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Jolene entered an 18-month investment contract that

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Nikhil30
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Re: Jolene entered an 18-month investment contract that [#permalink] Jolene entered an 18-month investment contract that   13 Jul 2021, 00:25
raviram80 wrote:
I think my confusion still remains about the wording of the question

How would it be different if we were told that

contract guarantees to pay 2 percent interest per annum at the end of 6 months vs 2% interest at the end of 6 months.

Thanks


if the interest is reinvested in the main principal that will be your compound interest. in the question its clearly mention the Amount is reinvested hence compound interest.
hope its clear .:)
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Nikhil30
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Re: Jolene entered an 18-month investment contract that [#permalink] Jolene entered an 18-month investment contract that   13 Jul 2021, 01:41
Bunuel wrote:
Chembeti wrote:
Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested $10,000 initially, what will be the total amount of interest paid during the 18-month contract?

A. $506.00
B. $726.24
C. $900.00
D. $920.24
E. $926.24

This is very simple problem,yet need to pay attention to words in the problem


If interest were not compounded in every six months (so if interest were not earned on interest) then we would have (2+3+4)=9% simple interest earned on $10,000, which is $900. So, you can rule out A, B and C right away.

Interest earned after the first time interval: $10,000*2%=$200;
Interest earned after the second time interval: ($10,000+$200)*3%=$300+$6=$306;
Interest earned after the third time interval: ($10,000+$200+$306)*4%=$400+$8+(~$12)=~$420;

Total: 200+306+(~420)=~$926.

Answer: E.


hey thanks for this explanation ,
but just one small query may be a bit silly .
so can we solve this question by these steps are a but longer but i am just asking tom solidify my concept :
1. SI=PNR/100 so for first 6 months it should be SI=10,000*2*6/100*12=100$
2. 10,000+100$=10,100$= next 6 months = 10100*3*6/100*12=151.5
3. 10100+151.5=10251.5*4*6/100*12
is this the wrong way to solve this question??
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Re: Jolene entered an 18-month investment contract that [#permalink] Jolene entered an 18-month investment contract that   20 Aug 2022, 00:45
I am not able to get the concept of the time factor ,

While calculating for the first 6 months why are we not considering 6/12 in calculation and similarly for the next 2 time phases .

Experts please provide some insight into this
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Re: Jolene entered an 18-month investment contract that [#permalink] Jolene entered an 18-month investment contract that   20 Aug 2022, 09:44
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AnandRB wrote:
I am not able to get the concept of the time factor ,

While calculating for the first 6 months why are we not considering 6/12 in calculation and similarly for the next 2 time phases .

Experts please provide some insight into this


Hi AnandRB,

In typical 'interest rate' questions, the prompt will often refer to an ANNUAL interest rate - meaning that if an investment is gaining interest for less than a year, you have to multiply by whatever fraction-of-the-year is mentioned. Here though, notice that the prompt does NOT refer to annual interest rates at any point; it just mentions 3 separate interest payments that occur at specific points in time. In this set-up, we have to take the interest percentages as-is (and not multiply by any fraction) because the prompt did not use any explicit language to describe it otherwise.

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Re: Jolene entered an 18-month investment contract that [#permalink] Jolene entered an 18-month investment contract that   26 Jul 2024, 08:56
Though I was able to solve it, I do have a question. Is there any viable way to solve this under 2mins under exam conditions ?
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Re: Jolene entered an 18-month investment contract that [#permalink]
26 Jul 2024, 08:56
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