Author 
Message 
TAGS:

Hide Tags

Manager
Status: Prep Mode
Joined: 25 Apr 2012
Posts: 156
Location: India

A certain account pays 1.5 percent compound interest every
[#permalink]
Show Tags
29 Jul 2013, 09:09
Question Stats:
78% (01:45) correct 22% (01:49) wrong based on 145 sessions
HideShow timer Statistics
A certain account pays 1.5 percent compound interest every 3 months. A person invested an initial amount and did not invest any more money in the account after that. If after exactly 5 years, the amount of money in the account was T dollars, which of the following is an expression for the original number of dollars invested in the account? a) [(1.015)^4]T b) [(1.015)^15]T c) [(1.015)^20]T d) [T/{(1.015)^15}] e) [T/{(1.015)^20}]
Official Answer and Stats are available only to registered users. Register/ Login.



VP
Status: Far, far away!
Joined: 02 Sep 2012
Posts: 1080
Location: Italy
Concentration: Finance, Entrepreneurship
GPA: 3.8

Re: A certain account pays 1.5 percent compound interest every
[#permalink]
Show Tags
29 Jul 2013, 09:14
5 years = 60 months, so his compound interest will be paid \(\frac{60}{3}=20\) times in total. I=initial amount, T = final amount. \(I(1+0.015)^{20}=T\) or \(I=\frac{T}{(1+0.015)^{20}}\). E
_________________
It is beyond a doubt that all our knowledge that begins with experience.
Kant , Critique of Pure Reason Tips and tricks: Inequalities , Mixture  Review: MGMAT workshop Strategy: SmartGMAT v1.0  Questions: Verbal challenge SC III CR New SC set out !! , My QuantRules for Posting in the Verbal Forum  Rules for Posting in the Quant Forum[/size][/color][/b]



Manager
Status: Prep Mode
Joined: 25 Apr 2012
Posts: 156
Location: India

Re: A certain account pays 1.5 percent compound interest every
[#permalink]
Show Tags
29 Jul 2013, 13:08
Zarrolou wrote: 5 years = 60 months, so his compound interest will be paid \(\frac{60}{3}=20\) times in total.
I=initial amount, T = final amount.
\(I(1+0.015)^{20}=T\) or \(I=\frac{T}{(1+0.015)^{20}}\).
E But, here the interest is not paid annually but quarterly. So,shouldn't we divide the rate also by 20.



Manager
Status: Prep Mode
Joined: 25 Apr 2012
Posts: 156
Location: India

Re: A certain account pays 1.5 percent compound interest every
[#permalink]
Show Tags
30 Jul 2013, 11:11
Gian wrote: Zarrolou wrote: 5 years = 60 months, so his compound interest will be paid \(\frac{60}{3}=20\) times in total.
I=initial amount, T = final amount.
\(I(1+0.015)^{20}=T\) or \(I=\frac{T}{(1+0.015)^{20}}\).
E But, here the interest is not paid annually but quarterly. So,shouldn't we divide the rate also by 20. @zarrolou/experts Could anyone throw some light on the above confusion.



Retired Moderator
Joined: 16 Jun 2012
Posts: 1042
Location: United States

Re: A certain account pays 1.5 percent compound interest every
[#permalink]
Show Tags
30 Jul 2013, 14:24
Gian wrote: Gian wrote: Zarrolou wrote: 5 years = 60 months, so his compound interest will be paid \(\frac{60}{3}=20\) times in total.
I=initial amount, T = final amount.
\(I(1+0.015)^{20}=T\) or \(I=\frac{T}{(1+0.015)^{20}}\).
E But, here the interest is not paid annually but quarterly. So,shouldn't we divide the rate also by 20. @zarrolou/experts Could anyone throw some light on the above confusion. Hi Gian The original formula of "annual compound interest rate" is: t = number of years i = annual interest rate T = future value (FV) P = Present value (PV) After t year: FV = PV[1 + i]^tIf interest rate is quarterly, then new interest rate/period = i/4 new number of periods = t*4 The new formula is: FV = PV[1 + i/4]^4tApply to this question: T = PV[1 + 0.015]^20 Because i/4 = 1.5% number of periods = 4*5 = 20 So, PV = T/[1.015]^20 Or PV = T*[1.015]^20 Hope it helps
_________________
Please +1 KUDO if my post helps. Thank you.
"Designing cars consumes you; it has a hold on your spirit which is incredibly powerful. It's not something you can do part time, you have do it with all your heart and soul or you're going to get it wrong."
Chris Bangle  Former BMW Chief of Design.



Retired Moderator
Joined: 16 Jun 2012
Posts: 1042
Location: United States

Re: A certain account pays 1.5 percent compound interest every
[#permalink]
Show Tags
30 Jul 2013, 14:39
Gian wrote: But, here the interest is not paid annually but quarterly. So,shouldn't we divide the rate also by 20. Hi Gian. 1.5% is quarterly interest rate = interest rate/period 20 = number of quarters (4 quarters x 5 years) = number of period After 1 quarter ==> FV = PV*(1 + 1.5%) After 2 quarters ==> FV = [PV*(1 + 1.5%)]*(1 +1.5%) = PV*(1 +1.5%)^2 .... After 20 quarters ==> FV = PV*(1 +1.5%)^20 The original formula of compound interest rate is: FV = PV*(1 + interest rate per period)^number of periodsThus, we do not divide the rate by 20 because 1.5% is interest per period and 20 is the number of periods. Hope it's clear.
_________________
Please +1 KUDO if my post helps. Thank you.
"Designing cars consumes you; it has a hold on your spirit which is incredibly powerful. It's not something you can do part time, you have do it with all your heart and soul or you're going to get it wrong."
Chris Bangle  Former BMW Chief of Design.



Intern
Joined: 21 May 2010
Posts: 22

Compound Interest Question
[#permalink]
Show Tags
08 Feb 2018, 12:05
This question is from Kaplan practice book, and I think the answer is wrong. If an account pays 1.5% compound interest every 3 months, it is quarterly which means the interest rate should be divided by 4 (1+0.015/4). The book says that the answer is E. Is this answer flawed or am I wrong? A certain account pays 1.5 percent compound interest every 3 months. A person invested an initial amount and did not invest any more money in the account after that. If after exactly 5 years, the amount of money in the account was T dollars, which of the following is an expression for the original number of dollars invested in the account? = T(1.015)^4 = T(1.015)^15 = T(1.015)^20 = T/(1.015)^15 = T/(1.015)^20



Intern
Joined: 11 Feb 2018
Posts: 1

Re: A certain account pays 1.5 percent compound interest every
[#permalink]
Show Tags
11 Feb 2018, 20:07
rockubabe wrote: This question is from Kaplan practice book, and I think the answer is wrong. If an account pays 1.5% compound interest every 3 months, it is quarterly which means the interest rate should be divided by 4 (1+0.015/4). The book says that the answer is E. Is this answer flawed or am I wrong? A certain account pays 1.5 percent compound interest every 3 months. A person invested an initial amount and did not invest any more money in the account after that. If after exactly 5 years, the amount of money in the account was T dollars, which of the following is an expression for the original number of dollars invested in the account? = T(1.015)^4 = T(1.015)^15 = T(1.015)^20 = T/(1.015)^15 = T/(1.015)^20 So I too was confused but now I understand. It says it pays 1.5% every 3 months, that is already the quarterly rate. So technically it pays 6% compounded quarterly. 6/4 = 1.5 every three months. So that's why the answer is T/(1.015)^20 Posted from my mobile device




Re: A certain account pays 1.5 percent compound interest every &nbs
[#permalink]
11 Feb 2018, 20:07






