Find all School-related info fast with the new School-Specific MBA Forum

It is currently 01 Oct 2014, 14:26

Close

GMAT Club Daily Prep

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.

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

On the first of the year, James invested x dollars at

  Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
TAGS:
3 KUDOS received
Manager
Manager
avatar
Joined: 22 Jan 2012
Posts: 90
Location: India
Concentration: General Management, Technology
GMAT 1: Q39 V29
GPA: 3.3
WE: Engineering (Consulting)
Followers: 5

Kudos [?]: 52 [3] , given: 7

On the first of the year, James invested x dollars at [#permalink] New post 09 Mar 2012, 09:49
3
This post received
KUDOS
3
This post was
BOOKMARKED
00:00
A
B
C
D
E

Difficulty:

  55% (hard)

Question Stats:

58% (02:22) correct 42% (01:48) wrong based on 155 sessions
On the first of the year, James invested x dollars at Proudstar bank in an account that yields 2% in interest every quarter year. At the end of the year, during which he made no additional deposits or withdrawals, he had y dollars in the account. If James had invested the same amount in an account which pays interest on a yearly basis, what must the interest rate be for James to have y dollars at the end of the year?

A. 2.04%
B. 6.12%
C. 8%
D. 8.25%
E. 10%
[Reveal] Spoiler: OA

_________________

Press +1 Kudos rather than saying thanks
which is more helpful infact..

Ill be posting good questions as many as I can...

Towards Success

Expert Post
5 KUDOS received
Magoosh GMAT Instructor
User avatar
Joined: 28 Dec 2011
Posts: 2103
Followers: 522

Kudos [?]: 2165 [5] , given: 31

Re: Interest problem [#permalink] New post 09 Mar 2012, 10:05
5
This post received
KUDOS
Expert's post
Hi, there. I'm happy to help with this. :)

Essentially, this question is asking for the effective interest rate.

So, every increase of 2% means we multiply x by the multiplier 1.02. The initial amount x gets multiplied by this multiply four times, one for each quarter, so . . .

y = x*(1.02)^4 = (1.08243216)*x ====> effective interest = 8.2432%

That's how you'd get the exact answer with a calculator, but of course you don't have a calculator available on GMAT PS questions. Think about it this way. With simple interest, 2% a quarter would add up to 8% annual. With compound interest, where you get interest on your interest, you will do a little better than you would with simple interest, so the answer should be something slightly above 8%. That leads us to . . .

[Reveal] Spoiler:
Answer = D


Does that make sense? Please let me know if you have any additional questions on what I've said there.

Mike :)
_________________

Mike McGarry
Magoosh Test Prep

Image

Image

Expert Post
2 KUDOS received
Math Expert
User avatar
Joined: 02 Sep 2009
Posts: 23066
Followers: 3541

Kudos [?]: 27328 [2] , given: 2734

Re: On the first of the year, James invested x dollars at [#permalink] New post 09 Mar 2012, 10:17
2
This post received
KUDOS
Expert's post
iwillcrackgmat wrote:
On the first of the year, James invested x dollars at Proudstar bank in an account that yields 2% in interest every quarter year. At the end of the year, during which he made no additional deposits or withdrawals, he had y dollars in the account. If James had invested the same amount in an account which pays interest on a yearly basis, what must the interest rate be for James to have y dollars at the end of the year?

A. 2.04%
B. 6.12%
C. 8%
D. 8.25%
E. 10%


If the interest were compounded annually instead of quarterly then in one year the interest would be 2*4=8%. Now, since the interest is compounded quarterly then there would be interest earned on interest (very small amount) thus the actual interest would be a little bit more than 8%, only answer choice D fits.

Answer: D.

Similar questions to practice:
jolene-entered-an-18-month-investment-contract-that-127308.html
marcus-deposited-8-000-to-open-a-new-savings-account-that-128395.html

Hope it helps.
_________________

NEW TO MATH FORUM? PLEASE READ THIS: ALL YOU NEED FOR QUANT!!!

PLEASE READ AND FOLLOW: 11 Rules for Posting!!!

RESOURCES: [GMAT MATH BOOK]; 1. Triangles; 2. Polygons; 3. Coordinate Geometry; 4. Factorials; 5. Circles; 6. Number Theory; 7. Remainders; 8. Overlapping Sets; 9. PDF of Math Book; 10. Remainders; 11. GMAT Prep Software Analysis NEW!!!; 12. SEVEN SAMURAI OF 2012 (BEST DISCUSSIONS) NEW!!!; 12. Tricky questions from previous years. NEW!!!;

COLLECTION OF QUESTIONS:
PS: 1. Tough and Tricky questions; 2. Hard questions; 3. Hard questions part 2; 4. Standard deviation; 5. Tough Problem Solving Questions With Solutions; 6. Probability and Combinations Questions With Solutions; 7 Tough and tricky exponents and roots questions; 8 12 Easy Pieces (or not?); 9 Bakers' Dozen; 10 Algebra set. ,11 Mixed Questions, 12 Fresh Meat

DS: 1. DS tough questions; 2. DS tough questions part 2; 3. DS tough questions part 3; 4. DS Standard deviation; 5. Inequalities; 6. 700+ GMAT Data Sufficiency Questions With Explanations; 7 Tough and tricky exponents and roots questions; 8 The Discreet Charm of the DS ; 9 Devil's Dozen!!!; 10 Number Properties set., 11 New DS set.


What are GMAT Club Tests?
25 extra-hard Quant Tests

Get the best GMAT Prep Resources with GMAT Club Premium Membership

CEO
CEO
User avatar
Joined: 09 Sep 2013
Posts: 2567
Followers: 200

Kudos [?]: 40 [0], given: 0

Premium Member
Re: On the first of the year, James invested x dollars at [#permalink] New post 15 Dec 2013, 16:49
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.
_________________

GMAT Books | GMAT Club Tests | Best Prices on GMAT Courses | GMAT Mobile App | Math Resources | Verbal Resources

Intern
Intern
avatar
Joined: 29 Mar 2014
Posts: 6
Followers: 0

Kudos [?]: 0 [0], given: 3

GMAT ToolKit User
On the first of the year, James invested x dollars at [#permalink] New post 09 Aug 2014, 08:59
mikemcgarry wrote:
Hi, there. I'm happy to help with this. :)

Essentially, this question is asking for the effective interest rate.

So, every increase of 2% means we multiply x by the multiplier 1.02. The initial amount x gets multiplied by this multiply four times, one for each quarter, so . . .

y = x*(1.02)^4 = (1.08243216)*x ====> effective interest = 8.2432%

That's how you'd get the exact answer with a calculator, but of course you don't have a calculator available on GMAT PS questions. Think about it this way. With simple interest, 2% a quarter would add up to 8% annual. With compound interest, where you get interest on your interest, you will do a little better than you would with simple interest, so the answer should be something slightly above 8%. That leads us to . . .

[Reveal] Spoiler:
Answer = D


Does that make sense? Please let me know if you have any additional questions on what I've said there.
Mike :)



But according to compound interest formula y= x*( 1+ 0.02/4(quarterly)^time(1yr)*4(quarterly) -> so it comes to x* (1.02015). Please correct me where I'm going wrong.
Thanks
Expert Post
Magoosh GMAT Instructor
User avatar
Joined: 28 Dec 2011
Posts: 2103
Followers: 522

Kudos [?]: 2165 [0], given: 31

Re: On the first of the year, James invested x dollars at [#permalink] New post 11 Aug 2014, 09:39
Expert's post
romeokillsu wrote:
But according to compound interest formula y= x*( 1+ 0.02/4(quarterly)^time(1yr)*4(quarterly) -> so it comes to x* (1.02015). Please correct me where I'm going wrong.
Thanks

Dear romeokillsu,
My friend, in most standard problems, the interest rate given is an ANNUAL interest rate, and for compounding quarterly, we have to divide it by four, as that formula does. BUT, in this problem we are told:

On the first of the year, James invested x dollars at Proudstar bank in an account that yields 2% in interest every quarter year.

So, this problem is following a different pattern --- it is not giving us an ANNUAL interest rate that needs to be divided by four. It is giving us a QUARTERLY interest rate.

That formulas you cited is only used when the problem gives us an annual interest rate. DO NOT blindly apply formulas! That is a recipe for failure! You must understand WHY the formula is true. You have to be able to recreate the argument whereby you derive the formula from scratch. That is really understanding, and that is what the GMAT is testing. Knowing just the formula and not where it comes from, not why it is true, is precisely the kind of superficial knowledge that the GMAT loves to exploit and punish.

For more on the compounding interest formula, see this blog:
http://magoosh.com/gmat/2014/compound-i ... -the-gmat/

Does all this make sense?
Mike :-)
_________________

Mike McGarry
Magoosh Test Prep

Image

Image

Intern
Intern
avatar
Joined: 29 Mar 2014
Posts: 6
Followers: 0

Kudos [?]: 0 [0], given: 3

GMAT ToolKit User
Re: On the first of the year, James invested x dollars at [#permalink] New post 11 Aug 2014, 19:04
:) yes . Thanks Mike.

Posted from my mobile device Image
VP
VP
User avatar
Status: The Best Or Nothing
Joined: 27 Dec 2012
Posts: 1000
Location: India
Concentration: General Management, Technology
WE: Information Technology (Computer Software)
Followers: 6

Kudos [?]: 251 [0], given: 167

Re: On the first of the year, James invested x dollars at [#permalink] New post 11 Aug 2014, 23:06
Per quarter, interest = 2%

So for a year, interest = 8%

Due to quarter cummulation, effective yield (YTM) would be slight higher than 8%

Answer = 8.25% = D

Note: I've not made any calculations here; solved conceptually
_________________

Kindly press "+1 Kudos" to appreciate :)

Re: On the first of the year, James invested x dollars at   [#permalink] 11 Aug 2014, 23:06
    Similar topics Author Replies Last post
Similar
Topics:
1 Experts publish their posts in the topic Last year Luis invested x dollars for one year, half at 8 cipher 5 03 Aug 2009, 00:00
Last year Luis invested x dollars for one year, half at 8 puma 3 18 Apr 2008, 07:58
Last year Luis invested x dollars for one year, half at 8 Jamesk486 1 20 May 2007, 01:38
Last year Luis invested X dollars for one year, half at 8 freetheking 4 04 Aug 2006, 22:34
On the first of the year, James invested x dollars at qhoc0010 4 14 Jan 2005, 10:06
Display posts from previous: Sort by

On the first of the year, James invested x dollars at

  Question banks Downloads My Bookmarks Reviews Important topics  


GMAT Club MBA Forum Home| About| Privacy Policy| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group and phpBB SEO

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.