Bob invested $2000 in fund A and $1000 in fund B. Over the next two ye

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Bob invested $2000 in fund A and $1000 in fund B. Over the next two years, the money in Fund A earned a total interest of 12 percent for the two years combined and the money in fund B earned 30 percent annual interest compounded annually. Two years after bob made these investments. Bob's investment in fund A was worth how much more than his investment in fund B?

1. $500
2. $550
3. $600
4. $650
5. $700


Bob earned 2000*(1+0.12) in total by fund A and earned 1000*(1+0.3)^2 in total by fund B.
So 2000*(1.12) - 1000*(1.69)= 550.



The answer is, therefore, (B).

But Fund A didn't mention anything about compound interest. SO I took simple interest formula p*r*t/100. so 2000*12*2/100 that leaves 480....am I missing anything?

Hi alice7

You are missing the point that the 12 percent interest rate was for 2 years combined as stated in the question stem - "the money in Fund A earned a total interest of 12 percent for the two years combined".

Thanks
Powell Mittra

"the money in Fund A earned a total interest of 12 percent for the two years combined" -- do we need to consider here compound interest of one year?

Please advise
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No, it has to be simple interest unless stated in the question. As you can see the question specifically mentions that 30 % annual interest compounded annually for fund B, but nothing of that short ois mentioned for fund A.

So the interest earned for A is (2000*1*12)/100 => 240

2240-1690=550
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[quote="RSOHAL"]Bob invested $2000 in fund A and $1000 in fund B. Over the next two years, the money in Fund A earned a total interest of 12 percent for the two years combined and the money in fund B earned 30 percent annual interest compounded annually. Two years after bob made these investments. Bob's investment in fund A was worth how much more than his investment in fund B?

1. $500
2. $550
3. $600
4. $650
5. $700

interest on fund A will be 240. rate of interest will be 6% per annum simple interest as 12% is for 2 year. this will make investment A 2240 at the end of 2nd year.
interest on fund B will be 690 on 30% interest compounded annually. This will make investment B 1690 at the end of 2nd year.
Difference in investment A and investment B=2240-1690=550
answer is B.

Does 12% combined interest means that we need to split 12% into the numbers of years under consideration?

Even I have the same question as AmritaSarkar89

Can some one please comment on what to interpret of the statement " the money in Fund A earned a total interest of 12 percent for the two years combined? "

Thank you in advance Bunuel and chetan2u!

It was addressed above. The money in Fund A earned a total interest of 12 percent for the two years combined. $100 earns total of $12 in two years.
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The interest earned in fund A was 2,000 x 0.12 = 240 dollars, bringing his total investment in fund A to 2,240 dollars.

Using the formula for compound interest, the final value of investment B after 2 years was:

Final value = 1,000(1 + 0.3)^2

Final value = 1,000(1.3)^2

Final Value = 1,000(1.69) = 1,690

Thus, fund A was worth 2,240 - 1,690 = 550 dollars more than fund B.

Answer: B
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Hi ScottTargetTestPrep

Shouldn't the highlighted text be 2000?

Thanks!

Yes good call. The math for fund A should be 2,000 x 0.12 = 240 dollars. I'll fix that.
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ScottTargetTestPrep

you forgot to remove the "2"

fixed!
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