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Compound intrest problem
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21 Oct 2009, 16:27
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Person X invested one half of his savings in a bond that paid simple interest for 2 years and received $ 550 as interest. He invested the remaining in a bond that paid compound interest, interest being compounded annually, for the same 2 years at the same rate of interest and received $605 as interest. What was the value of his total savings before investing in these two bonds?
$ 5500 $ 11000 $ 22000 $ 2750 $ 44000
Could someone provide solution to this problem ? Thanks.
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Re: Compound intrest problem
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21 Oct 2009, 16:49
scoregmat wrote:
Person X invested one half of his savings in a bond that paid simple interest for 2 years and received $ 550 as interest. He invested the remaining in a bond that paid compound interest, interest being compounded annually, for the same 2 years at the same rate of interest and received $605 as interest. What was the value of his total savings before investing in these two bonds?
$ 5500 $ 11000 $ 22000 $ 2750 $ 44000
Could someone provide solution to this problem ? Thanks.
let the total investment be 2P . R be the rate of interest. Time is 2years
Under SI, P will amount to P (1+ 2R/100)= P(1+ 0.02R) = P + 550- --eqn 1 eqn1 on simplifying becomes 0.02*P*R = 550 or 0.01*P*R =275
Under CI, P will amount to P (1+ R/100)^2 =P(1+ 0.01R)^2 = P + 605----eqn2
The SI for each year will be $275 (550/2) so compound interest in year 2 will be nothing but SI on amount $(P+275) at R rate of interest. CI for 2years will be $275 + SI on (P+275) = 605 solving above we get P+275 is 330 Then (P+275)* 0.01R = 0.01*P*R + 2.75R = 330---eqn3 and we have 0.01*P*R =275 substituing this in equation3 we get 2.75R = 55 R = 20% then 2P can be obtained as 2*0.01*P*20 = 275 2P = 2*27500/20 = $2750
Ans Option4. $2750
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