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On May 1 of last year, Jasmin invested x dollars in a new [#permalink]

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05 Jun 2012, 05:03

6

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A

B

C

D

E

Difficulty:

5% (low)

Question Stats:

85% (01:44) correct
15% (00:54) wrong based on 293 sessions

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On May 1 of last year, Jasmin invested x dollars in a new account at an interest rate of 6 percent per year, compounded monthly. If no other deposits or withdrawals were made in the account and the interest rate did not change, what is the value of x?

(1) As of June1 of last year, the investment had earned $200 in interest. (2) As of July 1 of last year, the investment had earned $401 in interest.

I got this right but it was the guess work, Can someone please explain the mathematical solution to this?

on may 1 of last year, jasmin invested X dollars in a new account at an interest rate of 6 percent per year, compounded monthly. If no other deposits or withdrawals were made in the account and the interest rate did not change, what is the value of x?

1) as of june 1 of last year, the investment had earned $200 in interest 2) as of july 1 of lasy year, the investment had earned $401 in interest.

I know its a basic question, you don't really need to solve it but I'm interested in the detailed approach in case I see a problem solving question of this type.

Statement 1-

Monthly C.I.(Compd. Int.) = 6/12=0.5% per month; When there is only one period for calculation, then C.I.= S.I.(simple Int.). In this question May to June is one month only.

We know that SI=P*r*t/100 => 200=P*0.5*1/100 => P can be derived. There is no need to calculate exact value in DS question.Just make sure there is a unique value. Sufficient.

Statement 2-

From May to July there are 2 periods, so this is the case of CI rather SI.

We know that CI=P(1+r/100)^n => n= # of periods = 2 months => 401=P(1+0.5/100)^2 => P can be derived. There is no need to calculate exact value. Sufficient.

Above, the expression \(x * (1 + \frac{0.5}{100})\) represents the principal after the end if the first month i.e the initial principal+one month's worth of interest. This is enough to compute the value of x. B is also sufficient.

Thus, the answer is D, both statements alone are sufficient.

on may 1 of last year, jasmin invested X dollars in a new ac [#permalink]

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16 Jan 2013, 23:29

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on may 1 of last year, jasmin invested X dollars in a new account at an interest rate of 6 percent per year, compounded monthly. If no other deposits or withdrawals were made in the account and the interest rate did not change, what is the value of x?

1) as of june 1 of last year, the investment had earned $200 in interest 2) as of july 1 of lasy year, the investment had earned $401 in interest.

I know its a basic question, you don't really need to solve it but I'm interested in the detailed approach in case I see a problem solving question of this type.
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Re: On May 1 of last year, Jasmin invested x dollars in a new [#permalink]

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05 Jun 2012, 09:32

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I think you can just use the formula: Future Value = Present Value x (1 + (interest rate/12))^number of months

In both cases, they give you Future Value (Present Value + Interest Earned), they give you the interest rate (6.0% annually), and they give you the number of months to compound over, so you can solve for the Present Value in both cases

Re: on may 1 of last year, jasmin invested X dollars in a new ac [#permalink]

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17 Jan 2013, 01:35

fozzzy wrote:

on may 1 of last year, jasmin invested X dollars in a new account at an interest rate of 6 percent per year, compounded monthly. If no other deposits or withdrawals were made in the account and the interest rate did not change, what is the value of x?

1) as of june 1 of last year, the investment had earned $200 in interest 2) as of july 1 of lasy year, the investment had earned $401 in interest.

I know its a basic question, you don't really need to solve it but I'm interested in the detailed approach in case I see a problem solving question of this type.

on may 1 of last year, jasmin invested X dollars in a new account at an interest rate of 6 percent per year, compounded monthly. If no other deposits or withdrawals were made in the account and the interest rate did not change, what is the value of x?

1) as of june 1 of last year, the investment had earned $200 in interest 2) as of july 1 of lasy year, the investment had earned $401 in interest.

I know its a basic question, you don't really need to solve it but I'm interested in the detailed approach in case I see a problem solving question of this type.

Re: On May 1 of last year, Jasmin invested x dollars in a new [#permalink]

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25 Mar 2013, 16:04

I thought with monthly compounding interest, your time value must be multiplied by 12? But we are getting 1 as the exponent, is this because you are multiplying 12* 1/12 for the number of periods being just one month?

Re: on may 1 of last year, jasmin invested X dollars in a new ac [#permalink]

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25 Mar 2013, 16:10

PraPon wrote:

Interest Rate per month: 6%/12 months = 0.5% (monthly)

(1) As of June1 of last year, the investment had earned $200 in interest. SUFFICIENT: interest earned in one month = $200

\(Principal * (0.5/100) = 200\)

Principal amount = $40000. Hence sufficient.

(2) As of July 1 of last year, the investment had earned $401 in interest. SUFFICIENT: interest earned in two months = $401

\(Principal * (1 + 0.5/100)*(0.5/100) = 401\) We can solve this equation to find out Principal amount. Hence sufficient.

Hence choice(D) is the answer.

Also can you explain how you are able to get to principal * (0.5/100) = 200? I guess I am trying to go by the formula which is x(1 + (6/100) / 12) ^ n - x but i dont understand how you get to that

Re: On May 1 of last year, Jasmin invested x dollars in a new [#permalink]

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12 Jan 2014, 04:14

enigma123 wrote:

On May 1 of last year, Jasmin invested x dollars in a new account at an interest rate of 6 percent per year, compounded monthly. If no other deposits or withdrawals were made in the account and the interest rate did not change, what is the value of x?

(1) As of June1 of last year, the investment had earned $200 in interest. (2) As of July 1 of last year, the investment had earned $401 in interest.

I got this right but it was the guess work, Can someone please explain the mathematical solution to this?

We're given X*0.05 = Interest after 1 month, so we have two unknowns (because even if we have more than 1 period, that's just an exponential relationship, and the exponent is never unknown)..

Isn't it simply easier to solve this like an algebraic translation instead of doing calculations? That way you only need to know what you need, not what the actual results are.

1) Solves for one of our unknowns, so it's clearly sufficient

2) Also solves for the same unknown as 1), but this time with a different exponent, so this is also sufficient.

So, answer is D. We can solve questions like these in 20 seconds with this approach, no calculation involved at all.

Re: On May 1 of last year, Jasmin invested x dollars in a new [#permalink]

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03 Jun 2015, 11:03

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Re: On May 1 of last year, Jasmin invested x dollars in a new [#permalink]

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05 Jul 2016, 12:57

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I thought with monthly compounding interest, your time value must be multiplied by 12? But we are getting 1 as the exponent. The formula that I am using is

I = P [(1+R/100)^n - 1]

I am not able to understand as to why n = 1? Is it because n = c*t = 12 *1/12 = 1?

Please confirm. Thanks!

Last edited by Keats on 06 Sep 2016, 05:19, edited 1 time in total.

I thought with monthly compounding interest, your time value must be multiplied by 12? But we are getting 1 as the exponent. The formula that I am using is

I = P [(1+R/100)^n - 1]

I am not able to understand as to why n = 1? Is it because n = c*t = 12 *1/12 = 1?

Please confirm. Thanks!

Hi standard is compounded annually and the formula you have written fits in there... But if a question has compounded some period, look how many period are there and time will get multipled by that period and the rate will get divided by that... If semiannually, two periods of 6 months in a year, one year will make n as 2 and rate as r/2.. Here it is monthly, so 12 periods in a month, so a year will make n as 12 and rate as 6/12.. But we are looking for only ONE month or 1/12 year, so n will be 1/12 * 12= 1..
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