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If money is invested at r percent interest compounded annual [#permalink]
04 Nov 2010, 03:53

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Difficulty:

25% (low)

Question Stats:

78% (02:11) correct
22% (01:58) wrong based on 105 sessions

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?

Re: compounded annually .. spending too much time [#permalink]
04 Nov 2010, 05:21

1

This post received KUDOS

Expert's post

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. _________________

Re: compounded annually .. spending too much time [#permalink]
04 Nov 2010, 08:41

2

This post received KUDOS

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??

Re: Compound Amount [#permalink]
13 Feb 2011, 12:05

1

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Expert's post

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: compounded annually .. spending too much time [#permalink]
08 Sep 2012, 22:50

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 pays8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college? _________________

Re: If money is invested at r percent interest compounded annual [#permalink]
09 Sep 2012, 04:44

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]
07 Feb 2014, 07:03

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