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# An investor buys a bond of a certain company for $1000 and  post reply Question banks Downloads My Bookmarks Reviews Important topics Author Message SVP Joined: 03 Feb 2003 Posts: 1604 An investor buys a bond of a certain company for$1000 and [#permalink]

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02 Jul 2004, 01:45
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An investor buys a bond of a certain company for $1000 and leaves for a one-year vacation. At the moment of buying, the bonds are going to increase at the annual rate of 8% compounded quarterly. However, after the first quarter, the investment starts losing its value at the same rate. When the investor is back, what the difference (rounded to dollars) he will see between expected and real balances? Senior Manager Joined: 19 May 2004 Posts: 291 ### Show Tags 02 Jul 2004, 02:08 I hope i understood this correctly - Expected = 1000*1.02^4 = 1082 Real = 1000*1.02*(0.98)^3 = 960 Expected - Real = 1082-960 = 122. I hope i am wrong because the calculations here are very time consuming. It doesn't look like a GMAT question. Senior Manager Joined: 07 Oct 2003 Posts: 350 Location: Manhattan ### Show Tags 02 Jul 2004, 10:14 This is not a GMAT-like question. This sort of question is being tested on CFA, where it takes 10 seconds to solve, but you're given a calculator as well. GMAT Club Legend Joined: 15 Dec 2003 Posts: 4288 ### Show Tags 02 Jul 2004, 10:35 CFA type indeed. Did you write the exam in June Iastoscka? _________________ Best Regards, Paul GMAT Club Legend Joined: 15 Dec 2003 Posts: 4288 ### Show Tags 02 Jul 2004, 15:17 Well, if answer choices had something around 120, I would have taken it. It's just to know that expected is slightly over 1080 since it's compounded quarterly and realized is about 1020-60 = 960. Difference between the 2 is approx. 120 _________________ Best Regards, Paul SVP Joined: 03 Feb 2003 Posts: 1604 ### Show Tags 03 Jul 2004, 05:29 This one is from the CPA exam. I forgot to mention that calculators are permitted. Senior Manager Joined: 26 Jan 2004 Posts: 400 Location: India ### Show Tags 07 Jul 2004, 06:54 Without using Calculator, (didn't notice the time) an approximation will be 500$

after first Q, 1080
Expected after second quarter ~ 1161, 3rd Q ~ 1254 , 4th Q ~ 1354
Actual
2ndQ ~ 998, 3rd Q ~ 919, 4th Q ~ 845.
Diff ~ $500. (A simpler way to guess, calculate the simple interest take diffence and guess the nearest value, if u r running out of time)! (Forgot the formula for compund interest while doing this question!! ) GMAT Club Legend Joined: 15 Dec 2003 Posts: 4288 ### Show Tags 07 Jul 2004, 07:49 mba wrote: Without using Calculator, (didn't notice the time) an approximation will be 500$

after first Q, 1080
Expected after second quarter ~ 1161, 3rd Q ~ 1254 , 4th Q ~ 1354
Actual
2ndQ ~ 998, 3rd Q ~ 919, 4th Q ~ 845.
Diff ~ $500. (A simpler way to guess, calculate the simple interest take diffence and guess the nearest value, if u r running out of time)! (Forgot the formula for compund interest while doing this question!! ) What you did was equivalent to annual interest rate of 32%. Question says: Quote: annual rate of 8% compounded quarterly The above is equivalent to 2% quartely compounding, not 8% quartely compounding _________________ Best Regards, Paul Senior Manager Joined: 26 Jan 2004 Posts: 400 Location: India ### Show Tags 08 Jul 2004, 02:21 Shit! What a stupid mistake 08 Jul 2004, 02:21 Display posts from previous: Sort by # An investor buys a bond of a certain company for$1000 and

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