bhandariavi wrote:

An investment compounds annually at an interest rate of 34.1% What is the smallest investment period by which time the investment will more than triple in value?

A. 4

B. 5

C. 6

D. 7

E. 8

We can

use fractions to solve this question.

Each year, the investment increases 34.1%

This is very close to an increase of 1/3 (33.33%)

So, if the investment increases by 1/3 each year, then each year, we can find the value of the investment by multiplying last year's value by

4/3 (this represents a 1/3 increase)

So, let's say the initial investment is

$1.

We want to determine how many years it takes the investment to be worth at least $3 (triple)

Year 0:

$1Year 1: (

$1)(4/3) = $4/3

Year 2: (

$1)(4/3)(4/3) = $16/9 (this is

less than $3)

Year 3: (

$1)(4/3)(4/3)(4/3) = $64/27 (this is

less than $3)

Year 4: (

$1)(4/3)(4/3)(4/3)(4/3) = $256/81 (this is

more than $3)

So, it takes 4 years for the investment to more than triple in value.

Answer = A

Cheers,

Brent

_________________

Brent Hanneson – GMATPrepNow.com

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