John deposits $5000 in a savings account for 5 years : GMAT Problem Solving (PS) Check GMAT Club Decision Tracker for the Latest School Decision Releases https://gmatclub.com/AppTrack  It is currently 23 Feb 2017, 17:57 ### GMAT Club Daily Prep #### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email. Customized for You we will pick new questions that match your level based on your Timer History Track Your Progress every week, we’ll send you an estimated GMAT score based on your performance Practice Pays we will pick new questions that match your level based on your Timer History #### Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here. ### Request Expert Reply # Events & Promotions ###### Events & Promotions in June Open Detailed Calendar # John deposits$5000 in a savings account for 5 years

 new topic post reply Question banks Downloads My Bookmarks Reviews Important topics
Author Message
TAGS:

### Hide Tags

Intern
Joined: 01 Nov 2011
Posts: 29
GMAT 1: 660 Q49 V32
WE: Information Technology (Computer Software)
Followers: 0

Kudos [?]: 11 [0], given: 3

John deposits $5000 in a savings account for 5 years [#permalink] ### Show Tags 12 Jan 2012, 17:41 00:00 Difficulty: (N/A) Question Stats: 100% (04:03) correct 0% (00:00) wrong based on 3 sessions ### HideShow timer Statistics John deposits$5000 in a savings account for 5 years. The interest rate is 2.33% compounded annually for 5 years.

How much does John make in interest?

The solution will lead to an equation, Interest (I) = Principal (P) [1 + R/100]^N
where R - rate, and N - number of years.

I = 5000[1 + 2.33/100]^5
i.e.
I = 5000[102.33/100]^5

What is the easiest way to solve this equation?
Magoosh GMAT Instructor
Joined: 28 Dec 2011
Posts: 3838
Followers: 1329

Kudos [?]: 6103 [1] , given: 71

Re: Compound Interest [#permalink]

### Show Tags

13 Jan 2012, 17:25
1
KUDOS
Expert's post
Hi, there. I'm happy to give my two cents on this one.

The short answer is: on the GMAT itself, when you don't have a calculator, there is no short way to figure that out. But take heart; the GMAT is simply not going to ask you to calculate something for which you would need a calculator.

One thing the GMAT might expect is for you to estimate. For example, consider the slightly modified question:
John deposits $5000 in a savings account for 5 years. The interest rate is 2.33% compounded annually for 5 years. Estimate the amount he has at the end of five years. (A)$4941.48
(B) $5058.52 (C)$5610.28
(D) $7925.55 (E)$15816.80

Yes, the formula is the same, but because the problem specifies that we can estimate, and because the answer choices are widely spaced, we don't have to do the exact formula as written. We can use easier numbers.

For example, I'm going to approximate 2.33% as 2%. One percent of $5000 is$50, so 2% of $5000 is$100. It interest would be about $100 in the first year, and a little over$100 in each of the next for years, for a total interest of something a little over $500. That would be total account value of a little over$5500.

Answer (A) is less than the principal, not possible. Answer (B) has far too little interest. Answer (C) is in the right ballpark. Answer (D) is an absurd amount of interest (over 50% increase over 5 years!), and Answer (E) has to be from a fairy tale it's so unrealistic. Therefore the answer is (C). Notice, the only actual math we did in solving that was so easy we could do it in our heads. That's the power of estimation.

The take-aways are
(a) yes, you have the correct formula for compound interest --- kudos to you
(b) you will not have to calculate exact value from that formula on the GMAT unless the numbers are very very simple
(c) estimation is a vitally important skill that several GMAT math questions will demand.

Here's a blog I wrote that posted today, about dealing with the lack of a calculator on the GMAT math section.

http://magoosh.com/gmat/2012/can-i-use- ... -the-gmat/

I hope that's helpful.

Mike
_________________

Mike McGarry
Magoosh Test Prep

Intern
Joined: 29 Jun 2016
Posts: 49
Followers: 1

Kudos [?]: 8 [0], given: 5

Re: John deposits $5000 in a savings account for 5 years [#permalink] ### Show Tags 12 Aug 2016, 21:40 mikemcgarry wrote: Hi, there. I'm happy to give my two cents on this one. The short answer is: on the GMAT itself, when you don't have a calculator, there is no short way to figure that out. But take heart; the GMAT is simply not going to ask you to calculate something for which you would need a calculator. One thing the GMAT might expect is for you to estimate. For example, consider the slightly modified question: John deposits$5000 in a savings account for 5 years. The interest rate is 2.33% compounded annually for 5 years. Estimate the amount he has at the end of five years.
(A) $4941.48 (B)$5058.52
(C) $5610.28 (D)$7925.55
(E) $15816.80 Yes, the formula is the same, but because the problem specifies that we can estimate, and because the answer choices are widely spaced, we don't have to do the exact formula as written. We can use easier numbers. For example, I'm going to approximate 2.33% as 2%. One percent of$5000 is $50, so 2% of$5000 is $100. It interest would be about$100 in the first year, and a little over $100 in each of the next for years, for a total interest of something a little over$500. That would be total account value of a little over $5500. Answer (A) is less than the principal, not possible. Answer (B) has far too little interest. Answer (C) is in the right ballpark. Answer (D) is an absurd amount of interest (over 50% increase over 5 years!), and Answer (E) has to be from a fairy tale it's so unrealistic. Therefore the answer is (C). Notice, the only actual math we did in solving that was so easy we could do it in our heads. That's the power of estimation. The take-aways are (a) yes, you have the correct formula for compound interest --- kudos to you (b) you will not have to calculate exact value from that formula on the GMAT unless the numbers are very very simple (c) estimation is a vitally important skill that several GMAT math questions will demand. Here's a blog I wrote that posted today, about dealing with the lack of a calculator on the GMAT math section. http://magoosh.com/gmat/2012/can-i-use- ... -the-gmat/ I hope that's helpful. Mike Its really helpful. thanks Manager Joined: 11 Jul 2016 Posts: 86 Followers: 0 Kudos [?]: 10 [0], given: 83 John deposits$5000 in a savings account for 5 years [#permalink]

### Show Tags

13 Aug 2016, 00:41
mikemcgarry wrote:
Hi, there. I'm happy to give my two cents on this one.

The short answer is: on the GMAT itself, when you don't have a calculator, there is no short way to figure that out. But take heart; the GMAT is simply not going to ask you to calculate something for which you would need a calculator.

One thing the GMAT might expect is for you to estimate. For example, consider the slightly modified question:
John deposits $5000 in a savings account for 5 years. The interest rate is 2.33% compounded annually for 5 years. Estimate the amount he has at the end of five years. (A)$4941.48
(B) $5058.52 (C)$5610.28
(D) $7925.55 (E)$15816.80

Yes, the formula is the same, but because the problem specifies that we can estimate, and because the answer choices are widely spaced, we don't have to do the exact formula as written. We can use easier numbers.

For example, I'm going to approximate 2.33% as 2%. One percent of $5000 is$50, so 2% of $5000 is$100. It interest would be about $100 in the first year, and a little over$100 in each of the next for years, for a total interest of something a little over $500. That would be total account value of a little over$5500.

Answer (A) is less than the principal, not possible. Answer (B) has far too little interest. Answer (C) is in the right ballpark. Answer (D) is an absurd amount of interest (over 50% increase over 5 years!), and Answer (E) has to be from a fairy tale it's so unrealistic. Therefore the answer is (C). Notice, the only actual math we did in solving that was so easy we could do it in our heads. That's the power of estimation.

The take-aways are
(a) yes, you have the correct formula for compound interest --- kudos to you
(b) you will not have to calculate exact value from that formula on the GMAT unless the numbers are very very simple
(c) estimation is a vitally important skill that several GMAT math questions will demand.

Here's a blog I wrote that posted today, about dealing with the lack of a calculator on the GMAT math section.

http://magoosh.com/gmat/2012/can-i-use- ... -the-gmat/

I hope that's helpful.

Mike

This seems to be interesting as well as challenging for the extent of estimation in the actual test.
We can utilize effective percentages concept when it comes to compound interest problems along with 'estimation' as Mike explained.

Effective Percentage = [ a + b+ ab/100 ] where a -> rate of interest in first year ; b -> rate of interest in second year

First Year = 2.33 % can be estimated to 2%

Effective Percentage, 1st year = 2 + 2+ 2*2/100 = 4.04 ( Approx value = 4)

Effective Percentage, 3rd year = 4 + 2+ 4*2/100 =6.08 ( Approx value = 6)

Effective Percentage, 4th year = 6 + 2+ 6*2/100 = 8.12 ( Approx value = 8)

Effective Percentage, 5th year = 8 + 2+ 8*2/100 = 10.16 ( Approx value = 10)

C.I. on principal = 10% of $5000 =$500

So, Amount would be nearest to $5000 +$500 = $5500 Option C John deposits$5000 in a savings account for 5 years   [#permalink] 13 Aug 2016, 00:41
Similar topics Replies Last post
Similar
Topics:
1 Kate made a deposit in a savings account that pays 5% compound interes 3 18 Oct 2016, 23:02
8 If $500 is deposited into a savings account at an annual interest rate 9 12 Oct 2015, 21:26 29 John deposited$10,000 to open a new savings account that 10 16 Jul 2012, 03:36
11 Marcus deposited $8,000 to open a new savings account that 7 29 Feb 2012, 17:08 12 John deposited$10,000 to open a new savings account that 5 15 Sep 2009, 13:11
Display posts from previous: Sort by

# John deposits \$5000 in a savings account for 5 years

 new topic post reply Question banks Downloads My Bookmarks Reviews Important topics

 Powered by phpBB © phpBB Group and phpBB SEO Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.