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A basic savings account pays interest once per year on Decem [#permalink]
27 Aug 2013, 23:57

00:00

A

B

C

D

E

Difficulty:

35% (medium)

Question Stats:

75% (02:03) correct
25% (01:37) wrong based on 32 sessions

A basic savings account pays interest once per year on December 31. If Alan deposits $300 into the account on January 1, 2004, and does not deposit or withdraw any money in the meantime, then to the nearest cent, how much was in the account when he withdrew the money on January 1, 2009?

(1) The savings account interest rate is 2% per year (2) If Alan had left the money in the account for 2 more years, he would have had, to the nearest cent, $13.12 more.

The answer is D. For statement (2), the book explains the equation as $300(1+i)6 - $300(1+i)4= 13.12. But, I think n should be 7 and 5 and be squared, not multiplied: $300(1+i)^7 - $300(1+i)^5= 13.12 Can anyone answer this??

by the way, do you guys see many errors in the Princeton Review?? Because I have found many....;;

Re: A basic savings account pays interest once per year on Decem [#permalink]
28 Aug 2013, 03:26

1

This post received KUDOS

sehosayho wrote:

A basic savings account pays interest once per year on December 31. If Alan deposits $300 into the account on January 1, 2004, and does not deposit or withdraw any money in the meantime, then to the nearest cent, how much was in the account when he withdrew the money on January 1, 2009?

(1) The savings account interest rate is 2% per year (2) If Alan had left the money in the account for 2 more years, he would have had, to the nearest cent, $13.12 more.

The answer is D. For statement (2), the book explains the equation as $300(1+i)6 - $300(1+i)4= 13.12. But, I think n should be 7 and 5 and be squared, not multiplied: $300(1+i)^7 - $300(1+i)^5= 13.12 Can anyone answer this??

by the way, do you guys see many errors in the Princeton Review?? Because I have found many....;;

seho,

2 different formulas for simple interest & compound interest. Your formula is for compound interest and not for simple interest.

Unless mentioned that amount is compounded, we assume its simple interest.

Formula for simple interest is I = PTR/100 where P is principal amount ($300 in this case) T = Time in years (4 yrs) , R is rate of interest. _________________

Re: A basic savings account pays interest once per year on Decem [#permalink]
28 Aug 2013, 19:35

Thank you, but I still dont get it why the time in years is 4? Since Alan deposit it on Jan, 2004 and the interest paid every Dec 31, Alan gets interest on Dec ,31 2004, 2005, 2006, 2007, and 2008. right? So, the time in years should be 5 I think. If im wrong, what am i missing?

seho,

2 different formulas for simple interest & compound interest. Your formula is for compound interest and not for simple interest.

Unless mentioned that amount is compounded, we assume its simple interest.

Formula for simple interest is I = PTR/100 where P is principal amount ($300 in this case) T = Time in years (4 yrs) , R is rate of interest.[/quote]

Re: A basic savings account pays interest once per year on Decem [#permalink]
29 Aug 2013, 03:52

1

This post received KUDOS

Expert's post

sehosayho wrote:

A basic savings account pays interest once per year on December 31. If Alan deposits $300 into the account on January 1, 2004, and does not deposit or withdraw any money in the meantime, then to the nearest cent, how much was in the account when he withdrew the money on January 1, 2009?

(1) The savings account interest rate is 2% per year (2) If Alan had left the money in the account for 2 more years, he would have had, to the nearest cent, $13.12 more.

The answer is D. For statement (2), the book explains the equation as $300(1+i)6 - $300(1+i)4= 13.12. But, I think n should be 7 and 5 and be squared, not multiplied: $300(1+i)^7 - $300(1+i)^5= 13.12 Can anyone answer this??

by the way, do you guys see many errors in the Princeton Review?? Because I have found many....;;

The second statement must give the same interest of 2% as given in the first statement. Taking this into account the book also means compound interest because only from 300(1+x)^6 - 300(1+x)^4= 13.12 you get x=0.02. But I agree it should be 7 and 5, not 6 and 4. Overall not a good question. _________________

Interested in applying for an MBA? In the fourth and final part of our live QA series with guest expert Chioma Isiadinso, co-founder of consultancy Expartus and former admissions...