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Updated on: 26 Sep 2019, 14:09
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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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Joined: 29 Jun 2019
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Re: A $5,000 investment can be placed into an account that earns [#permalink] ### Show Tags 24 Sep 2019, 05:35 1 1 Simple interest=(2×0.1×5000)+5000=6000$
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 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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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 $B Rice (Jones) School Moderator 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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24 Sep 2019, 15:19
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)
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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: GMAT assassins aren't born, they're made, Rich _________________ Contact Rich at: Rich.C@empowergmat.com The Course Used By GMAT Club Moderators To Earn 750+ souvik101990 Score: 760 Q50 V42 ★★★★★ ENGRTOMBA2018 Score: 750 Q49 V44 ★★★★★ Re: A$5,000 investment can be placed into an account that earns   [#permalink] 26 Sep 2019, 14:19
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