Hi All,

The GMAT will likely test you on at least one of the two standard interest formulas:

Simple Interest = (Principal)(1 + RT)

Compound Interest = (Principal)(1 + R)^T

Where R is the yearly interest rate and T is the number of years.

In this prompt, the answer choices show that we don't actually have to calculate anything - we just need to 'format' the calculation correctly. We're told that the interest is COMPOUNDED ANNUALLY, so we need the Compound Interest Formula, with a Principal of $1, an R of 5% (which would 'translate' as .05) and a T of 4. We'd have....

Final Answer:

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Rich

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