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12 Oct 2015, 22:26
1
8
00:00

Difficulty:

85% (hard)

Question Stats:

47% (01:58) correct 53% (02:13) wrong based on 207 sessions

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If $500 is deposited into a savings account at an annual interest rate of 5% that compounds monthly, what is the value of the investment after 10 years? A)$750.00
B) $823.50 C)$973.25
D) $1000.25 E)$1100.00

Kudos for a correct solution.

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Re: If $500 is deposited into a savings account at an annual interest rate [#permalink] ### Show Tags 12 Oct 2015, 23:04 2 1 Bunuel wrote: If$500 is deposited into a savings account at an annual interest rate of 5% that compounds monthly, what is the value of the investment after 10 years?

A) $750.00 B)$823.50
C) $973.25 D)$1000.25
E) $1100.00 Kudos for a correct solution. ROI = 5% per annum compounded Monthly Tenure, n = 10 years = 120 month Principal =$500

5% per annum compounded monthly will be a little more than 5% at end of an year compounded anually = 6% per annum (approx)
in 10 yeasr the amoung simple rate will increase by 60% but at coumpound rate the amount wil increase more by 60%

This question can only be solved by approximation
60% of $500 =$300

i.e. amount after 10 years will be a little more than 500+300 = $800 i.e. B option seems the closest possible answer Answer: option B _________________ Prosper!!! GMATinsight Bhoopendra Singh and Dr.Sushma Jha e-mail: info@GMATinsight.com I Call us : +91-9999687183 / 9891333772 Online One-on-One Skype based classes and Classroom Coaching in South and West Delhi http://www.GMATinsight.com/testimonials.html ACCESS FREE GMAT TESTS HERE:22 ONLINE FREE (FULL LENGTH) GMAT CAT (PRACTICE TESTS) LINK COLLECTION Manager Joined: 26 Nov 2014 Posts: 84 Re: If$500 is deposited into a savings account at an annual interest rate  [#permalink]

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12 Oct 2015, 23:58
1
Bunuel wrote:
If $500 is deposited into a savings account at an annual interest rate of 5% that compounds monthly, what is the value of the investment after 10 years? A)$750.00
B) $823.50 C)$973.25
D) $1000.25 E)$1100.00

Kudos for a correct solution.

P = 500
R = 5% = 0.05
n = 12, no of times compounded in a year
t = 10, no of years

The formula is,

A = P * $$(1 + \frac{R}{n})^{nt}$$

A = 500$$(1 + \frac{0.05}{12})^{(12)(10)}$$

Total, A = 823.50 after 10 years.

Option B.
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13 Oct 2015, 05:16
2
longfellow wrote:
The answer is B. Using the SI formula= 500*5/12*120/100=250
As CI will be slightly higher than that, the only value close enough is B.

Is this approach right Bunuel?

When you make pattern based or rule based statements, make sure that those statements are true for all possible cases.

You are right that CI will be slightly higher than that of a comparable SI but only after the 1st compounding. For the 1st compounding, SI=CI.

Hope this helps.
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13 Oct 2015, 06:18
Bunuel wrote:
If $500 is deposited into a savings account at an annual interest rate of 5% that compounds monthly, what is the value of the investment after 10 years? A)$750.00
B) $823.50 C)$973.25
D) $1000.25 E)$1100.00

Kudos for a correct solution.

$$500*(1+\frac{0.05}{12})^120$$=823,5
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Re: If $500 is deposited into a savings account at an annual interest rate [#permalink] ### Show Tags 21 May 2016, 10:37 shyind wrote: Bunuel wrote: If$500 is deposited into a savings account at an annual interest rate of 5% that compounds monthly, what is the value of the investment after 10 years?

A) $750.00 B)$823.50
C) $973.25 D)$1000.25
E) $1100.00 Kudos for a correct solution. P = 500 R = 5% = 0.05 n = 12, no of times compounded in a year t = 10, no of years The formula is, A = P * $$(1 + \frac{R}{n})^{nt}$$ A = 500$$(1 + \frac{0.05}{12})^{(12)(10)}$$ Total, A = 823.50 after 10 years. Option B. Guyz.... how u people could calculate this(highlighted) fastely in real exam????? Board of Directors Status: QA & VA Forum Moderator Joined: 11 Jun 2011 Posts: 4774 Location: India GPA: 3.5 WE: Business Development (Commercial Banking) If$500 is deposited into a savings account at an annual interest rate  [#permalink]

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21 May 2016, 10:48
1
rohit8865 wrote:
how u people could calculate this(highlighted) fastely in real exam?????

IMHO the best approach for dealing with this problem has already been posted by GMATinsight

Use the simple interest problem , it's inhuman task to compute $$x^{120}$$ under exam hall situation...

Basic understanding of the diff between SI and CI will help a lot here ( when options are widely apart )
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07 Mar 2017, 10:38
2
1
In case we have compound interest we can use rule of 70:

The rule of 70 is a way to estimate the number of years it takes for a certain variable to double. To estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable.

So we divide 70 by 5 and receive approx 14 years
That means that in approx 14 years amount will be $1000 So after 10 years the amount should be higher than$750 and less than $1000 Only 2 options remain: B and C C is out, because it is too big So correct is B Manager Joined: 03 Jan 2017 Posts: 134 Re: If$500 is deposited into a savings account at an annual interest rate  [#permalink]

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12 Mar 2017, 11:43
if the annual rate for investment is 5% for 10year period it will be >50% since it is compounded monthly
hence 500*1,5=750<answer is more than 750, the closest would be 823
I wouldn't go for 973, since it's too many (if we take rule of 70 when it's needed (70/annual rate) years for investment to double
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Re: If $500 is deposited into a savings account at an annual interest rate [#permalink] ### Show Tags 11 Aug 2017, 20:02 Bunuel this is a really bad question..... i don't hope such questions are allowed to be posted on GMAT club and if the source says it is from Economist. I must say Economist has a very poor QA question collection.. Really sad to see such pathetic question. GMAT would never test such guesswork. This question has one option$750 which is clearly wrong. After that all the options B,C,D,E are quite logically possible depending on the number of years we are taking or the interest. As the number of years increase or the rate of interest increase the multiplication factor of 60% or 70% assumed by people here will also increase.. Please remove such question from GMAT club.

Also my humble request is to not include such questions in the Daily Practice Questions. I am daily getting 1 or 2 useless questions out of 4 questions in PS/DS which fails the usability of such a good feature..

Though for a moment, the best answer is provided by GMATinsight but I really don't support such answers. Thanks.
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Re: If $500 is deposited into a savings account at an annual interest rate [#permalink] ### Show Tags 16 Aug 2018, 16:31 Hello from the GMAT Club BumpBot! Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos). Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email. _________________ Re: If$500 is deposited into a savings account at an annual interest rate   [#permalink] 16 Aug 2018, 16:31
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