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Target Test Prep Representative V
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Re: Jolene entered an 18-month investment contract that  [#permalink]

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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

After 6 months, Jolene has 10,000 x 1.02 = 10,200 dollars.

After 12 months, Jolene has 10,200 x 1.03 = 10,506 dollars.

After 18 months, Jolene has 10,506 x 1.04 = 10,926.24 dollars.

Thus, the total interest made was 926.24 dollars.

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EMPOWERgmat Instructor V
Status: GMAT Assassin/Co-Founder
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Re: Jolene entered an 18-month investment contract that  [#permalink]

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Hi All,

This question is really just about staying organized and doing the calculations one 'step' at a time.

Given the interest payments at 6 months, 12 months and 18 months, the first bit of interest on the \$10,000 would be...

6 months: \$10,000 + (.02)(10,000) = \$10,200
Interest = \$200

At the 12 month mark, the interest would be on \$10,200 though...

12 months: \$10,200 + (.03)(10,200) = \$10,506
Interest = \$306

At the 18 month mark, the interest would be on \$10,506...

18 months: \$10,506 + (.04)(10,506) = about \$10,926

The question asks for the TOTAL interest earned. We can either add up the 3 interest payments OR since we know the final TOTAL, we can subtract \$10,000 to determine the interest.

GMAT assassins aren't born, they're made,
Rich
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Posts: 104
Re: Jolene entered an 18-month investment contract that  [#permalink]

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I used 1/3 as the year, but evidently, no one included the year in their solving. Why?

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Location: United States
Re: Jolene entered an 18-month investment contract that  [#permalink]

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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

2% 10k = 200
3% 10k + 3% 200 = 300 + 6 = 306
4% 10k + 4% 506 (200+306) = 400 + ~20.24 (5%-1% of 506 = 25.3-5.06 = 20.24…) = 520.24…
interest paid = 200 + 306 + 520.24… = 926.24…

Manager  G
Joined: 13 Aug 2018
Posts: 74
Re: Jolene entered an 18-month investment contract that  [#permalink]

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EMPOWERgmatRichC wrote:
Hi All,

This question is really just about staying organized and doing the calculations one 'step' at a time.

Given the interest payments at 6 months, 12 months and 18 months, the first bit of interest on the \$10,000 would be...

6 months: \$10,000 + (.02)(10,000) = \$10,200
Interest = \$200

At the 12 month mark, the interest would be on \$10,200 though...

12 months: \$10,200 + (.03)(10,200) = \$10,506
Interest = \$306

At the 18 month mark, the interest would be on \$10,506...

18 months: \$10,506 + (.04)(10,506) = about \$10,926

The question asks for the TOTAL interest earned. We can either add up the 3 interest payments OR since we know the final TOTAL, we can subtract \$10,000 to determine the interest.

GMAT assassins aren't born, they're made,
Rich

what I'm not getting is why you guys are using 2% as 2% . shouldn't it be 1% because the interest is given in only 6 months ? and with this logic the 4% interest should also be multiplied with 1.5 ?

what am I missing here ? please explain

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Concentration: Sustainability, Marketing
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WE: Marketing (Energy and Utilities)
Re: Jolene entered an 18-month investment contract that  [#permalink]

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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

interest computed for timeline of 18 months
~ 9% so option A & B can be negated leaving c,d,e we can find by
10,000 * 1.02*1.03*1.04 ; 10926.24 ;
interest ; 926.24
IMO E
EMPOWERgmat Instructor V
Status: GMAT Assassin/Co-Founder
Affiliations: EMPOWERgmat
Joined: 19 Dec 2014
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Location: United States (CA)
GMAT 1: 800 Q51 V49
GRE 1: Q170 V170
Re: Jolene entered an 18-month investment contract that  [#permalink]

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jackfr2 wrote:
EMPOWERgmatRichC wrote:
Hi All,

This question is really just about staying organized and doing the calculations one 'step' at a time.

Given the interest payments at 6 months, 12 months and 18 months, the first bit of interest on the \$10,000 would be...

6 months: \$10,000 + (.02)(10,000) = \$10,200
Interest = \$200

At the 12 month mark, the interest would be on \$10,200 though...

12 months: \$10,200 + (.03)(10,200) = \$10,506
Interest = \$306

At the 18 month mark, the interest would be on \$10,506...

18 months: \$10,506 + (.04)(10,506) = about \$10,926

The question asks for the TOTAL interest earned. We can either add up the 3 interest payments OR since we know the final TOTAL, we can subtract \$10,000 to determine the interest.

GMAT assassins aren't born, they're made,
Rich

what I'm not getting is why you guys are using 2% as 2% . shouldn't it be 1% because the interest is given in only 6 months ? and with this logic the 4% interest should also be multiplied with 1.5 ?

what am I missing here ? please explain

Posted from my mobile device

Hi jackfr2,

If a question gives you an ANNUAL interest rate (meaning the rate that would occur if the calculation was done at the end of 1 year), but then asks you to calculate MORE than 1 time a year, then you divide the interest rate by the number of 'periods' in that year. For example, a 10% annual interest rate that's calculated every 6 months would be done in two '5% pieces" (one at the 6-month mark and one at that 12-month mark).

This question does NOT provide that type of information though. It tells us exactly what to calculate at each point in the timeline, so no adjustments to the calculation are needed.

GMAT assassins aren't born, they're made,
Rich
_________________ Re: Jolene entered an 18-month investment contract that   [#permalink] 26 Aug 2019, 12:18

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