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If money is invested at r percent interest, compounded annua [#permalink]

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17 Dec 2012, 06:46

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A

B

C

D

E

Difficulty:

35% (medium)

Question Stats:

69% (01:33) correct
31% (01:58) wrong based on 1408 sessions

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If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 70/r years. If Pat's parents invested $5,000 in a long-term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college?

If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 70/r years. If Pat's parents invested $5,000 in a long-term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college?

Since investment doubles in 70/r years, then for r=8 it'll double in 70/8=~9 years (we are not asked about the exact amount so such an approximation will do). Thus in 18 years investment will double twice and become ($5,000*2)*2=$20,000 (after 9 years investment will become $5,000*2=$10,000 and in another 9 years it'll become $10,000*2=$20,000).

Re: If money is invested at r percent interest, compounded annua [#permalink]

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24 Aug 2014, 15:25

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I think without the 1st sentence, we still can guess the answer easily.

$5,000 at 8%/year = $400/year --> 10-years interest will be $4,000, 20 years will be $8,000 Since the interest compounded annually in 18 years (very long period), the total value would be >$18,000 --> eliminate B,C,D,E

This question has some similarities to "symbolism" questions (in which the prompt shows you a "made up" symbol, tells you what it means and asks you to do a simple calculation with it). The easiest way to tackle the question is to simply follow the instructions.

We're told that r = percent interest.

We're also told that an investment with DOUBLE in approximately 70/r years.

We're told to invest $5,000 at 8 percent for 18 years.

Plug in r = 8

70/8 is about 9 years, meaning our investment will DOUBLE in 9 years.

In the first 9 years, $5,000 doubles to $10,0000 In the next 9 years, $10,000 doubles to $20,000

If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 70/r years. If Pat's parents invested $5,000 in a long-term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college?

Although this question appears as if we may have to do a lot of calculating, we actually do not. Focus on the first sentence of the question stem. We are given that if money is invested at r percent interest, compounded annually, the amount of investment will double in approximately 70/r years. We are then given that Pat’s parents invest $5,000 at 8 percent interest. It follows that the investment will double after 70/8 years, which is roughly 9 years. With an initial investment of $5,000, the investment will double to $10,000 in about 9 years. In another 9 years (a total of 18 years) the investment will double again to about $20,000.

Answer A
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Re: If money is invested at r percent interest, compounded annua [#permalink]

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04 Jul 2017, 07:18

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