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You'll likely see one question on Test Day that requires that you use either the Simple Interest or Compound Interest Formulas (or both). Thus, you need to make sure that you have those formulas memorized.

Here, the prompt tells us to use the Simple Interest Formula:

(Principal)(1 + RT) where R is the interest rate and T is the time (in years).

Given the information in the prompt (Principal of $10,000, interest rate of 10% and time of 5 years), we can plug in those values and answer the question:

Re: Jonathan’s grandparents lend $10,000 to Jonathan at a simple annual in [#permalink]

Show Tags

21 Mar 2016, 20:49

I see 50% + people got it wrong and I guess the only tricky part in this question is the to remember what is asked for

1> Simple Interest Vs Compound interest (there are answers options with compounded interest) 2> What is asked in question (interest or Total amount)

if you are like me and have used S.I = P x R x T formula in school, then it's highly tempting to choose option (b) 10,000∗0.5 --> which is interest only, while the question is asking for Amount in 5 years. so (c) 10,000∗ 1.5

A. 10,000∗0.1^5 --> using CI and Intrest only B. 10,000∗0.5 --> using SI and Intrest only C. 10,000∗1.5 --> using SI and Total Amount D. 10,000∗1.1^5 --> using CI and Total Amount E. (10,000∗0.1)^5

Hey is there any theory related to Simple and compound interest and there differences.. Could Honestly use some.. Thanks StoneCold

Its simple -

The only difference between Simple and compound interest is " Under simple interest rate of interest , the interest / year will be same for the entire tenure " while " Under Compound Interest Rate system the Interest / year will keep on increasing for the entire tenure "

Illustrating further -

Attachment:

CI VS SI.PNG [ 4.68 KiB | Viewed 1219 times ]

Check : The total interest for the entire duration of 5 years is Rs 50 and Interest per month is fixed at Rs 10 Only....

Now with the present problem at hand.!!

Let the principal be $1

So Interest for the $1 for 5 years at 10% Pa is -

\(\frac{1*5*10}{100}\) => 0.50

Now Principal is $1 and Interest is $ 0.50 , so Amount to be rerurned is - $1 + $0.50 => $1.50

So, for $ 10,000 , amount to be returned is 10,000 * 1.50

Answer is (C) _________________

Thanks and Regards

Abhishek....

PLEASE FOLLOW THE RULES FOR POSTING IN QA AND VA FORUM AND USE SEARCH FUNCTION BEFORE POSTING NEW QUESTIONS

Hey is there any theory related to Simple and compound interest and there differences.. Could Honestly use some.. Thanks StoneCold

Its simple -

The only difference between Simple and compound interest is " Under simple interest rate of interest , the interest / year will be same for the entire tenure " while " Under Compound Interest Rate system the Interest / year will keep on increasing for the entire tenure "

Illustrating further -

Attachment:

CI VS SI.PNG

Check : The total interest for the entire duration of 5 years is Rs 50 and Interest per month is fixed at Rs 10 Only....

Now with the present problem at hand.!!

Let the principal be $1

So Interest for the $1 for 5 years at 10% Pa is -

\(\frac{1*5*10}{100}\) => 0.50

Now Principal is $1 and Interest is $ 0.50 , so Amount to be rerurned is - $1 + $0.50 => $1.50

So, for $ 10,000 , amount to be returned is 10,000 * 1.50

Answer is (C)

Great Work.. Thanks a ton to both of you
_________________

Re: Jonathan’s grandparents lend $10,000 to Jonathan at a simple annual in [#permalink]

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22 Oct 2017, 03:56

Hello from the GMAT Club BumpBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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