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A $5,000 investment can be placed into an account that earns

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A $5,000 investment can be placed into an account that earns  [#permalink]

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New post Updated on: 26 Sep 2019, 14:09
2
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A
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Difficulty:

  35% (medium)

Question Stats:

69% (01:45) correct 31% (01:44) wrong based on 49 sessions

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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.
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Re: A $5,000 investment can be placed into an account that earns  [#permalink]

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New post 24 Sep 2019, 05:35
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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

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Re: A $5,000 investment can be placed into an account that earns  [#permalink]

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New post 24 Sep 2019, 10:48
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 $

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New post 24 Sep 2019, 15:19
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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)
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New post 24 Sep 2019, 19:14
1
EMPOWERgmatRichC wrote:
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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Earn KUDOS! Share your explanations for kudos from other members, and the EMPOWERgmat team. Even if you're not sure, share your explanation to help boost your learning. Post your reasoning why the answer you chose is correct within 48 hours of this post.

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Compound interest = 5000*1.1^2-5000

Simple interest = 5000*.1*2

Compound interest- simple interest = 5000(1.21-1-.2) = 5000*.01 = 50

IMO B

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Re: A $5,000 investment can be placed into an account that earns  [#permalink]

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New post 26 Sep 2019, 14:19
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:

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Re: A $5,000 investment can be placed into an account that earns   [#permalink] 26 Sep 2019, 14:19
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