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# An investor purchases a certificate of deposit with a fixed interest

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Math Expert
Joined: 02 Sep 2009
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An investor purchases a certificate of deposit with a fixed interest  [#permalink]

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28 Mar 2018, 23:34
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Difficulty:

15% (low)

Question Stats:

90% (01:03) correct 10% (01:03) wrong based on 38 sessions

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An investor purchases a certificate of deposit with a fixed interest rate of 2% per year, compounded annually, and a term of five years. At the end of the fifth year, how much interest has the investment earned?

(1) At the end of the first year, the value of the investment is \$5,100.
(2) At the end of the third year, the value of the investment is \$5,306.04.

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Re: An investor purchases a certificate of deposit with a fixed interest  [#permalink]

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29 Mar 2018, 02:50
Statement1: amount after 1st year given, rate of interest given. Principal can be found and hence amount after 5 years.
Sufficient.
Statement 2: amount after 3 years given. Rate of interest given. Hence principal can be found and hence amount after 5 years. Sufficient.

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Re: An investor purchases a certificate of deposit with a fixed interest  [#permalink]

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29 Mar 2018, 03:42
Bunuel wrote:
An investor purchases a certificate of deposit with a fixed interest rate of 2% per year, compounded annually, and a term of five years. At the end of the fifth year, how much interest has the investment earned?

(1) At the end of the first year, the value of the investment is \$5,100.
(2) At the end of the third year, the value of the investment is \$5,306.04.

Question : Net amount of Interest = ?

To calculate the amount of interest we need the following input

A = P [1+(r/100)]^n

1) Method of interest calculation whether it's simple interest or compound interest - KNOWN TO BE COMPOUND INTEREST IN THIS CASE
2) Tenure of the calculation - KNOWN TO BE 5 YEARS IN THIS CASE
3) PRINCIPAL AMOUNT - UNKNOWN IN THIS CASE

THEREFORE, to answer this question all we need is the principal amount

Statement 1: At the end of the first year, the value of the investment is \$5,100

i.e. amount @2% after an year becomes 5100 which can get us Principal amount = 5100/1.02 hence
SUFFICIENT

Statement 2: At the end of the third year, the value of the investment is \$5,306.04

i.e. amount @2% after three year becomes 5306.04 which can get us Principal amount = 5306.04/1.02^3 hence
SUFFICIENT

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Re: An investor purchases a certificate of deposit with a fixed interest  [#permalink]

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29 Mar 2018, 22:12
CI formula : A=P(1+r/100)^T

1) suff as all the parameters are given and hence A can be found
2) suff as from this P can be found and hence A
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Re: An investor purchases a certificate of deposit with a fixed interest   [#permalink] 29 Mar 2018, 22:12
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# An investor purchases a certificate of deposit with a fixed interest

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