Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized for You

we will pick new questions that match your level based on your Timer History

Track Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

It appears that you are browsing the GMAT Club forum unregistered!

Signing up is free, quick, and confidential.
Join other 500,000 members and get the full benefits of GMAT Club

Registration gives you:

Tests

Take 11 tests and quizzes from GMAT Club and leading GMAT prep companies such as Manhattan GMAT,
Knewton, and others. All are free for GMAT Club members.

Applicant Stats

View detailed applicant stats such as GPA, GMAT score, work experience, location, application
status, and more

Books/Downloads

Download thousands of study notes,
question collections, GMAT Club’s
Grammar and Math books.
All are free!

Thank you for using the timer!
We noticed you are actually not timing your practice. Click the START button first next time you use the timer.
There are many benefits to timing your practice, including:

Leona bought a 1-year, $10,000 certificate of deposit that [#permalink]

Show Tags

07 Dec 2012, 03:29

1

This post received KUDOS

13

This post was BOOKMARKED

00:00

A

B

C

D

E

Difficulty:

15% (low)

Question Stats:

76% (02:06) correct
24% (01:19) wrong based on 857 sessions

HideShow timer Statictics

Leona bought a 1-year, $10,000 certificate of deposit that paid interest at an annual rate of 8 percent compounded semiannually. What was the total amount of interest paid on this certificate at maturity?

Re: Leona bought a 1-year, $10,000 certificate of deposit that [#permalink]

Show Tags

07 Dec 2012, 03:35

4

This post received KUDOS

Expert's post

8

This post was BOOKMARKED

Walkabout wrote:

Leona bought a 1-year, $10,000 certificate of deposit that paid interest at an annual rate of 8 percent compounded semiannually. What was the total amount of interest paid on this certificate at maturity?

For the first 6 moths interest was 4% of $10,000, so $400; For the next 6 moths interest was 4% of $10,000, plus 4% earned on previous interest of $400, so $400+$16=$416;

Total interest for 1 year was $400+$416=$816.

Answer: C.

Approach #2: If the interest were compounded annually instead of semiannually then in a year the interest would be 8% of $10,000, so $800. Now, since the interest is compounded semiannually then there would be interest earned on interest (very small amount) thus the actual interest should be a little bit more than $800, only answer choice C fits.

Re: Leona bought a 1-year, $10,000 certificate of deposit that [#permalink]

Show Tags

10 Jun 2013, 05:43

3

This post received KUDOS

2

This post was BOOKMARKED

The equation for compound interest is: \(P_t = P_0(1+\frac{i}{n})^{nt}\) \(P_t\) is the Principle at time t \(P_0\) is the Principle at time 0 \(i\) is the Interest Rate \(n\) is the Number of compounding periods \(t\) is the Number of years the investment earns interest

Plug in the numbers: \(P_t = 10,000(1+\frac{.08}{2})^{2*1}\)

Re: Leona bought a 1-year, $10,000 certificate of deposit that [#permalink]

Show Tags

26 Jun 2013, 00:32

1

This post received KUDOS

This problem can be solved using formula. However, the calculation in formula is difficult = 10,000(208/200)^2.

The main motive of GMAT behind Compound interest problem is to consume your time so that you waste your precious time in difficult calculations. We have to avoid that trap and use simple and fast calculations.

By definition Compound interest = S.I. + Interest on Interest

So here C.I. = 4% on 10,000 (6months) + 4% on 10,000(6months) + 4% on interest (last 6 months interest)

Re: Leona bought a 1-year, $10,000 certificate of deposit that [#permalink]

Show Tags

25 May 2014, 16:47

Walkabout wrote:

Leona bought a 1-year, $10,000 certificate of deposit that paid interest at an annual rate of 8 percent compounded semiannually. What was the total amount of interest paid on this certificate at maturity?

Re: Leona bought a 1-year, $10,000 certificate of deposit that [#permalink]

Show Tags

27 May 2014, 03:18

The amount increases in two steps : 4% in the first 6 months and again 4% in the second 6 months.

Such % change in two steps is knows as successive % change.

In case of successive % change, we can use the below formula to calculate the Net % change :

\(Net % change =\) \(A + B + \frac{AB}{100}\)

If there is % increase , we take the value as positive and for % decrease, we take that as negative.

In the final answer, positive number shows % increase and negative number shows % decrease.

Using the above formula , we get : net change = \(4 + 4 + \frac{4*4}{100}\) \(= 8 + .16 = 8.16 %\).

\(8.16 % of 10,000\) is 816. Hence the answer is 816.

This formula is applicable only in case of % change in two steps. In case % change takes place in 3 steps, we have to apply the formula for the first two first and then to the result and the third one. _________________

Post your Blog on GMATClub We would like to invite all applicants who are applying to BSchools this year and are documenting their application experiences on their blogs to...

HBS alum talks about effective altruism and founding and ultimately closing MBAs Across America at TED: Casey Gerald speaks at TED2016 – Dream, February 15-19, 2016, Vancouver Convention Center...