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# Jolene entered an 18-month investment contract that

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Jolene entered an 18-month investment contract that [#permalink]

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09 Feb 2012, 05:56
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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
[Reveal] Spoiler: OA

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-Aravind Chembeti

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09 Feb 2012, 06:13
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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

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. _________________ Kudos [?]: 139371 [5], given: 12787 Manager Joined: 09 Jul 2010 Posts: 121 Kudos [?]: 23 [0], given: 2 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 22 Apr 2012, 23:08 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 Kudos [?]: 23 [0], given: 2 Math Expert Joined: 02 Sep 2009 Posts: 43320 Kudos [?]: 139371 [0], given: 12787 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 22 Apr 2012, 23:23 Expert's post 1 This post was BOOKMARKED 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 There is a difference between simple and compound interests. For more check this: math-number-theory-percents-91708.html Similar questions: on-the-first-of-the-year-james-invested-x-dollars-at-128825.html marcus-deposited-8-000-to-open-a-new-savings-account-that-128395.html 10-000-is-deposited-in-a-certain-account-that-pays-r-65464.html john-deposited-10-000-to-open-a-new-savings-account-that-83953.html alex-deposited-x-dollars-into-a-new-account-126459.html a-total-of-60-000-was-invested-for-one-year-part-of-this-126655.html You can find other question here; PS: search.php?search_id=tag&tag_id=191 DS; search.php?search_id=tag&tag_id=192 Hope it helps. _________________ Kudos [?]: 139371 [0], given: 12787 Manager Joined: 09 Jul 2010 Posts: 121 Kudos [?]: 23 [0], given: 2 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 23 Apr 2012, 10:17 Thanks, I understand now. This is the line which means compound interest "If each interest payment is reinvested in the contract" Kudos [?]: 23 [0], given: 2 Intern Joined: 30 Mar 2012 Posts: 36 Kudos [?]: 2 [0], given: 11 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 23 Apr 2012, 10:32 raviram80 wrote: Thanks, I understand now. This is the line which means compound interest "If each interest payment is reinvested in the contract" This isn't really a compound interest. All that it says is that the interest received is used again in the contract. Nowhere in the statement is it explicitly or implicitly stated that its a compound interest and the answer too are pretty simple to derive if you don't lost in the dilemna of Simple and compounded interest. _________________ This time its personal.. Kudos [?]: 2 [0], given: 11 Senior Manager Joined: 01 Apr 2010 Posts: 296 Kudos [?]: 59 [0], given: 11 Location: Kuwait Schools: Sloan '16 (M) GMAT 1: 710 Q49 V37 GPA: 3.2 WE: Information Technology (Consulting) Re: Simple Interest Calculation [#permalink] ### Show Tags 23 Apr 2012, 15:33 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.

Great cancelling out technique! so simple, calculate simple interest first and strike out answers below that. Great trick for if I am low on time. Thanks.

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23 Apr 2012, 15:34
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. Great elimination method if I am low on time. Thanks! Kudos [?]: 59 [0], given: 11 Intern Joined: 23 Mar 2012 Posts: 2 Kudos [?]: 13 [5], given: 3 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 12 Aug 2012, 22:56 5 This post received KUDOS 2 This post was BOOKMARKED 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 Using Compound Interest Formula method: When rate of interest is R1%, R2% and R3% for 1st yr, 2nd yr and 3rd yr respectively, then $$Amount = Principal[(1+ \frac{R1}{100}) (1+ \frac{R2}{100}) (1+ \frac{R3}{100})]$$ Applying the same formula here in this problem: $$Amount = 10000[(1+ \frac{2}{100}) (1+ \frac{3}{100}) (1+ \frac{4}{100})]$$ = $$10000 * \frac{102}{100} * \frac{103}{100} * \frac{104}{100}$$ = $$102 * 103 * \frac{104}{100}$$ = 926.24 = OPTION E [Ans] Kudos [?]: 13 [5], given: 3 Intern Joined: 15 Dec 2013 Posts: 6 Kudos [?]: [0], given: 16 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 13 Apr 2014, 06:43 Y the interest is not calculated as: For first 6 months: [10,000*2*(6/12)]/100 =100 For next 6 months: [10100*3*(6/12)]/100 = 151.5 For next 6 months : [100251.5*4*(6/12)]/100 = 205.03 Adding the 3 interests= 456.53 What is wrong with using Simple Interest = P*R*T/100 formula?? Please explain!! Thanks, Shreya _________________ Thanks, Shreya Kudos [?]: [0], given: 16 SVP Status: The Best Or Nothing Joined: 27 Dec 2012 Posts: 1844 Kudos [?]: 2859 [3], given: 193 Location: India Concentration: General Management, Technology WE: Information Technology (Computer Software) Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 22 Apr 2014, 02:27 3 This post received KUDOS 1 This post was BOOKMARKED SHREYADUBEY wrote: Y the interest is not calculated as: For first 6 months: [10,000*2*(6/12)]/100 =100 For next 6 months: [10100*3*(6/12)]/100 = 151.5 For next 6 months : [100251.5*4*(6/12)]/100 = 205.03 Adding the 3 interests= 456.53 What is wrong with using Simple Interest = P*R*T/100 formula?? Please explain!! Thanks, Shreya The problem states only the interest given; we have to calculate as it is You are calculating using the PCPA concept (Per Cent Per Annum) So, no need of that 6/12 or 4/12 multiplication. For first 6 months: $$10,000* \frac{2}{100} = 200$$ For next 6 months: $$10200 * \frac{3}{100} = 306$$ For next 6 months: $$10506 * \frac{4}{100} = 420.24$$ Total Interest = 200 + 306 + 420.24 = 926.24 Answer = E _________________ Kindly press "+1 Kudos" to appreciate Kudos [?]: 2859 [3], given: 193 Intern Joined: 30 Sep 2013 Posts: 22 Kudos [?]: 16 [0], given: 4 Re: Simple Interest Calculation [#permalink] ### Show Tags 02 May 2014, 07:01 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.

Hi Bunnel, you are taking 9% simple interest annually on $10000, which you got$900 , but it should be 18 months to calculate interest of 9% on 10000

so SI = 10000 * 9 * 18 / 100 * 12

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02 May 2014, 09:29
riteshgmat wrote:
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. Hi Bunnel, you are taking 9% simple interest annually on$10000, which you got $900 , but it should be 18 months to calculate interest of 9% on 10000 so SI = 10000 * 9 * 18 / 100 * 12 What I'm saying is that IF the 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 in 18 months, which is $900. _________________ Kudos [?]: 139371 [0], given: 12787 Intern Joined: 26 Sep 2012 Posts: 38 Kudos [?]: 39 [0], given: 46 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 08 Aug 2014, 02:40 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.

Should we treat percent rate as "percent per annum" only if it is explicitly stated in the stem "percent per annum"? This problem confused me at first as I started calculation with the assumption that "2 percent interest at the end of 6 months" stands for 2 percent annual rate, thus making 1% for 6 month period and so on

Thanks

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Jolene entered an 18-month investment contract that [#permalink]

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22 Sep 2014, 22:46
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)=~$926. Answer: E. I got the entire concept except the fact that when Simple interest is calculated why is (n) time period NOT included in the calculation: S.I. p*n*r = 10,000 * 9% * n (where n = 1.5 years) Kindly clarify. Thanks in advance Kudos [?]: 118 [0], given: 84 Verbal Forum Moderator Joined: 05 Nov 2012 Posts: 529 Kudos [?]: 703 [0], given: 606 Concentration: Technology, Other Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 24 Sep 2014, 05:58 My first approach after reading the problem was: SI=P*R*T and that really complicated things for me.It was then when I started looking for an explanation to understand the language of the problem. During the search I came across a post, which really helped me to identify the issue in my approach. So thought of sharing it with fraternity. Hope this help. Lets suppose, I tell my friend to give me 100$,which I would return to him in 6-months, with 10% interest.
After 6-months how much I would be paying him?
100*(10/100)=110$.[I didn't use the time here.] Now we can use the same approach to calculate the amount (P+I) over a period of time (6,12 & 18 months). _________________ -------------------------------------------------------- Regards Kudos [?]: 703 [0], given: 606 Current Student Joined: 06 Mar 2014 Posts: 267 Kudos [?]: 118 [0], given: 84 Location: India GMAT Date: 04-30-2015 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 25 Sep 2014, 02:12 JarvisR wrote: My first approach after reading the problem was: SI=P*R*T and that really complicated things for me.It was then when I started looking for an explanation to understand the language of the problem. During the search I came across a post, which really helped me to identify the issue in my approach. So thought of sharing it with fraternity. Hope this help. Lets suppose, I tell my friend to give me 100$,which I would return to him in 6-months, with 10% interest.
After 6-months how much I would be paying him?
100*(10/100)=110$.[I didn't use the time here.] Now we can use the same approach to calculate the amount (P+I) over a period of time (6,12 & 18 months). So basically when or how does one figure that in a certain problem, it is best to avoid (n) while calculating Interest? Its definitely not the 6,12,18 months timeline that can be ignored then how does one go about it? Kudos [?]: 118 [0], given: 84 Intern Joined: 30 Jun 2016 Posts: 1 Kudos [?]: [0], given: 0 Re: Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 29 Jul 2016, 01:44 I have a doubt!! why did you add$6 and $8 for the second and third interest rates? Kudos [?]: [0], given: 0 Intern Joined: 04 Jan 2017 Posts: 14 Kudos [?]: [0], given: 2 Jolene entered an 18-month investment contract that [#permalink] ### Show Tags 25 Apr 2017, 05:10 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.

after first interest 3% is given to which amount.we dont see any clear wording here. why shold we not assume that it will be given for previous amount (10000)+10000 for reinvested +200 instead only 10000+200. plz clarify me

Last edited by anik2000 on 25 Apr 2017, 05:22, edited 1 time in total.

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

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25 Apr 2017, 05:21
PareshGmat wrote:
Y the interest is not calculated as:

For first 6 months: [10,000*2*(6/12)]/100 =100
For next 6 months: [10100*3*(6/12)]/100 = 151.5
For next 6 months : [100251.5*4*(6/12)]/100 = 205.03

What is wrong with using Simple Interest = P*R*T/100 formula??

Thanks,
Shreya

The problem states only the interest given; we have to calculate as it is

You are calculating using the PCPA concept (Per Cent Per Annum)

So, no need of that 6/12 or 4/12 multiplication.

For first 6 months: $$10,000* \frac{2}{100} = 200$$

For next 6 months: $$10200 * \frac{3}{100} = 306$$

For next 6 months: $$10506 * \frac{4}{100} = 420.24$$

Total Interest = 200 + 306 + 420.24

= 926.24

after 2nd 6 month why not 10000+10000+200? because we have our intial amount 10000 and the we get 10200. plz explain

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Re: Jolene entered an 18-month investment contract that   [#permalink] 25 Apr 2017, 05:21

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