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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]

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09 Feb 2012, 05:56
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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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09 Feb 2012, 06:13
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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: 127 Followers: 0 Kudos [?]: 18 [0], given: 2 Simple Interest Question: MGMAT CAT Tests [#permalink] ### Show Tags 22 Apr 2012, 21:10 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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22 Apr 2012, 21:14
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: 127 Followers: 0 Kudos [?]: 18 [0], given: 2 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 22 Apr 2012, 23:08 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 Math Expert Joined: 02 Sep 2009 Posts: 36548 Followers: 7076 Kudos [?]: 93097 [0], given: 10552 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 22 Apr 2012, 23:23 Expert's post 1 This post was BOOKMARKED 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: 127 Followers: 0 Kudos [?]: 18 [0], given: 2 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 23 Apr 2012, 10:17 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] ### Show Tags 23 Apr 2012, 10:32 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.. Senior Manager Joined: 01 Apr 2010 Posts: 301 Location: Kuwait Schools: Sloan '16 (M) GMAT 1: 710 Q49 V37 GPA: 3.2 WE: Information Technology (Consulting) Followers: 4 Kudos [?]: 57 [0], given: 11 Re: Simple Interest Calculation [#permalink] ### Show Tags 23 Apr 2012, 15:33 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.
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23 Apr 2012, 15:34
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: 1 Kudos [?]: 11 [4] , given: 3 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 12 Aug 2012, 22:56 4 This post received KUDOS 1 This post was BOOKMARKED 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] GMAT Club Legend Joined: 09 Sep 2013 Posts: 13437 Followers: 575 Kudos [?]: 163 [0], given: 0 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 14 Oct 2013, 08:01 Hello from the GMAT Club BumpBot! Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos). Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email. _________________ Intern Joined: 15 Dec 2013 Posts: 6 Followers: 0 Kudos [?]: 0 [0], given: 16 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 13 Apr 2014, 06:43 Y the interest is not calculated as: For first 6 months: [10,000*2*(6/12)]/100 =100 For next 6 months: [10100*3*(6/12)]/100 = 151.5 For next 6 months : [100251.5*4*(6/12)]/100 = 205.03 Adding the 3 interests= 456.53 What is wrong with using Simple Interest = P*R*T/100 formula?? Please explain!! Thanks, Shreya _________________ Thanks, Shreya SVP Status: The Best Or Nothing Joined: 27 Dec 2012 Posts: 1858 Location: India Concentration: General Management, Technology WE: Information Technology (Computer Software) Followers: 47 Kudos [?]: 1929 [1] , given: 193 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 22 Apr 2014, 02:27 1 This post received KUDOS SHREYADUBEY wrote: Y the interest is not calculated as: For first 6 months: [10,000*2*(6/12)]/100 =100 For next 6 months: [10100*3*(6/12)]/100 = 151.5 For next 6 months : [100251.5*4*(6/12)]/100 = 205.03 Adding the 3 interests= 456.53 What is wrong with using Simple Interest = P*R*T/100 formula?? Please explain!! Thanks, Shreya The problem states only the interest given; we have to calculate as it is You are calculating using the PCPA concept (Per Cent Per Annum) So, no need of that 6/12 or 4/12 multiplication. For first 6 months: $$10,000* \frac{2}{100} = 200$$ For next 6 months: $$10200 * \frac{3}{100} = 306$$ For next 6 months: $$10506 * \frac{4}{100} = 420.24$$ Total Interest = 200 + 306 + 420.24 = 926.24 Answer = E _________________ Kindly press "+1 Kudos" to appreciate Intern Joined: 30 Sep 2013 Posts: 22 Followers: 0 Kudos [?]: 11 [0], given: 4 Re: Simple Interest Calculation [#permalink] ### Show Tags 02 May 2014, 07:01 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.

Hi Bunnel, you are taking 9% simple interest annually on $10000, which you got$900 , but it should be 18 months to calculate interest of 9% on 10000

so SI = 10000 * 9 * 18 / 100 * 12
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02 May 2014, 09:29
riteshgmat wrote:
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. Hi Bunnel, you are taking 9% simple interest annually on$10000, which you got $900 , but it should be 18 months to calculate interest of 9% on 10000 so SI = 10000 * 9 * 18 / 100 * 12 What I'm saying is that IF the 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 in 18 months, which is $900. _________________ Intern Joined: 26 Sep 2012 Posts: 38 Followers: 0 Kudos [?]: 26 [0], given: 46 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 08 Aug 2014, 02:40 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.

Should we treat percent rate as "percent per annum" only if it is explicitly stated in the stem "percent per annum"? This problem confused me at first as I started calculation with the assumption that "2 percent interest at the end of 6 months" stands for 2 percent annual rate, thus making 1% for 6 month period and so on

Thanks
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Jolene entered an 18-month investment contract that [#permalink]

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22 Sep 2014, 22:46
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)=~$926. Answer: E. I got the entire concept except the fact that when Simple interest is calculated why is (n) time period NOT included in the calculation: S.I. p*n*r = 10,000 * 9% * n (where n = 1.5 years) Kindly clarify. Thanks in advance Verbal Forum Moderator Joined: 05 Nov 2012 Posts: 544 Concentration: Technology, Other GMAT 1: 0 Q47 V29 Followers: 35 Kudos [?]: 390 [0], given: 606 Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 24 Sep 2014, 05:58 My first approach after reading the problem was: SI=P*R*T and that really complicated things for me.It was then when I started looking for an explanation to understand the language of the problem. During the search I came across a post, which really helped me to identify the issue in my approach. So thought of sharing it with fraternity. Hope this help. Lets suppose, I tell my friend to give me 100$,which I would return to him in 6-months, with 10% interest.
After 6-months how much I would be paying him?
100*(10/100)=110$.[I didn't use the time here.] Now we can use the same approach to calculate the amount (P+I) over a period of time (6,12 & 18 months). _________________ -------------------------------------------------------- Regards Current Student Joined: 06 Mar 2014 Posts: 277 Location: India GMAT Date: 04-30-2015 Followers: 0 Kudos [?]: 72 [0], given: 84 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 25 Sep 2014, 02:12 JarvisR wrote: My first approach after reading the problem was: SI=P*R*T and that really complicated things for me.It was then when I started looking for an explanation to understand the language of the problem. During the search I came across a post, which really helped me to identify the issue in my approach. So thought of sharing it with fraternity. Hope this help. Lets suppose, I tell my friend to give me 100$,which I would return to him in 6-months, with 10% interest.
After 6-months how much I would be paying him?
100*(10/100)=110$.[I didn't use the time here.] Now we can use the same approach to calculate the amount (P+I) over a period of time (6,12 & 18 months). So basically when or how does one figure that in a certain problem, it is best to avoid (n) while calculating Interest? Its definitely not the 6,12,18 months timeline that can be ignored then how does one go about it? Re: Jolene entered an 18-month investment contract that [#permalink] 25 Sep 2014, 02:12 Go to page 1 2 Next [ 22 posts ] Similar topics Replies Last post Similar Topics: If Finn was 18 months old one year ago, how old was he, in months, x 5 31 Jul 2016, 03:22 4 A professional athlete was offered a threeyear contract to p 5 24 Aug 2013, 14:33 Mary and Mike enter into a partnership by investing$700 and 2 22 Aug 2013, 10:46
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