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# Interest

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Manager
Joined: 29 May 2008
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28 Aug 2009, 06:55
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100% (01:17) correct 0% (00:00) wrong based on 3 sessions

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If Jaques deposists $1000 in a savings account at 10% simple annual interest, how much more will he earn than if he had deposited it in an account that pays 8 percent annueal interest compounded semiannually? a)$20.00
b) $19.60 c)$18.40
d) $18.00 e)$17.40

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Manager
Joined: 20 Aug 2009
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28 Aug 2009, 07:54
$$1000(1+\frac{0.08}{2})^2-1000(1+0.1)$$

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Manager
Affiliations: CFA Level 2 Candidate
Joined: 29 Jun 2009
Posts: 220

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Schools: RD 2: Darden Class of 2012

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28 Aug 2009, 09:26
With Deposit A he will earn 10% on 1,000 for 1 year = $100 With Deposit B he will earn 8/2 (Semi) 4% on$1,000 for 6 months = $40 And will earn 4% on$1,040 ($are compounded) for 6 months =$41.60

$100.00 -$81.60 = \$18.40

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Manager
Joined: 29 May 2008
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28 Aug 2009, 09:30
I have always problems with interests rates

Any suggestion to get better at it?

Thanks a lot

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Manager
Affiliations: CFA Level 2 Candidate
Joined: 29 Jun 2009
Posts: 220

Kudos [?]: 283 [0], given: 2

Schools: RD 2: Darden Class of 2012

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28 Aug 2009, 09:51
It really depends on if you like to work it through step by step or an equation.

I prefer doing it the same way as Casper with the Present Value equation of $$FV=PV(1+\frac{I}{n})^n$$

Where i = Interest rate and N = # of periods compounded an PV = Initial Deposit

Once you get down the compounding these questions should become easy

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Manager
Joined: 25 Aug 2009
Posts: 174

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28 Aug 2009, 13:39
S.I = P*R*T/100 = 1000*10*1/100 = 100
Total amount = 1000 + 100 = 1100

C.I. = P(1+R/n)^Tn

= 1000*(1 + 8/200)^2 = 1000*(1.04)^2 = 1081.6

Remember, C.I formula gives total amount while S I formula gives only the interest.

Difference = 1100 - 1081.6 = 18.4

Kudos [?]: 103 [0], given: 12

Re: Interest   [#permalink] 28 Aug 2009, 13:39
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