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15 Nov 2011, 14:28
1
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Difficulty:

95% (hard)

Question Stats:

32% (02:25) correct 68% (02:19) wrong based on 137 sessions

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Louie takes out a three-month loan of $1000. The lender charges him 10% interest per month compounded 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 Again can someone please explain the concept behind solving these problems? Unfortunately, I again don't have an answer for this question. OPEN DISCUSSION OF THIS QUESTION IS HERE: louie-takes-out-a-three-month-loan-of-1000-the-lender-101506.html _________________ Best Regards, E. MGMAT 1 --> 530 MGMAT 2--> 640 MGMAT 3 ---> 610 GMAT ==> 730 Manager Joined: 29 Oct 2011 Posts: 138 Concentration: General Management, Technology Schools: Sloan '16 (D) GMAT 1: 760 Q49 V44 GPA: 3.76 Re: Louie takes out a three-month loan of$1000. The lender charges him 10  [#permalink]

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Updated on: 15 Nov 2011, 15:09
(See alternate explanation in the follow up post).

Please verify that you typed the answer choices (or the question) correctly.

Since there's a 10% interested compound every month (meaning you pay interest on the principal amount plus the interest on interest):

After 1st month, amount owed is 1000+10%(1000) = 1100.
After 2nd month, 1100+10%(1100) = 1210
After 3rd month, 1210+10%(1210) = 1331

Since total amount owed is $1331 and it must be done in 3 equal payments, each payment comes to$1331/3 = $443.7 (which is none of the options). Originally posted by kostyan5 on 15 Nov 2011, 14:47. Last edited by kostyan5 on 15 Nov 2011, 15:09, edited 1 time in total. Senior Manager Status: Finally Done. Admitted in Kellogg for 2015 intake Joined: 25 Jun 2011 Posts: 439 Location: United Kingdom Concentration: International Business, Strategy GMAT 1: 730 Q49 V45 GPA: 2.9 WE: Information Technology (Consulting) Re: Louie takes out a three-month loan of$1000. The lender charges him 10  [#permalink]

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15 Nov 2011, 14:54
Thanks kostyan5. Even I got the same answer as your's. So I think the answer choices are incorrect. Many thanks for the help.
_________________
Best Regards,
E.

MGMAT 1 --> 530
MGMAT 2--> 640
MGMAT 3 ---> 610
GMAT ==> 730
Manager
Joined: 29 Oct 2011
Posts: 138
Concentration: General Management, Technology
Schools: Sloan '16 (D)
GMAT 1: 760 Q49 V44
GPA: 3.76

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16 Nov 2011, 02:18
Very absorbing article. Very interesting and well written post. I will come back in the near future.
Senior Manager
Status: Finally Done. Admitted in Kellogg for 2015 intake
Joined: 25 Jun 2011
Posts: 439
Location: United Kingdom
GMAT 1: 730 Q49 V45
GPA: 2.9
WE: Information Technology (Consulting)

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16 Nov 2011, 19:54
You're right. Principle for 3rd month should be 1210-2.1x. I made a type, but the rest of the calculations were unaffected.

Keep in mind that you still need to make 3rd payment in month 3. So 1331 - 2.31x-x =0 or 1331-3.31x=0.
Math Expert
Joined: 02 Sep 2009
Posts: 62353
Re: Louie takes out a three-month loan of $1000. The lender charges him 10 [#permalink] ### Show Tags 07 May 2016, 04:20 enigma123 wrote: Louie takes out a three-month loan of$1000. The lender charges him 10% interest per month compounded 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

Again can someone please explain the concept behind solving these problems? Unfortunately, I again don't have an answer for this question.

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: $$(1,210-2.1x)*1.1-x=0$$ --> $$1331=3.31x$$ --> $$x\approx{402}$$

OPEN DISCUSSION OF THIS QUESTION IS HERE: louie-takes-out-a-three-month-loan-of-1000-the-lender-101506.html
_________________