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58% (03:15) correct
42%
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Nora invests equal sums of money in Fund M and Fund N. Fund N compounds interest annually at a rate of 12.5% per year. Fund M earns simple interest at a fixed annual rate. After 2 years, Fund N's balance is 12.5% more than Fund M's balance after 3 years. What is the annual simple interest rate for Fund M?
A. 3.13%
B. 4.17%
C. 6.25%
D. 8.33%
E. 12.5%
A. 3.13%
B. 4.17%
C. 6.25%
D. 8.33%
E. 12.5%
24 Aug 2026, 18:42
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joydipb01
Without a calculator, fractions are often easier to work with than decimals or percents. This question is a good illustration of this principle.
12.5% is an awkward number to calculate with, but if you remember your fraction conversions, you'll recognize this as equal to 1/8.
Keep it simple -- let's say Nora invests $1 into both funds. Then after two years, Fund N will be equal to \($1(1+\frac{1}{8})^2\), or simply \((\frac{9}{8})^2\).
After three years, Fund M will be equal to $1 + $1(3r), or simply 1 + 3r.
Since Fund N's balance is 12.5%, or 1/8, more than Fund M's balance, Fund N is 9/8 of Fund M:
\((\frac{9}{8})^2=\frac{9}{8}(1+3r)\)
Then divide 9/8 from both sides and solve:
\(\frac{9}{8}=1+3r\)
\(\frac{1}{8}=3r\)
\(\frac{1}{24}=r\)
Since 25x4=100, 1/24 is just a bit more than 4%. The answer is B.
At minimum, you should know the decimal equivalents for all "1 over" fractions between 1/2 and 1/10. Then you can convert easily from decimals / percents to fractions and vice versa, saving you time and calculation headaches on the test.
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