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EMPOWERgmat PS Series:
Block 1, Question 1

A $5,000 investment can be placed into an account that earns 10 percent simple interest for 2 years or 10 percent compound interest for 2 years. How many additional dollars of interest will be earned by investing the$5,000 in the compound interest account?

A. 10
B. 50
C. 100
D. 200
E. 500

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Originally posted by EMPOWERgmatRichC on 23 Sep 2019, 21:04.
Last edited by EMPOWERgmatRichC on 26 Sep 2019, 14:09, edited 2 times in total.
Senior Manager  G
Joined: 29 Jun 2019
Posts: 470
Re: A $5,000 investment can be placed into an account that earns [#permalink] ### Show Tags 1 1 Simple interest=(2×0.1×5000)+5000=6000$
Compound interest=(1+r)²×5000=(1.1)²×5000=6050
So,6050-6000=50$Hence option B Posted from my mobile device _________________ Always waiting Senior Manager  G Joined: 04 Apr 2015 Posts: 254 GMAT 1: 650 Q49 V31 GPA: 3.59 Re: A$5,000 investment can be placed into an account that earns  [#permalink]

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1
A shortcut approach :though looks big in explaining
SI is 10 % each year on same principle therefore a net of 20% on original principal

compound interest is 10 % for first year and then again successive increase on the amount of 1st year = so successive increase is given by = x+y+xy/100=10 +10 +100/100=21 %

so a net difference of 1%

therefore 1% of 5000= 50 $B Rice (Jones) School Moderator P Joined: 18 Jun 2018 Posts: 330 Location: United States (AZ) Concentration: Finance, Healthcare GMAT 1: 600 Q44 V28 GPA: 3.36 Re: A$5,000 investment can be placed into an account that earns  [#permalink]

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2
Simple interest ==>$5000 x $$\frac{10}{100}$$ x 2 =$500
Compound interest:
After year 1 ==> $5000 x $$\frac{10}{100}$$ =$500
After year 2 ==> ($5000+$500) x $$\frac{10}{100}$$ = $550 Difference =$550 - $500 =$50 (option B)
SVP  D
Joined: 03 Jun 2019
Posts: 1942
Location: India
GMAT 1: 690 Q50 V34 ### Show Tags

OFFICIAL EXPLANATION

Hi All,

We're told that a $5,000 investment can be placed into one of 2 accounts: 1) An account that earns 10 percent simple interest for 2 years or... 2) An account that earns 10 percent compound interest for 2 years. We're asked to find the number of additional dollars of interest that will be earned by investing the$5,000 in the compound interest account. The Simple Interest Formula and Compound Interest Formula are standard formulas on the GMAT - and it's likely that you will be asked to use one (or both) on Test Day. With this question, we have all of the 'numbers' that we need, so we just have to plug them into the 2 formulas (and you can actually do the necessary "math" in a number of different ways):

Simple Interest: (Principal)(1 + rt) = ($5,000)(1 + (.10)(2)) = ($5,000)(1.2) = $6,000 Compound Interest: (Principal)(1 + r)^t = ($5,000)(1 + .1)^2 = ($5,000)(1.21) =$6,050

Difference = $11,050 -$11,000 = $50 Final Answer: GMAT assassins aren't born, they're made, Rich _________________ Re: A$5,000 investment can be placed into an account that earns   [#permalink] 26 Sep 2019, 14:19
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# A \$5,000 investment can be placed into an account that earns  