A certain investment earned a fixed rate of 4 percent interest per yea

Hi All,

This is a great 'concept' question - meaning that if you recognize the concept(s) involved, you don't have to do much (if any) math to get to the correct answer.

In this prompt, we're told that an investment earns a fixed 4% interest, compounded annually for 5 years. We're asked for the difference, in interest earnings, between the 3rd year and the 1st year.

To start, we don't know the initial investment. However, since we're compounding the interest each year, then we know that the interest will be 4% of whatever total amount is already there. Thus, we have a constant 'multiplier' (1.04) that we'll just keep multiplying year-after-year. This means that if we know ANY dollar figure at any point in the 5 year history, then we can figure out ALL of the other values (using either division - to move backwards, or multiplication - to move forwards).

1) The amount of the investment at the beginning of the second year was $4,160.00

With this Fact, we can move 'backwards' and 'forwards' as described above and get the necessary information to answer the question.
Fact 1 is SUFFICIENT.

2) The amount of the investment at the beginning of the third year was $4,326.40

Just as in Fact 1 (above), we can move 'backwards' and 'forwards' as described and get the necessary information to answer the question.
Fact 2 is SUFFICIENT.

Final Answer:

GMAT assassins aren't born, they're made,
Rich