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### Show Tags

15 Nov 2011, 14:28
1
15
00:00

Difficulty:

95% (hard)

Question Stats:

31% (02:25) correct 69% (02:18) wrong based on 138 sessions

### Show Tags

15 Nov 2011, 15:08
4
1
Actually what I wrote above assumes that Louie doesn't start repaying the loan immediately, instead he waits until all the interest has compounded. This is not necessarily correct since usually you start paying off loans as soon as you take them out. This means that you pay off some principle each month and therefore your interest is lower.

Here's the calculation for that case, assume monthly payment is X.

After 1st month: (1000)(1.1)-X = 1100-X
After 2nd month: (1100-X)(1.1)-X = 1210-2.21X
After 3rd month: (1210-2.21X)(1.1)-X = 1331-3.31X

Now, the amount after the last payment in 3rd month must bring the total to 0. Hence:

1331-3.31X = 0
X = 1331/3.31 = 402.11

The answer is C. However, I think this is a poorly worded question and on the real GMAT, they would specify that the payment is to be started immediately after loan inception.
##### General Discussion
Manager
Joined: 29 Oct 2011
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Schools: Sloan '16 (D)
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Re: Louie takes out a three-month loan of $1000. The lender charges him 10 [#permalink] ### Show Tags 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
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GMAT 1: 730 Q49 V45
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WE: Information Technology (Consulting)

### Show Tags

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)

### Show Tags

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: 62542
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
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