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# If money is invested at r percent interest compounded annual

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If money is invested at r percent interest compounded annual [#permalink]  04 Nov 2010, 04:53
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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
[Reveal] Spoiler: OA

Last edited by Bunuel on 09 Sep 2012, 02:48, edited 1 time in total.
Edited the question.
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Re: compounded annually .. spending too much time [#permalink]  04 Nov 2010, 06:21
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vanidhar wrote:
If money is invested at r percent interest, compounded
annually, the amount of the investment will double
in approximately
70/r
years. If Pat’s parents invested
$5,000 in a long-term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college? (A)$20,000
(B) $1 5,000 (C)$1 2,000
(D) $1 0,000 (E)$ 9,000

There has to be a logic to why they gave you "If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 70/r years."
If r = 8%, the principal will double in 70/8 = apprx 9 years. So in 9 years, 5000 will become 10,000. In another 9 years (i.e. 18 years from now) principal will double again and become $20,000. _________________ Karishma Veritas Prep | GMAT Instructor My Blog Save 10% on Veritas Prep GMAT Courses And Admissions Consulting Enroll now. Pay later. Take advantage of Veritas Prep's flexible payment plan options. Veritas Prep Reviews Senior Manager Joined: 20 Jan 2010 Posts: 282 Schools: HBS, Stanford, Haas, Ross, Cornell, LBS, INSEAD, Oxford, IESE/IE Followers: 10 Kudos [?]: 99 [0], given: 117 Re: compounded annually .. spending too much time [#permalink] 04 Nov 2010, 09:41 Answer: A Karishma has already explained very well and I would like to add some fact here that would be valuable for our daily life problems. This fact of doubling investment (or growth) after every \frac{70}{r} where r is the %age growth or change per unit time, holds true for real life economy calculations. This isn't just true for this particular question but is actually true for our daily life. Check out the following video link (amazing facts) http://www.youtube.com/watch?v=F-QA2rkpBSY Hope it helps _________________ "Don't be afraid of the space between your dreams and reality. If you can dream it, you can make it so." Target=780 http://challengemba.blogspot.com Kudos?? Senior Manager Joined: 10 Nov 2010 Posts: 270 Location: India Concentration: Strategy, Operations GMAT 1: 520 Q42 V19 GMAT 2: 540 Q44 V21 WE: Information Technology (Computer Software) Followers: 4 Kudos [?]: 19 [0], given: 22 Compound Amount [#permalink] 13 Feb 2011, 12:52 Pls check the image attached Attachments CA.JPG [ 37.48 KiB | Viewed 1775 times ] _________________ The proof of understanding is the ability to explain it. GMAT Club team member Joined: 02 Sep 2009 Posts: 11516 Followers: 1791 Kudos [?]: 9536 [0], given: 826 Re: Compound Amount [#permalink] 13 Feb 2011, 13:05 If money is invested at r percent interest, compounded annually, the amount of investment will double in approximately 70/r years. If Pat's parents invested$ 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). Answer: A. _________________ Intern Joined: 31 Aug 2012 Posts: 6 Followers: 0 Kudos [?]: 0 [0], given: 0 Re: compounded annually .. spending too much time [#permalink] 08 Sep 2012, 21:07 How do you know to divide by 8 and not .08? Senior Manager Joined: 15 Jun 2010 Posts: 361 Schools: IE'14, ISB'14, Kellogg'15 WE 1: 7 Yrs in Automobile (Commercial Vehicle industry) Followers: 4 Kudos [?]: 80 [0], given: 50 Re: compounded annually .. spending too much time [#permalink] 08 Sep 2012, 23:50 go2013gmat wrote: How do you know to divide by 8 and not .08? Pay attention to the question stem. The relationship is in %age. So no need to divide it by 100. If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 70/r years. If Pat’s parents invested$5,000 in a long-term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college?
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Re: If money is invested at r percent interest compounded annual [#permalink]  09 Sep 2012, 05:44
Just to brush up a little theory about Simple and Compound Interests calculation.

If P= Principle amount invested
r= annual rate of interest ( For 8% annual rate of interest r=8)
t= time period in years.
Then, Simple Interest (SI) = P*r*t

For calculation of Compound Interest calculation-
if A=accumulated amount (principle + all interest)
Then, A= P*( 1 + {r/100})^t
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Re: If money is invested at r percent interest compounded annual   [#permalink] 09 Sep 2012, 05:44
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