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A 5year investment note offers a 10% return
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25 Dec 2012, 14:54
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65% (02:33) correct 35% (02:54) wrong based on 157 sessions
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A 5year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. If there is a $500 penalty for early redemption, and the note is redeemed for $6430 after the second year, what was the original purchase price? A. $ 6,000 B. $ 6,048 C. $ 6,100 D. $ 6,150 E. $ 6,200 I don't understand when the question says: "A 5year investment note offers a 10% return on purchase". Here, I think that the note pays the 10% at the end of the five years. So, if the note is sold in the second year, the interest will be Capital*0.10*(2 years / 5 years). In addition, the phrase "a compounding 5% for each year after the first" doesn't indicate that that amount will be calculated after the capitalization of the original 10%. I say this because, according to the OE, this is the solution: P*1.1*1.05  500 = 6430 P is the original Price. IMO, this question is not good at all. What do you think? Do you expect something like this in the real GMAT? Does it worth the time of studying it? Thanks!
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Re: A 5year investment note offers a 10% return
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25 Dec 2012, 22:18
danzig wrote: A 5year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. If there is a $500 penalty for early redemption, and the note is redeemed for $6430 after the second year, what was the original purchase price?
A. $ 6,000 B. $ 6,048 C. $ 6,100 D. $ 6,150 E. $ 6,200
Hii danzig. Since the note was redeemed after 2 years, so a penalty of $500 has to be submitted. So the amount that is redeemed after 6430 is after the deduction of $500. Hence the amount after being compounded is 6930. Let the initial amount be P. After the return, the amount becomes 1.1P. Now use this 1.1P as the principle in the compound interest formula to get the amount 6930. \(A=1.1P(1+5/100)\) where A=6930. Therefore, use \(6930=1.1P(1+5/100)\) to get P as $6000. Hope that helps.
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Re: A 5year investment note offers a 10% return
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07 Jan 2013, 21:51
Marcab wrote: danzig wrote: A 5year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. If there is a $500 penalty for early redemption, and the note is redeemed for $6430 after the second year, what was the original purchase price?
A. $ 6,000 B. $ 6,048 C. $ 6,100 D. $ 6,150 E. $ 6,200
Hii danzig. Since the note was redeemed after 2 years, so a penalty of $500 has to be submitted. So the amount that is redeemed after 6430 is after the deduction of $500. Hence the amount after being compounded is 6930. Let the initial amount be P. After the return, the amount becomes 1.1P. Now use this 1.1P as the principle in the compound interest formula to get the amount 6930. \(A=1.1P(1+5/100)\) where A=6930. Therefore, use \(6930=1.1P(1+5/100)\) to get P as $6000. Hope that helps. Hi Marcab, Why u have used 1.1P ? 10% interest is for 5 yrs right? He took in 2 yrs then how come?
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Re: A 5year investment note offers a 10% return
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07 Jan 2013, 22:26
Hii Shan. Read the question carefully. Quote: A 5year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. For first year, the simple interest rate is 10% and for the subsequent years the compond interest rate is 5%. Thats why I took 1.1P after 1st year. Hope that helps.
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Re: A 5year investment note offers a 10% return
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09 Apr 2014, 07:37
Hi Bunuel, Which is the fastest method to do these kind of questions.
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Re: A 5year investment note offers a 10% return
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03 Sep 2015, 11:51
danzig wrote: A 5year investment note offers a 10% return on purchase, and a compounding 5% for each year after the first. If there is a $500 penalty for early redemption, and the note is redeemed for $6430 after the second year, what was the original purchase price?
A. $ 6,000 B. $ 6,048 C. $ 6,100 D. $ 6,150 E. $ 6,200
I don't understand when the question says: "A 5year investment note offers a 10% return on purchase". Here, I think that the note pays the 10% at the end of the five years. So, if the note is sold in the second year, the interest will be Capital*0.10*(2 years / 5 years). In addition, the phrase "a compounding 5% for each year after the first" doesn't indicate that that amount will be calculated after the capitalization of the original 10%. I say this because, according to the OE, this is the solution:
P*1.1*1.05  500 = 6430 P is the original Price.
IMO, this question is not good at all. What do you think? Do you expect something like this in the real GMAT? Does it worth the time of studying it? Thanks! I converted to fractions to make it easier to cancel and divide. \((P*1.1*1.05)500=6430\) \(P*\frac{11}{10}*\frac{21}{20}=6930\) \(P*11*21=6930*10*20\) \(P=\frac{6930*10*20}{11*21}\) \(P=\frac{693*10*10*20}{11*3*7}\) \(P=\frac{231*10*10*20}{11*7}\) \(P=\frac{11*21*10*10*20}{11*7}\) \(P=3*10*10*20=6000\)



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Re: A 5year investment note offers a 10% return
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12 Nov 2016, 20:12
How is it implicit that 10% is calculated annually? The question says 5year investment that yields 10% which means 2% every year.



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Re: A 5year investment note offers a 10% return
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22 Oct 2018, 09:46
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Re: A 5year investment note offers a 10% return
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