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Peter invests $100,000 in an account that pays 12% [#permalink] ### Show Tags 21 Feb 2014, 06:11 11 This post was BOOKMARKED 00:00 Difficulty: 85% (hard) Question Stats: 53% (02:40) correct 47% (02:01) wrong based on 302 sessions ### HideShow timer Statistics Peter invests$100,000 in an account that pays 12% annual interest: the interest is paid once, at the end of the year. Martha invests $100,000 in an account that pays 12% annual interest, compounding monthly at the end of each month. At the end of one full year, compared to Peter's account, approximately how much more does Martha’s account have? A. Zero B.$68.25
C. $682.50 D.$6825.00
E. $68250.00 [Reveal] Spoiler: OA Manager Status: Never Give up!!! Joined: 02 Aug 2012 Posts: 51 Location: India Concentration: Finance, General Management Followers: 1 Kudos [?]: 38 [1] , given: 28 Re: Peter invests$100,000 in an account that pays 12% [#permalink]

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21 Feb 2014, 08:33
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At the end of 1 year Peter gets an interest of - Rs 12000

At the end of 1 year Martha gets an interest of = 100000(1+0.12/12)^12=100000(1.01^12)= 112682.50 -100000 = 12682.50 $Therefore Martha has 12682.50-12000 = 682.50$ more than Peter at the end of 1 year.
Option (C)

The compound interest formula for those who dont know - http://qrc.depaul.edu/studyguide2009/no ... terest.htm
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Re: Peter invests $100,000 in an account that pays 12% [#permalink] ### Show Tags 21 Feb 2014, 08:58 3 This post received KUDOS Expert's post 7 This post was BOOKMARKED guerrero25 wrote: Peter invests$100,000 in an account that pays 12% annual interest: the interest is paid once, at the end of the year. Martha invests $100,000 in an account that pays 12% annual interest, compounding monthly at the end of each month. At the end of one full year, compared to Peter's account, approximately how much more does Martha’s account have? A. Zero B.$68.25
C. $682.50 D.$6825.00
E. $68250.00 Peters interest =$100,000*0.12 = $12,000 or$1,000 each month.

Martha’s interest, 12%/12 = 1% each month:
For the 1st month = $100,000*0.01 =$1,000;
For the 2nd month = $1,000 + 1% of 1,000 =$1,010, so we would have interest earned on interest (very small amount);
For the 3rd month = $1,010 + 1% of 1,010 = ~$1,020;
For the 4th month = $1,020 + 1% of 1,020 = ~$1,030;
...
For the 12th month = $1,100 + 1% of 1,100 = ~$1,110.

The difference between Peters interest and Martha’s interest = ~(10 + 20 + ... + 110) = $660. Answer: C. Similar questions to practice: john-deposited-10-000-to-open-a-new-savings-account-that-135825.html 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 jolene-entered-an-18-month-investment-contract-that-127308.html alex-deposited-x-dollars-into-a-new-account-126459.html michelle-deposited-a-certain-sum-of-money-in-a-savings-138273.html Hope it helps. _________________ Intern Joined: 10 Apr 2012 Posts: 47 Concentration: Finance WE: Analyst (Commercial Banking) Followers: 0 Kudos [?]: 21 [0], given: 13 Re: Peter invests$100,000 in an account that pays 12% [#permalink]

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22 Feb 2014, 00:04
Manofsteel wrote:
At the end of 1 year Peter gets an interest of - Rs 12000

At the end of 1 year Martha gets an interest of = 100000(1+0.12/12)^12=100000(1.01^12)= 112682.50 -100000 = 12682.50 $Therefore Martha has 12682.50-12000 = 682.50$ more than Peter at the end of 1 year.
Option (C)

The compound interest formula for those who dont know - http://qrc.depaul.edu/studyguide2009/no ... terest.htm

How do you calculate (1.01)^12 under exam conditions. Is there an easier way?
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Re: Peter invests $100,000 in an account that pays 12% [#permalink] ### Show Tags 22 Feb 2014, 02:18 2 This post received KUDOS Expert's post Cosmas wrote: Manofsteel wrote: At the end of 1 year Peter gets an interest of - Rs 12000 At the end of 1 year Martha gets an interest of = 100000(1+0.12/12)^12=100000(1.01^12)= 112682.50 -100000 = 12682.50$

Therefore Martha has 12682.50-12000 = 682.50 $more than Peter at the end of 1 year. Option (C) The compound interest formula for those who dont know - http://qrc.depaul.edu/studyguide2009/no ... terest.htm How do you calculate (1.01)^12 under exam conditions. Is there an easier way? Yes, that approach is not useful on the exam. Check here: peter-invests-100-000-in-an-account-that-pays-167793.html#p1335128 Hope it helps. _________________ Intern Joined: 10 Apr 2012 Posts: 47 Concentration: Finance WE: Analyst (Commercial Banking) Followers: 0 Kudos [?]: 21 [0], given: 13 Re: Peter invests$100,000 in an account that pays 12% [#permalink]

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22 Feb 2014, 02:51
Bunuel wrote:
Cosmas wrote:
Manofsteel wrote:
At the end of 1 year Peter gets an interest of - Rs 12000

At the end of 1 year Martha gets an interest of = 100000(1+0.12/12)^12=100000(1.01^12)= 112682.50 -100000 = 12682.50 $Therefore Martha has 12682.50-12000 = 682.50$ more than Peter at the end of 1 year.
Option (C)

The compound interest formula for those who dont know - http://qrc.depaul.edu/studyguide2009/no ... terest.htm

How do you calculate (1.01)^12 under exam conditions. Is there an easier way?

Yes, that approach is not useful on the exam. Check here: peter-invests-100-000-in-an-account-that-pays-167793.html#p1335128

Hope it helps.

Thanks Bunuel. I just wanted to tell Manofsteel that in as much as its a correct formula, that approach will waste a lot of time. Thanks for alternative, fast approach Bunuel.
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22 Feb 2014, 02:57
Thanks mate. I appreciate.
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Re: Peter invests $100,000 in an account that pays 12% [#permalink] ### Show Tags 13 Jan 2015, 14:31 1 This post was BOOKMARKED Bunuel wrote: guerrero25 wrote: Peter invests$100,000 in an account that pays 12% annual interest: the interest is paid once, at the end of the year. Martha invests $100,000 in an account that pays 12% annual interest, compounding monthly at the end of each month. At the end of one full year, compared to Peter's account, approximately how much more does Martha’s account have? A. Zero B.$68.25
C. $682.50 D.$6825.00
E. $68250.00 Peters interest =$100,000*0.12 = $12,000 or$1,000 each month.

Martha’s interest, 12%/12 = 1% each month:
For the 1st month = $100,000*0.01 =$1,000;
For the 2nd month = $1,000 + 1% of 1,000 =$1,010, so we would have interest earned on interest (very small amount);
For the 3rd month = $1,010 + 1% of 1,010 = ~$1,020;
For the 4th month = $1,020 + 1% of 1,020 = ~$1,030;
...
For the 12th month = $1,100 + 1% of 1,100 = ~$1,110.

The difference between Peters interest and Martha’s interest = ~(10 + 20 + ... + 110) = $660. Answer: C. Similar questions to practice: john-deposited-10-000-to-open-a-new-savings-account-that-135825.html 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 jolene-entered-an-18-month-investment-contract-that-127308.html alex-deposited-x-dollars-into-a-new-account-126459.html michelle-deposited-a-certain-sum-of-money-in-a-savings-138273.html Hope it helps. Dear Bunuel, In the second month of Martha why didn't you pick the primary amount which is 100,000 . I mean at first month her interest is on 100,000 and second month it should be on 101,000 ? But you wrote on 1000. I am not clear actually. Can you please give a brief? Math Expert Joined: 02 Sep 2009 Posts: 36520 Followers: 7067 Kudos [?]: 92941 [0], given: 10528 Re: Peter invests$100,000 in an account that pays 12% [#permalink]

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14 Jan 2015, 01:03
Salvetor wrote:
Bunuel wrote:
guerrero25 wrote:
Peter invests $100,000 in an account that pays 12% annual interest: the interest is paid once, at the end of the year. Martha invests$100,000 in an account that pays 12% annual interest, compounding monthly at the end of each month. At the end of one full year, compared to Peter's account, approximately how much more does Martha’s account have?

A. Zero
B. $68.25 C.$682.50
D. $6825.00 E.$68250.00

Peters interest = $100,000*0.12 =$12,000 or $1,000 each month. Martha’s interest, 12%/12 = 1% each month: For the 1st month =$100,000*0.01 = $1,000; For the 2nd month =$1,000 + 1% of 1,000 = $1,010, so we would have interest earned on interest (very small amount); For the 3rd month =$1,010 + 1% of 1,010 = ~$1,020; For the 4th month =$1,020 + 1% of 1,020 = ~$1,030; ... For the 12th month =$1,100 + 1% of 1,100 = ~$1,110. The difference between Peters interest and Martha’s interest = ~(10 + 20 + ... + 110) =$660.

Answer: C.

Similar questions to practice:
john-deposited-10-000-to-open-a-new-savings-account-that-135825.html
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
jolene-entered-an-18-month-investment-contract-that-127308.html
alex-deposited-x-dollars-into-a-new-account-126459.html
michelle-deposited-a-certain-sum-of-money-in-a-savings-138273.html

Hope it helps.

Dear Bunuel, In the second month of Martha why didn't you pick the primary amount which is 100,000 . I mean at first month her interest is on 100,000 and second month it should be on 101,000 ? But you wrote on 1000. I am not clear actually. Can you please give a brief?

Your way: 0.01*$101,000 =$1,010.
My way: $1,000 + 1% of 1,000 =$1,010.
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01 Dec 2016, 18:18
Peter --> Simple Interest (P(1+r)^t)

100,000(1+0.12)^1 = 112,000

Martha --> Compounded Interest (P[1+(r/n)]^nt)

100,000(1+(0.12/12))^[12(1)] = 112682.50

112682.50-112,000 = 682.50

C.
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