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The following was in PR test:
The avg. price of a new car increased 12% from 1980 to 1985 and increased 20% from 1985 to 1990. If avg. price was $11000 in 1980, what was the avg. price of a new car in 1990.
Is there a easier way to calculate this:
new avg. price = ((1.12)^5*11,000)*(1.20)^5)
Last edited by asagem99 on 16 Mar 2004, 14:06, edited 1 time in total.
This is GMAT, and WE always try to find an easier an easier way to solve problems due to time contraints. I would split the calculations into two parts, first 5 years, and next 5 years. Without seeing the answer choices, not sure how close I'll be, but here it is. If you ever heard, there is a 'rule' of 72. Basically stating, that any value will double in n number of years, and you find n by divinding 72 and interest rate (yearly, for simplicity). So from the first part Id say that the car would be twice the price in 6 years (72/12), in five approximately, 1.75 times. so, 11k turns to 19.5k without having to do any written calculations:
Second part: at 20 percent interest, the car's price will double in 72/20=~ 3.5 years, so it will be =~42k, we have 1.5 years left for an annual increase of ~.1.2%, so the final price will be in the area of 47K .
The official answer is 14784.
lvb9th, the question does not say the increase is yearly. I misunderstood and thought it is yearly. But your rule 72 does help in calculation requiring multiple yearly increases. Thanks.