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I know there has been discussion about how plugging in answers isn't the most effective method, but in this particular case I think it is the fastest way to narrow down the answer choices. You know that 5% pf 300,000 is 15,000 and that compounded another year you are going to be over 30,000. Therefore if you move down the answer choices, 4 works. It's hit or miss but in this case, especially in a time crunch, plugging in might be your best option.

Compound Interst - Time crunch [#permalink]
01 Sep 2004, 11:15

abennett wrote:

I know there has been discussion about how plugging in answers isn't the most effective method, but in this particular case I think it is the fastest way to narrow down the answer choices. You know that 5% pf 300,000 is 15,000 and that compounded another year you are going to be over 30,000. Therefore if you move down the answer choices, 4 works. It's hit or miss but in this case, especially in a time crunch, plugging in might be your best option.

I agree, I was just about to reply with that answer. To add to that, once I move to choice B (4%), this is how I proceeded: 4% of 300K is 12K ad those together to give you 24K then I took 4% of 12K whis is 480, add that to 24K and that is the answer we were backsolving for 24480.

Don't know my method helps or not, here is my backward method

After I get 1.0816 from 324480/300000, I know (1+interest rate)^2 = 1.0816

Look over the 5 answer choices, they are arranged from the smallest number to the largest one.

I start with 5%, which is the middle one. (1.05)^2 = 1.1025, which is greater than 1.0816; so I go to the next lower number 4%. (1.04)^2 = 1.0816 and I get the right answer.

Calculate just simple (not compounded) interest for C=5%. It is 30 000. The answer must be less then 5%. Check 4%. 24 000 ?close. Check 3% -18 000. B ?must be the answer.