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Difficulty:   45% (medium)

Question Stats: 65% (01:46) correct 35% (01:07) wrong based on 130 sessions

### HideShow timer Statistics Allan deposits $1,000 into a bank account that pays 3% interest annually. If he makes no other deposits or withdrawals, approximately how much money is in the account after four years? A.$120
B. $126 C.$1,120
D. $1,126 E.$1,200

_________________
Senior Manager  P
Joined: 13 Jan 2018
Posts: 338
Location: India
Concentration: Operations, General Management
GMAT 1: 580 Q47 V23 GMAT 2: 640 Q49 V27 GPA: 4
WE: Consulting (Consulting)
Re: Allan deposits $1,000 into a bank account that pays 3% interest annual [#permalink] ### Show Tags Amount = $$(1.03)^4 * 1000$$ approx Amount =$1,126

OPTION: D
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____________________________
Regards,

Chaitanya

+1 Kudos

if you like my explanation!!!
Manager  S
Joined: 09 Jul 2018
Posts: 64
Re: Allan deposits $1,000 into a bank account that pays 3% interest annual [#permalink] ### Show Tags 1 eswarchethu135 wrote: Amount = $$(1.03)^4 * 1000$$ approx Amount =$1,126

OPTION: D

How have you taken it as compounded annually?
Manager  S
Joined: 11 Mar 2018
Posts: 95
Re: Allan deposits $1,000 into a bank account that pays 3% interest annual [#permalink] ### Show Tags ritu1009 wrote: eswarchethu135 wrote: Amount = $$(1.03)^4 * 1000$$ approx Amount =$1,126

OPTION: D

How have you taken it as compounded annually?

Here we are depositing $1000 in the first year and that is the only deposit we make. So after 1 year the amount in the bank becomes$ 1030 ($1000 + 3% of 1000) Now as we are not depositing anything after the first year, then bank will consider$1030 as the amount in bank and calculate your 3% over that.

Same thing will happen for the next two years. And after 4 years we would have an approximate of $1126 in our account, which is what has been asked in the question. Hope it clarifies things. Please let me know in case of any query. _________________ Regards AD --------------------------------- A Kudos is one more question and its answer understood by somebody !!! Manager  S Joined: 09 Jul 2018 Posts: 64 Re: Allan deposits$1,000 into a bank account that pays 3% interest annual  [#permalink]

### Show Tags

ritu1009 wrote:
eswarchethu135 wrote:
Amount = $$(1.03)^4 * 1000$$

approx Amount = $1,126 OPTION: D How have you taken it as compounded annually? Here we are depositing$1000 in the first year and that is the only deposit we make.
So after 1 year the amount in the bank becomes $1030 ($1000 + 3% of 1000)

Now as we are not depositing anything after the first year, then bank will consider $1030 as the amount in bank and calculate your 3% over that. Same thing will happen for the next two years. And after 4 years we would have an approximate of$1126 in our account, which is what has been asked in the question.

Hope it clarifies things. Please let me know in case of any query.

Thanks for giving such nice explanation but I am still confused why the answer is not C.
i.e1000+( 1000*3*4/100) = 1120
Manager  S
Joined: 11 Mar 2018
Posts: 95

### Show Tags

Thank you eswarchethu135.

I am wondering, though, how to do this calculation without a calculator on the GMAT exam. Could you or someone please provide some clarity about how to solve this on the GMAT in the 2 min timeframe without a calculator? Is there a trick to it that I am missing?

Thank you!

KHow

eswarchethu135 wrote:
Amount = $$(1.03)^4 * 1000$$

approx Amount = $1,126 OPTION: D Intern  B Joined: 25 Oct 2017 Posts: 8 Location: India GMAT 1: 600 Q48 V26 GPA: 2.7 Re: Allan deposits$1,000 into a bank account that pays 3% interest annual  [#permalink]

### Show Tags

KHow wrote:
Thank you eswarchethu135.

I am wondering, though, how to do this calculation without a calculator on the GMAT exam. Could you or someone please provide some clarity about how to solve this on the GMAT in the 2 min timeframe without a calculator? Is there a trick to it that I am missing?

Thank you!

KHow

eswarchethu135 wrote:
Amount = $$(1.03)^4 * 1000$$

approx Amount = $1,126 OPTION: D HERE CALCULATE YEARLY IT CAN BE SOLVED IN 2 MIN TIME INTEREST FOR THE FIRST YEAR 1000*3/100=30 ( ADDING IN PRINCIPLE) INTEREST IN 2ND YEAR 1030*3/100=30.90 ( SIMPLE CALCULATION) ( ADDING IN AMOUNT OF 1 ST YEAR) 1060.90*3/100=31.83 ( THIS IS TIME CONSUMING) ADDING IN AMOUNT OF 2ND YEAR NOW PRINCIPLE FOR 4TH YEAR=1092.73 NOW PLZ NOTE YOU NEED NOT CAL THE INTEREST FOR THE LAST I.E FOURTH YR IF WE FOLLOW THE PATTERN ,THE INTEREST FOR THE 4TH YEAR WILL BE AROUND 33.00 ADDING IN THE AMOUNT OF 3RD YEAR THE AMOUNT AFTER FOURTH YEAR WILL BE AROUND 124-126 _________________ YOU WILL NEVER REGRET WORKING HARD BECAUSE HARD WORK ALWAYS PAYS OFF e-GMAT Representative V Joined: 04 Jan 2015 Posts: 2943 Allan deposits$1,000 into a bank account that pays 3% interest annual  [#permalink]

### Show Tags

Hey KHow,
You can use the A-B method to find the net interest rate.
This method you can use in Test conditions also.

Regards
_________________

Originally posted by EgmatQuantExpert on 27 Jun 2019, 03:34.
Last edited by EgmatQuantExpert on 27 Jun 2019, 03:43, edited 1 time in total.
e-GMAT Representative V
Joined: 04 Jan 2015
Posts: 2943
Re: Allan deposits $1,000 into a bank account that pays 3% interest annual [#permalink] ### Show Tags 1 Solution Given: • Allan deposits$1,000 into a bank account.
• Interest rate is 3% annually.

To find:
• The amount in bank account after 4 years if no deposits or withdrawal is made in this period.

Approach and Working:
• 3% interest will be levied each year.
o So, this is a case of successive interest.
o Hence, we can use the A-B formula.

Note: If A and B are successive interest rate, then net interest rate = A +B + $$\frac{A × B}{100}$$

• At the end of 1st year, net interest rate = 3%
• At the end of 2nd year, net interest rate = 3 + 3 +$$\frac{9}{100}$$ = 6+0.09 = 6.09
• At the end of 3rd year, net interest rate = 3 + 6.09 +$$\frac{3 × 6.09}{100}$$ = 9.09 + 0.1827 = 9.2727
• At the end of 4th year, net interest rate = 3 + 9.2727 +$$\frac{3 × 9.2727}{100}$$ = 12.2727+0.28 = Approx 12.56

Therefore, net interest rate levied on 1000 is 12.56%.

• Thus, amount after 4 years = 1000 +12.56% of 1000 = 1000 + 125.6 = 1125.6

Hence, approximately $1126 is in the bank account after 4 years. Therefore, the correct answer is option D. Answer: D _________________ Re: Allan deposits$1,000 into a bank account that pays 3% interest annual   [#permalink] 27 Jun 2019, 03:39
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