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19 Jun 2011, 06:55
6
00:00

Difficulty:

55% (hard)

Question Stats:

58% (01:26) correct 42% (01:54) wrong based on 170 sessions

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Jerry purchased a 1-year $5,000 bond that paid an annual interest rate of 4% compounded every six months. How much interest had this bond accrued at maturity? A.$5102
B. $408 C.$216
D. $202 E.$200
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19 Jun 2011, 08:00
I doubt if it is a 700 level question.Anyways A=P(1+r/q)nq .Here q is no of times interest is compounded in a yr so it is = 2. Amount comes out to be 5202 .Hence interest is 5202-5000=202. >>D
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13 Sep 2017, 10:14
guygmat wrote:
Jerry purchased a 1-year $5,000 bond that paid an annual interest rate of 4% compounded every six months. How much interest had this bond accrued at maturity? A.$5102
B. $408 C.$216
D. $202 E.$200

Estimate
Without the compound interest formula (I use it, but with short periods and low interest rate, often you can estimate):

Simple interest would yield .04 * 5,000 = $200 in one year Compound interest at this low rate (halved and paid twice), after only one year, will be barely above that. Answer D,$202 is barely above $200. Stages If unsure about Answer C ($216), run a quick "in stages" calculation.

If interest is paid every 6 months, the 4 percent is split in half (two periods of six months in one year).

After first six months, interest payment is

$5,000 * 02 =$100
(add $100 to principal for next stage) After next six months, .02 *$5,100 = $102 Total interest paid:$202

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Re: Jerry purchased a 1-year $5,000 bond that paid an annual [#permalink] ### Show Tags 13 Sep 2017, 11:37 1 Top Contributor guygmat wrote: Jerry purchased a 1-year$5,000 bond that paid an annual interest rate of 4% compounded every six months. How much interest had this bond accrued at maturity?

A. $5102 B.$408
C. $216 D.$202
E. $200 The ANNUAL interest rate = 4% So, every 6 MONTHS, we get 2% interest. Since there are only 2 "compoundings," we can forgo the formula and do some quick mental calculations... INITIAL VALUE:$5000

AFTER 6 MONTHS: 2% of $5000 =$100 in interest
So, the value after 6 months = $5000 +$100 = $5100 AFTER 12 MONTHS: 2% of$5100 = $102 in interest So, the value after 12 months =$5100 + $102 =$5202

How much interest had this bond accrued at maturity?
TOTAL interest = $5202 -$5000 = $202 Answer: RELATED VIDEO _________________ Test confidently with gmatprepnow.com Director Joined: 02 Sep 2016 Posts: 670 Re: Jerry purchased a 1-year$5,000 bond that paid an annual  [#permalink]

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14 Sep 2017, 04:57
Simple interest= 5000*4*1/100= 200

So the answer would be a number that is slightly more than 200 i.e. 202.
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Re: Jerry purchased a 1-year $5,000 bond that paid an annual [#permalink] ### Show Tags 09 Oct 2018, 07:18 guygmat wrote: Jerry purchased a 1-year$5,000 bond that paid an annual interest rate of 4% compounded every six months. How much interest had this bond accrued at maturity?

A. $5102 B.$408
C. $216 D.$202
E. $200 $$5000( 1 + \frac{4}{200})^2 - 5000$$ $$= 5202 - 5000$$ $$= 202$$, Answer must be (D) _________________ Thanks and Regards Abhishek.... PLEASE FOLLOW THE RULES FOR POSTING IN QA AND VA FORUM AND USE SEARCH FUNCTION BEFORE POSTING NEW QUESTIONS How to use Search Function in GMAT Club | Rules for Posting in QA forum | Writing Mathematical Formulas |Rules for Posting in VA forum | Request Expert's Reply ( VA Forum Only ) Target Test Prep Representative Status: Founder & CEO Affiliations: Target Test Prep Joined: 14 Oct 2015 Posts: 4944 Location: United States (CA) Re: Jerry purchased a 1-year$5,000 bond that paid an annual  [#permalink]

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12 Oct 2018, 06:52
guygmat wrote:
Jerry purchased a 1-year $5,000 bond that paid an annual interest rate of 4% compounded every six months. How much interest had this bond accrued at maturity? A.$5102
B. $408 C.$216
D. $202 E.$200

Since the annual interest rate is 4%, we see that the bond earns 2% every half-year, or 6 months. Thus, for the first 6 months, the amount of interest earned was 0.02 x 5,000 = 100 dollars. Thus, the new principal at the end of the first 6 months was 5,000 + 100 = 5,100 dollars.

For the next 6 months, the amount of interest earned was 0.02 x 5100 = 102 dollars.

So total interest earned is 202 dollars.

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