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:

Donald plans to invest x dollars in a savings account that [#permalink]
19 Aug 2009, 05:44

1

This post received KUDOS

4

This post was BOOKMARKED

00:00

A

B

C

D

E

Difficulty:

45% (medium)

Question Stats:

65% (02:20) correct
35% (01:43) wrong based on 277 sessions

Donald plans to invest x dollars in a savings account that pays interest at an annual rate of 8% compounded quarterly. Approximately what amount is the minimum that Donald will need to invest to earn over $100 in interest within 6 months?

Re: Compounded Interest [#permalink]
19 Aug 2009, 08:18

TheRob wrote:

Sorry i posted a rate problem with the wrong title Here you have the real problem of comound interest, I kind of have the idea but I don not know how to apply the formula

Donald plans to invest x dollars in a savings account that pays interest at an annual rate of 8% compounded quarterly. Approximately what amount is the minimum that Donald will need to invest to earn over $100 in interest within 6 months?

$1500 $1750 $2000 $2500 $3000

Compound interest formula

A = P ( 1+r/n)power nt

given, n= 4 (quaterly);r =.08

the approach is substitution,

our interest requirement is 100$ after 6 months, 2 compounding period. interest per compounding period is 2%

lets take 1500, after 3 months interest accumulated is 30$, total amount is 1530 after 6 months, interest is 30.6$ and total is 1560.6$, so not 1500

1500 & 1750 have a difference of 250$ only , but the expected interest different is around 40$ hence you can straightaway rule out 1750

2000 is again can be ruled out as approx 4% interest yeilds only 80$

2500$ is a good bet, first 3 months it earns 50$ as interest, next 3 months it will earn 51$ as interest. hence answer is D

Re: Compounded Interest [#permalink]
19 Aug 2009, 10:57

Thank you veyr much here is the book explanation

The formula for calculating compound interest is A = P(1 + r/n)nt where the variables represent the following: A = amount of money accumulated after t years (principal + interest) P = principal investment r = interest rate (annual) n = number of times per year interest is compounded t = number of years In this case, x represents the unknown principal, r = 8%, n = 4 since the compounding is done quarterly, and t = .5 since the time frame in question is half a year (6 months). You can solve this problem without using compound interest. 8% interest over half a year, however that interest is compounded, is approximately 4% interest. So, to compute the principal, it's actually a very simple calculation: 100 = .04x 2500 = x The correct answer is D.

Re: Compounded Interest [#permalink]
19 Aug 2009, 21:20

Unfortunately I dont agree with the OE if I am understanding the question correctly.

If we invest 2500, then CI will ONLY be 100. Question asks "to earn over $100" how much amount is to be invested. Considering rate of interest, number of years and everything else to be the same, the only way to earn CI>100 is to increase the Principal Amount because CI is directly proportional to Principal Amount.

On test day I would have chosen E for sure. What is the source though?

Re: Compounded Interest [#permalink]
19 Aug 2009, 22:14

1

This post received KUDOS

Economist wrote:

Unfortunately I dont agree with the OE if I am understanding the question correctly.

If we invest 2500, then CI will ONLY be 100. Question asks "to earn over $100" how much amount is to be invested. Considering rate of interest, number of years and everything else to be the same, the only way to earn CI>100 is to increase the Principal Amount because CI is directly proportional to Principal Amount.

On test day I would have chosen E for sure. What is the source though?

For P=2500, first 3 months you earn 50$ as interest, next 3 months it will earn 51$ as interest. So total 101$. I guess D should be fine

so if 2500 is invested CI will be exactly 100. To earn more interest more principal should be invested. So E.

OK. I got the problem, the reason is that I rounded off 1.02^2 in the above calculation. Precisely it is 1.0404 and then we get x= 2475. So anything >2475 will give CI >100 The .xx04 made the difference Hence, either I should be very precise and not round off for CI problems or solve via back tracking.

Re: Compounded Interest [#permalink]
06 Mar 2010, 23:27

7

This post received KUDOS

2

This post was BOOKMARKED

TheRob wrote:

Sorry i posted a rate problem with the wrong title Here you have the real problem of comound interest, I kind of have the idea but I don not know how to apply the formula

Donald plans to invest x dollars in a savings account that pays interest at an annual rate of 8% compounded quarterly. Approximately what amount is the minimum that Donald will need to invest to earn over $100 in interest within 6 months?

$1500 $1750 $2000 $2500 $3000

Lets solve it under 30 seconds...

8% compounded quarterly = 2% per quarter = 4% for half year

if 4% is 100 then 100% would be 2500.....Answer D. What say....

Donald plans to invest x dollars in a savings account that pays interest at an annual rate of 8% compounded quarterly. Approximately what amount is the minimum that Donald will need to invest to earn over $100 in interest within 6 months? A. 1500 B. 1750 C. 2000 D. 2500 E. 3000

Annual rate of 8% compounded quarterly is approximately 4% in 6 months (a bit more).

Re: Donald plans to invest x dollars in a savings account that [#permalink]
13 Nov 2014, 05:43

Hi Bunnel,

Would it be correct to do the following.

I used the simple interest formula. Since CI will give a greater amount than SI. an the interest is compounded quaterly. The rate for a quater would be 2% Since the duration is 6 months there would be two compounding periods. $50 per period.

so... 50= (X. 2.1)/ 100

X would be 2500.... This is SI so CI would be obviously greater.

Re: Donald plans to invest x dollars in a savings account that [#permalink]
13 Nov 2014, 05:48

Expert's post

vivekvijayan wrote:

Hi Bunnel,

Would it be correct to do the following.

I used the simple interest formula. Since CI will give a greater amount than SI. an the interest is compounded quaterly. The rate for a quater would be 2% Since the duration is 6 months there would be two compounding periods. $50 per period.

so... 50= (X. 2.1)/ 100

X would be 2500.... This is SI so CI would be obviously greater.

On September 6, 2015, I started my MBA journey at London Business School. I took some pictures on my way from the airport to school, and uploaded them on...

When I was growing up, I read a story about a piccolo player. A master orchestra conductor came to town and he decided to practice with the largest orchestra...

There is one comment that stands out; one conversation having made a great impression on me in these first two weeks. My Field professor told a story about a...

Our Admissions Committee is busy reviewing Round 1 applications. We will begin sending out interview invitations in mid-October and continue until the week of November 9th, at which point...