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

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

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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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