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If money is invested at r percent interest, compounded annua [#permalink]
27 Jan 2013, 22:46

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E

Difficulty:

95% (hard)

Question Stats:

39% (02:38) correct
61% (02:04) wrong based on 79 sessions

If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 50/r years. If Luke's parents invested $12,500 in a long term bond that pays 12 percent interest compounded annually, what will be the approximate total amount of the investment 12 years later, when Luke is ready for college?

A) 62,000 B) 85,500 C) 95,500 D) 100,500 E) 100,000

Re: If money is invested at r percent interest, compounded annua [#permalink]
27 Jan 2013, 23:19

1

This post received KUDOS

Expert's post

laythesmack23 wrote:

If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 50/r years. If Luke's parents invested $12,500 in a long term bond that pays 12 percent interest compounded annually, what will be the approximate total amount of the investment 12 years later, when Luke is ready for college?

A) 62,000 B) 85,500 C) 95,500 D) 100,500 E) 100,000

Don't be rude people, leave your kudo's here!

Proper version of this question is from from Official Guide: If money is invested at r percent interest, compounded annually, the amount of investment will double in approximately 70/r years. If Pat's parents invested $ 5000 in a long term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of investment 18 years later, when Pat is ready for college?

A. $20000 B. $15000 C. $12000 D. $10000 E. $9000

Since investment doubles in 70/r years then for r=8 it'll double in 70/8=~9 years (we are not asked about the exact amount so such an approximation will do). Thus in 18 years investment will double twice and become ($5,000*2)*2=$20,000 (after 9 years investment will become $5,000*2=$10,000 and in another 9 years it'll become $10,000*2=$20,000).

Re: If money is invested at r percent interest, compounded annua [#permalink]
30 Mar 2014, 21:54

1

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Expert's post

gauravkaushik8591 wrote:

VeritasPrepKarishma wrote:

gauravkaushik8591 wrote:

Answer equals E in 48 years. I thought by 50th year it would reach 100,500. Options should have been separated more widely for clarity.

This question is not correct since with compound interest, amount doubles every 70/n years (good to remember this - comes in handy sometimes). This cannot be changed to 50/n. The actual OG question has 70/n - they give it because they don't expect you to know it. There are no problems with the OG question given by Bunuel in the post above. Try that out instead.

Karishma,

I totally understand what you said. Thanks for clarification. But since the question bent the formula to 50/n, I started treating it like an exponential growth and decay question.

Yes, but the question still mentions that the interest is 'compounded'. Let that raise a red flag in future! _________________

Re: If money is invested at "r" percent interest, compounded.... [#permalink]
27 Jan 2013, 23:05

Can you provide the source of the question?.. I believe the answers are clustered together too closely to make viable options for an approximation question. _________________

Did you find this post helpful?... Please let me know through the Kudos button.

Re: If money is invested at "r" percent interest, compounded.... [#permalink]
31 Jan 2013, 15:06

MacFauz wrote:

Can you provide the source of the question?.. I believe the answers are clustered together too closely to make viable options for an approximation question.

OG guide, please see original question that Banuel listed above.

I simply changed the #'s around, and changed the answer's to fit my revised question.

Re: If money is invested at "r" percent interest, compounded.... [#permalink]
31 Jan 2013, 22:22

laythesmack23 wrote:

MacFauz wrote:

Can you provide the source of the question?.. I believe the answers are clustered together too closely to make viable options for an approximation question.

OG guide, please see original question that Banuel listed above.

I simply changed the #'s around, and changed the answer's to fit my revised question.

Laythesmack23

Understood.. Although the 70/N part should not be changed because then, the interest rate would not be in line with a compound interest... Otherwise the question is fine... I believe the answer choices should be more widely spread apart.. Using the formula for compound interest "C" will actually be closest value to the actual answer... _________________

Did you find this post helpful?... Please let me know through the Kudos button.

Re: If money is invested at r percent interest, compounded annua [#permalink]
30 Mar 2014, 19:17

Expert's post

gauravkaushik8591 wrote:

Answer equals E in 48 years. I thought by 50th year it would reach 100,500. Options should have been separated more widely for clarity.

This question is not correct since with compound interest, amount doubles every 70/n years (good to remember this - comes in handy sometimes). This cannot be changed to 50/n. The actual OG question has 70/n - they give it because they don't expect you to know it. There are no problems with the OG question given by Bunuel in the post above. Try that out instead. _________________

Re: If money is invested at r percent interest, compounded annua [#permalink]
30 Mar 2014, 19:49

VeritasPrepKarishma wrote:

gauravkaushik8591 wrote:

Answer equals E in 48 years. I thought by 50th year it would reach 100,500. Options should have been separated more widely for clarity.

This question is not correct since with compound interest, amount doubles every 70/n years (good to remember this - comes in handy sometimes). This cannot be changed to 50/n. The actual OG question has 70/n - they give it because they don't expect you to know it. There are no problems with the OG question given by Bunuel in the post above. Try that out instead.

Karishma,

I totally understand what you said. Thanks for clarification. But since the question bent the formula to 50/n, I started treating it like an exponential growth and decay question.

gmatclubot

Re: If money is invested at r percent interest, compounded annua
[#permalink]
30 Mar 2014, 19:49