next time you use the timer.
There are many benefits to timing your practice, including:

A 5-year investment note offers a 10% return [#permalink]

Show Tags

25 Dec 2012, 15:54

2

This post received KUDOS

3

This post was BOOKMARKED

00:00

A

B

C

D

E

Difficulty:

65% (hard)

Question Stats:

56% (03:28) correct
44% (02:21) wrong based on 114 sessions

HideShow timer Statistics

A 5-year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. If there is a $500 penalty for early redemption, and the note is redeemed for $6430 after the second year, what was the original purchase price?

A. $ 6,000 B. $ 6,048 C. $ 6,100 D. $ 6,150 E. $ 6,200

I don't understand when the question says: "A 5-year investment note offers a 10% return on purchase". Here, I think that the note pays the 10% at the end of the five years. So, if the note is sold in the second year, the interest will be Capital*0.10*(2 years / 5 years). In addition, the phrase "a compounding 5% for each year after the first" doesn't indicate that that amount will be calculated after the capitalization of the original 10%. I say this because, according to the OE, this is the solution:

P*1.1*1.05 - 500 = 6430 P is the original Price.

IMO, this question is not good at all. What do you think? Do you expect something like this in the real GMAT? Does it worth the time of studying it? Thanks!

Re: A 5-year investment note offers a 10% return [#permalink]

Show Tags

25 Dec 2012, 23:18

4

This post received KUDOS

1

This post was BOOKMARKED

danzig wrote:

A 5-year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. If there is a $500 penalty for early redemption, and the note is redeemed for $6430 after the second year, what was the original purchase price?

A. $ 6,000 B. $ 6,048 C. $ 6,100 D. $ 6,150 E. $ 6,200

Hii danzig. Since the note was redeemed after 2 years, so a penalty of $500 has to be submitted. So the amount that is redeemed after 6430 is after the deduction of $500. Hence the amount after being compounded is 6930. Let the initial amount be P. After the return, the amount becomes 1.1P. Now use this 1.1P as the principle in the compound interest formula to get the amount 6930. \(A=1.1P(1+5/100)\) where A=6930. Therefore, use \(6930=1.1P(1+5/100)\) to get P as $6000. Hope that helps.
_________________

Re: A 5-year investment note offers a 10% return [#permalink]

Show Tags

07 Jan 2013, 22:51

1

This post received KUDOS

Marcab wrote:

danzig wrote:

A 5-year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. If there is a $500 penalty for early redemption, and the note is redeemed for $6430 after the second year, what was the original purchase price?

A. $ 6,000 B. $ 6,048 C. $ 6,100 D. $ 6,150 E. $ 6,200

Hii danzig. Since the note was redeemed after 2 years, so a penalty of $500 has to be submitted. So the amount that is redeemed after 6430 is after the deduction of $500. Hence the amount after being compounded is 6930. Let the initial amount be P. After the return, the amount becomes 1.1P. Now use this 1.1P as the principle in the compound interest formula to get the amount 6930. \(A=1.1P(1+5/100)\) where A=6930. Therefore, use \(6930=1.1P(1+5/100)\) to get P as $6000. Hope that helps.

Hi Marcab, Why u have used 1.1P ? 10% interest is for 5 yrs right? He took in 2 yrs then how come?
_________________

GMAT - Practice, Patience, Persistence Kudos if u like

Re: A 5-year investment note offers a 10% return [#permalink]

Show Tags

07 Jan 2013, 23:26

1

This post received KUDOS

Hii Shan. Read the question carefully.

Quote:

A 5-year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first.

For first year, the simple interest rate is 10% and for the subsequent years the compond interest rate is 5%. Thats why I took 1.1P after 1st year. Hope that helps.
_________________

Re: A 5-year investment note offers a 10% return [#permalink]

Show Tags

03 Sep 2015, 12:51

1

This post received KUDOS

danzig wrote:

A 5-year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. If there is a $500 penalty for early redemption, and the note is redeemed for $6430 after the second year, what was the original purchase price?

A. $ 6,000 B. $ 6,048 C. $ 6,100 D. $ 6,150 E. $ 6,200

I don't understand when the question says: "A 5-year investment note offers a 10% return on purchase". Here, I think that the note pays the 10% at the end of the five years. So, if the note is sold in the second year, the interest will be Capital*0.10*(2 years / 5 years). In addition, the phrase "a compounding 5% for each year after the first" doesn't indicate that that amount will be calculated after the capitalization of the original 10%. I say this because, according to the OE, this is the solution:

P*1.1*1.05 - 500 = 6430 P is the original Price.

IMO, this question is not good at all. What do you think? Do you expect something like this in the real GMAT? Does it worth the time of studying it? Thanks!

I converted to fractions to make it easier to cancel and divide.

\((P*1.1*1.05)-500=6430\)

\(P*\frac{11}{10}*\frac{21}{20}=6930\)

\(P*11*21=6930*10*20\)

\(P=\frac{6930*10*20}{11*21}\)

\(P=\frac{693*10*10*20}{11*3*7}\)

\(P=\frac{231*10*10*20}{11*7}\)

\(P=\frac{11*21*10*10*20}{11*7}\)

\(P=3*10*10*20=6000\)

gmatclubot

Re: A 5-year investment note offers a 10% return
[#permalink]
03 Sep 2015, 12:51

Hey, guys, So, I’ve decided to run a contest in hopes of getting the word about the site out to as many applicants as possible this application season...

Whether you’re an entrepreneur, aspiring business leader, or you just think that you may want to learn more about business, the thought of getting your Masters in Business Administration...

Whether you’re an entrepreneur, aspiring business leader, or you just think that you may want to learn more about business, the thought of getting your Masters in Business Administration...