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# Jolene entered an 18-month investment contract that

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Jolene entered an 18-month investment contract that [#permalink]  09 Feb 2012, 06:56
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Question Stats:

61% (04:44) correct 38% (01:59) wrong based on 39 sessions
Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested $10,000 initially, what will be the total amount of interest paid during the 18-month contract? A.$506.00
B. $726.24 C.$900.00
D. $920.24 E.$926.24

This is very simple problem,yet need to pay attention to words in the problem
[Reveal] Spoiler: OA

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-Aravind Chembeti

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Re: Simple Interest Calculation [#permalink]  09 Feb 2012, 07:13
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Chembeti wrote:
Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested $10,000 initially, what will be the total amount of interest paid during the 18-month contract? A.$506.00
B. $726.24 C.$900.00
D. $920.24 E.$926.24

This is very simple problem,yet need to pay attention to words in the problem

If interest were not compounded in every six months (so if interest were not earned on interest) then we would have (2+3+4)=9% simple interest earned on $10,000, which is$900. So, you can rule out A, B and C right away.

Interest earned after the first time interval: $10,000*2%=$200;
Interest earned after the second time interval: ($10,000+$200)*3%=$300+$6=$306; Interest earned after the third time interval: ($10,000+$200+$306)*4%=$400+$8+(~$12)=~$420;

Total: 200+306+(~420)=~$926. Answer: E. _________________ Manager Joined: 09 Jul 2010 Posts: 129 Followers: 0 Kudos [?]: 0 [0], given: 2 Simple Interest Question: MGMAT CAT Tests [#permalink] 22 Apr 2012, 22:10 Hi, I saw this question in the exam and the solution looks like is not considering interest rates as per annum. So is it true that if per annum is not specified with the interest rates we dont need to put the time in calculation as a ratio of months/year. Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested$10,000 initially, what will be the total amount of interest paid during the 18-month contract?

Thanks
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Re: Simple Interest Question: MGMAT CAT Tests [#permalink]  22 Apr 2012, 22:14
raviram80 wrote:
Hi,

I saw this question in the exam and the solution looks like is not considering interest rates as per annum. So is it true that if per annum is not specified with the interest rates we dont need to put the time in calculation as a ratio of months/year.

Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested $10,000 initially, what will be the total amount of interest paid during the 18-month contract? Thanks Merging similar topics. Please ask if anything remains unclear. P.S. PLEASE ALWAYS POST ANSWER CHOICES FOR PS PROBLEMS. _________________ Manager Joined: 09 Jul 2010 Posts: 129 Followers: 0 Kudos [?]: 0 [0], given: 2 Re: Jolene entered an 18-month investment contract that [#permalink] 23 Apr 2012, 00:08 I think my confusion still remains about the wording of the question How would it be different if we were told that contract guarantees to pay 2 percent interest per annum at the end of 6 months vs 2% interest at the end of 6 months. Thanks GMAT Club team member Joined: 02 Sep 2009 Posts: 12116 Followers: 1879 Kudos [?]: 10124 [0], given: 964 Re: Jolene entered an 18-month investment contract that [#permalink] 23 Apr 2012, 00:23 raviram80 wrote: I think my confusion still remains about the wording of the question How would it be different if we were told that contract guarantees to pay 2 percent interest per annum at the end of 6 months vs 2% interest at the end of 6 months. Thanks There is a difference between simple and compound interests. For more check this: math-number-theory-percents-91708.html Similar questions: on-the-first-of-the-year-james-invested-x-dollars-at-128825.html marcus-deposited-8-000-to-open-a-new-savings-account-that-128395.html 10-000-is-deposited-in-a-certain-account-that-pays-r-65464.html john-deposited-10-000-to-open-a-new-savings-account-that-83953.html alex-deposited-x-dollars-into-a-new-account-126459.html a-total-of-60-000-was-invested-for-one-year-part-of-this-126655.html You can find other question here; PS: search.php?search_id=tag&tag_id=191 DS; search.php?search_id=tag&tag_id=192 Hope it helps. _________________ Manager Joined: 09 Jul 2010 Posts: 129 Followers: 0 Kudos [?]: 0 [0], given: 2 Re: Jolene entered an 18-month investment contract that [#permalink] 23 Apr 2012, 11:17 Thanks, I understand now. This is the line which means compound interest "If each interest payment is reinvested in the contract" Intern Joined: 30 Mar 2012 Posts: 36 Followers: 0 Kudos [?]: 2 [0], given: 11 Re: Jolene entered an 18-month investment contract that [#permalink] 23 Apr 2012, 11:32 raviram80 wrote: Thanks, I understand now. This is the line which means compound interest "If each interest payment is reinvested in the contract" This isn't really a compound interest. All that it says is that the interest received is used again in the contract. Nowhere in the statement is it explicitly or implicitly stated that its a compound interest and the answer too are pretty simple to derive if you don't lost in the dilemna of Simple and compounded interest. _________________ This time its personal.. Manager Joined: 01 Apr 2010 Posts: 212 Location: Kuwait GMAT 1: 710 Q49 V37 GPA: 3.2 WE: Information Technology (Consulting) Followers: 1 Kudos [?]: 16 [0], given: 4 Re: Simple Interest Calculation [#permalink] 23 Apr 2012, 16:33 Bunuel wrote: Chembeti wrote: Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested$10,000 initially, what will be the total amount of interest paid during the 18-month contract?

A. $506.00 B.$726.24
C. $900.00 D.$920.24
E. $926.24 This is very simple problem,yet need to pay attention to words in the problem If interest were not compounded in every six months (so if interest were not earned on interest) then we would have (2+3+4)=9% simple interest earned on$10,000, which is $900. So, you can rule out A, B and C right away. Interest earned after the first time interval:$10,000*2%=$200; Interest earned after the second time interval: ($10,000+$200)*3%=$300+$6=$306;
Interest earned after the third time interval: ($10,000+$200+$306)*4%=$400+$8+(~$12)=~$420; Total: 200+306+(~420)=~$926.

Great cancelling out technique! so simple, calculate simple interest first and strike out answers below that. Great trick for if I am low on time. Thanks.
Manager
Joined: 01 Apr 2010
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Re: Simple Interest Calculation [#permalink]  23 Apr 2012, 16:34
Bunuel wrote:
Chembeti wrote:
Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested $10,000 initially, what will be the total amount of interest paid during the 18-month contract? A.$506.00
B. $726.24 C.$900.00
D. $920.24 E.$926.24

This is very simple problem,yet need to pay attention to words in the problem

If interest were not compounded in every six months (so if interest were not earned on interest) then we would have (2+3+4)=9% simple interest earned on $10,000, which is$900. So, you can rule out A, B and C right away.

Interest earned after the first time interval: $10,000*2%=$200;
Interest earned after the second time interval: ($10,000+$200)*3%=$300+$6=$306; Interest earned after the third time interval: ($10,000+$200+$306)*4%=$400+$8+(~$12)=~$420;

Total: 200+306+(~420)=~$926. Answer: E. Great elimination method if I am low on time. Thanks! Intern Joined: 23 Mar 2012 Posts: 2 Followers: 0 Kudos [?]: 3 [2] , given: 3 Re: Jolene entered an 18-month investment contract that [#permalink] 12 Aug 2012, 23:56 2 This post received KUDOS Chembeti wrote: Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested$10,000 initially, what will be the total amount of interest paid during the 18-month contract?

A. $506.00 B.$726.24
C. $900.00 D.$920.24
E. \$926.24

This is very simple problem,yet need to pay attention to words in the problem

Using Compound Interest Formula method:
When rate of interest is R1%, R2% and R3% for 1st yr, 2nd yr and 3rd yr respectively, then

Amount = Principal[(1+ \frac{R1}{100}) (1+ \frac{R2}{100}) (1+ \frac{R3}{100})]

Applying the same formula here in this problem:

Amount = 10000[(1+ \frac{2}{100}) (1+ \frac{3}{100}) (1+ \frac{4}{100})]

= 10000 * \frac{102}{100} * \frac{103}{100} * \frac{104}{100}

= 102 * 103 * \frac{104}{100}

= 926.24 = OPTION E [Ans]
Re: Jolene entered an 18-month investment contract that   [#permalink] 12 Aug 2012, 23:56
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