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Director
Joined: 29 Oct 2004
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On the first of the year, James invested x dollars at [#permalink]
 14 Jan 2005, 11:06
Question Stats:
0% (00:00) correct
 0% (00:00) wrong based on 0 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%
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Senior Manager
Joined: 25 Oct 2004
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Is the answer C . I assume that interest is simple interest as nothing is mentioned in the question.
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Current Student
Joined: 28 Dec 2004
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Location: New York City
Schools: Wharton'11 HBS'12
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I was gonna pick C since its not clear if the interest is compounded or simple. normally if the question doesnt specify, it is assumed simple interest.
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Senior Manager
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I would take it to be compound interest because of the words "yields". Since the quarterly yield is 2%, it means that every quarter yields 2% on the existing balance.
Answer: 8.25% (D)
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Director
Joined: 29 Oct 2004
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OA is (D)
Should the problem say "compound interest 2%" instead? Because by what they says, people would think it is "simple interest" which is 0.02x4 for a year and that is (C).
This is a question from Princeton Review course.
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