gmatophobia
PS Question 1 - Nov 27Peter invests $100,000 in an account that pays 12% annual interest: the interest is paid once, at the end of the year. Martha invests $100,000 in an account that pays 12% annual interest, compounding monthly at the end of each month. At the end of one full year, compared to Peter’s account, approximately how much more does Martha’s account have?
A. Zero
B. $68.25
C. $682.50
D. $6825.00
E. $68250.00
Source:
Magoosh | Difficulty: Hard
Hate interest problems. I suck at them.
This is what I did for this one though
Peter interst: 12000
now find a pattern for martha:
Her interest is compounded monthly, so to find each months interest you divide by 12, so each month pays 1% interest.
Month 1 interest: 100000*0.01=1000
Moth 2 interest: 101000*0.01=1010
Month 3: 102100*0.01=1021
We can see that each month, she earns 10 in extra interest aprox. therefore we can make the following equation:
Martha Interest = 1000+1010+1020+1030+...1120. Which sums to around 12700. So 700 extra. Closest answer is C.
If one was low on time, you could easily guess this right. A cannot be correct, since martha will surely earn more. 68 is possible, but too small. C seems okay. E is clearly far too large, and between D and C, C seems more reasonable.
The answers are pretty far apart here, so you can somewhat use logic.