GMAT Question of the Day - Daily to your Mailbox; hard ones only

 It is currently 16 Jul 2018, 23:11

### 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

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

# Louie takes out a three-month loan of $1000. The lender  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics Author Message TAGS: ### Hide Tags Math Expert Joined: 02 Sep 2009 Posts: 47030 Re: Compound Interest - Lender Charges [#permalink] ### Show Tags 12 Sep 2013, 03:05 ishanbhat455 wrote: Bunuel wrote: ishanbhat455 wrote: I get a different answer by using the Compound Interest formula, i.e- P[1 +(r)/100n]^nt Since this formula uses annualized figures, so: r = 10% per month = 120% per year n = 12 (as interest is compounded monthly) t = 3 months = 3/12 years Using the formula for compound interest, I get: P + C.I = 1000(1.1)^3 = 1331 So, EMI = 1331/3 = 443.66 which is ~$444

What's wrong with this approach?

Thanks,
Ishan

Since he pays after each month, then after the firs month (after the first payment) the interest is calculated on reduced balance.

Does this make sense?

Bunuel,

Thanks for clarifying. What if the problem was such that the loan tenure were 2 years, interest rate was 10% per annum and compounded annually? How do I compute EMI then? In such a scenario, won't the monthly approach of computation be very lengthy?

I am just trying to get a clearer picture on EMI questions.

Thanks,
Ishan

You won't get some very tough numbers to manipulate with or there will be some shortcut approach available.

Theory on Percent and Interest Problems: math-number-theory-percents-91708.html

All DS Percent and Interest Problems to practice: search.php?search_id=tag&tag_id=33
All PS Percent and Interest Problems to practice: search.php?search_id=tag&tag_id=54

_________________
Math Expert
Joined: 02 Sep 2009
Posts: 47030
Re: Louie takes out a three-month loan of $1000. The lender [#permalink] ### Show Tags 27 Nov 2013, 03:57 archit wrote: Dear Brunel , Please correct as we have formula A=P(1+R/n)^nt = 1000(1+ 10/100*3)^3/4 n=3 t=1/4 Kindly correct Sorry, what should I correct? _________________ SVP Joined: 06 Sep 2013 Posts: 1869 Concentration: Finance Re: Compound Interest - Lender Charges [#permalink] ### Show Tags 02 Feb 2014, 09:17 1 Bunuel wrote: sachinrelan wrote: Louie takes out a three-month loan of$1000. The lender charges him 10% interest per month compunded monthly. The terms of the loan state that Louie must repay the loan in three equal monthly payments. To the nearest dollar, how much does Louie have to pay each month?

(A) 333

(B) 383

(C) 402

(D) 433

(E) 483

Couldn't solve by a systematic approach.

Let the monthly payment be $$x$$.

After the 1st month there will be $$1,000*1.1-x$$ dollars left to repay;
After the 2nd month there will be $$(1,000*1.1-x)*1.1-x=1,210-2.1x$$ dollars left to repay;
After the 3rd month there should be 0 dollars left to repay: $$(1,210-2.1x)*1.1-x=0$$ --> $$1331=3.31x$$ --> $$x\approx{402}$$

It's so frustrating to get to the 3.31x = 1331 and then get the answer wrong. I did heavy division shortcut but still the answer choices are a bit close. Any suggestion other than long division to better approximate this division?

Cheers
J
Manager
Joined: 26 May 2013
Posts: 61

### Show Tags

13 Aug 2014, 23:28
archit wrote:
Dear Brunel ,

Please correct as we have formula

A=P(1+R/n)^nt

= 1000(1+ 10/100*3)^3/4

n=3
t=1/4

Kindly correct

$$Amount = Principal (1 + \frac{Rate Of Int}{100})^{No Of Years}$$
_________________

Kindly press "+1 Kudos" to appreciate

Manager
Joined: 17 Apr 2013
Posts: 63
Location: United States
Concentration: Other, Finance
Schools: SDSU '16
GMAT 1: 660 Q47 V34
GPA: 2.76
WE: Analyst (Real Estate)
Re: Louie takes out a three-month loan of $1000. The lender [#permalink] ### Show Tags 14 Aug 2014, 20:50 shaselai wrote: sachinrelan wrote: Louie takes out a three-month loan of$1000. The lender charges him 10% interest per month compunded monthly. The terms of the loan state that Louie must repay the loan in three equal monthly payments. To the nearest dollar, how much does Louie have to pay each month?

(A) 333

(B) 383

(C) 402

(D) 433

(E) 483

Couldn't solve by a systematic approach.

ok, there is an interest formula that i forget but lets do it another way:
so basically he is getting 10% interest per month for TWO month since he pays off in 3 months.
so 1000*1.1*1.1 = 1210
now divide by 3 = ~403.333
C

I'm still not convinced ! Even though he paid off the loan at the end of the 3 month, but still !he kept the money for 2 month and 29 days !
Do we have to assume that those 29 days he won't be charged ?
what about if he borrowed the 1000$at a 12% yearly interest rate and he paid it off after 3 month, would I put zero interest in my calculation? do we have to have the same assumption on the other official gmat questions? thank u for the clarifications _________________ Please +1 KUDO if my post helps. Thank you. Manager Joined: 23 Sep 2013 Posts: 142 Concentration: Strategy, Marketing WE: Engineering (Computer Software) Re: Louie takes out a three-month loan of$1000. The lender [#permalink]

### Show Tags

04 Sep 2014, 08:02
1
A slightly easier approach.

As we know compound interest is slightly greater than the simple interest calculated for the same period.

So instead calculate SI for this period.
Rate per month is 10%. Therefore rate per annum is 12*10 = 120%
Simple interest to be paid at the end = 1000* (120/100)= 1200

Simple Interest to be paid each month of 3 month pay back period =1200/3= 400

Now since Compound interest is slightly greater than Simple interest i.e. answer is 402.
Intern
Joined: 13 Dec 2013
Posts: 48
GPA: 2.71
Re: Louie takes out a three-month loan of $1000. The lender [#permalink] ### Show Tags 09 Nov 2014, 06:27 shaselai wrote: sachinrelan wrote: Louie takes out a three-month loan of$1000. The lender charges him 10% interest per month compunded monthly. The terms of the loan state that Louie must repay the loan in three equal monthly payments. To the nearest dollar, how much does Louie have to pay each month?

(A) 333

(B) 383

(C) 402

(D) 433

(E) 483

Couldn't solve by a systematic approach.

ok, there is an interest formula that i forget but lets do it another way:
so basically he is getting 10% interest per month for TWO month since he pays off in 3 months.
so 1000*1.1*1.1 = 1210
now divide by 3 = ~403.333
C

Hi, your method for some reason isn't working on this question a-sum-of-3310-is-to-be-paid-back-in-3-equal-installments-how-much-is-185380.html?fl=similar

It is conceptually the same....Please avise

thanks
Intern
Joined: 08 Dec 2013
Posts: 36

### Show Tags

22 Jan 2015, 18:26
Since the loan = 1000, and this amount were to be charged 10% interest per month, compounded monthly ...

1000/3 = 333

1 --- 333 * 1.1 = 366
2 --- 366 * 1.1 = 402
3 --- 402 * 1.1 = 442

Sum the 3 months: 366 + 402 + 442 = 1210 total owed

3 equal installments: 1210/3 = roughly 403

The closest answer (sans the slight rounding): Choice C.
Intern
Joined: 25 May 2014
Posts: 41

### Show Tags

27 Apr 2015, 14:59
solitaryreaper wrote:
A slightly easier approach.

As we know compound interest is slightly greater than the simple interest calculated for the same period.

So instead calculate SI for this period.
Rate per month is 10%. Therefore rate per annum is 12*10 = 120%
Simple interest to be paid at the end = 1000* (120/100)= 1200

Simple Interest to be paid each month of 3 month pay back period =1200/3= 400

Now since Compound interest is slightly greater than Simple interest i.e. answer is 402.

Hi

This i think is calculating obly intrest bt we need the amount paid.
e-GMAT Representative
Joined: 04 Jan 2015
Posts: 1755

### Show Tags

11 Jun 2015, 21:48
sachinrelan wrote:
Louie takes out a three-month loan of $1000. The lender charges him 10% interest per month compunded monthly. The terms of the loan state that Louie must repay the loan in three equal monthly payments. To the nearest dollar, how much does Louie have to pay each month? A. 333 B. 383 C. 402 D. 433 E. 483 answer is (C) 1331/(1.21+1.1+1) Manager Joined: 13 Jun 2016 Posts: 129 Location: United States Concentration: Finance, Technology Re: Louie takes out a three-month loan of$1000. The lender [#permalink]

### Show Tags

04 Aug 2016, 18:07
damn it! the trick here is to know there is only interest accumulated twice not thrice
Manager
Joined: 06 Oct 2015
Posts: 85
Re: Louie takes out a three-month loan of $1000. The lender [#permalink] ### Show Tags 11 Sep 2016, 07:11 shaselai wrote: sachinrelan wrote: Louie takes out a three-month loan of$1000. The lender charges him 10% interest per month compunded monthly. The terms of the loan state that Louie must repay the loan in three equal monthly payments. To the nearest dollar, how much does Louie have to pay each month?

(A) 333

(B) 383

(C) 402

(D) 433

(E) 483

Couldn't solve by a systematic approach.

ok, there is an interest formula that i forget but lets do it another way:
so basically he is getting 10% interest per month for TWO month since he pays off in 3 months.
so 1000*1.1*1.1 = 1210
now divide by 3 = ~403.333
C

Hi,
Why have you ignored the third month? Kindly, provide logic behind your method.
Intern
Joined: 13 Feb 2015
Posts: 9

### Show Tags

29 Jun 2017, 03:08
I think it is not a high quality questions as it does not clearly specify when the payments start.
Senior Manager
Status: love the club...
Joined: 24 Mar 2015
Posts: 278
Re: Louie takes out a three-month loan of $1000. The lender [#permalink] ### Show Tags 07 Sep 2017, 04:32 shaselai wrote: sachinrelan wrote: Louie takes out a three-month loan of$1000. The lender charges him 10% interest per month compunded monthly. The terms of the loan state that Louie must repay the loan in three equal monthly payments. To the nearest dollar, how much does Louie have to pay each month?

(A) 333

(B) 383

(C) 402

(D) 433

(E) 483

Couldn't solve by a systematic approach.

ok, there is an interest formula that i forget but lets do it another way:
so basically he is getting 10% interest per month for TWO month since he pays off in 3 months.
so 1000*1.1*1.1 = 1210
now divide by 3 = ~403.333
C

hi

yes, it may seem very obvious naturally ....
but can you show it on paper ...?

For example, say, Mr X provides a loan amounting $100 to Mr Y in January at 10% interest compounded per month. At the end of January, the amount will turn out to be$110, at the end of February, the amount will be $121, and finally, at the end of March, the amount will be$133...

here you can see....133 = 100 x 1.1 x 1.1 x 1.1...
thus, the multiplier (1.1) is multiplied three times ......

so, how can you multiply $1000 with (1.1) only two times.....? it may seem very obvious, but I am in trouble .... anybody out there to help me understand this picture, please .... Re: Louie takes out a three-month loan of$1000. The lender   [#permalink] 07 Sep 2017, 04:32

Go to page   Previous    1   2   3    Next  [ 43 posts ]

Display posts from previous: Sort by

# Events & Promotions

 Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne 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®.