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In Episode 4 of our GMAT Ninja CR series, we tackle the most intimidating CR question type: Boldface & "Legalese" questions. If you've ever stared at an answer choice that reads, "The first is a consideration introduced to counter a position that...- May 14
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01 Nov 2015, 15:57
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Hello,
I am studying for GMAT and a friend sent this exercise and I did not understand how to arrive at the Present Value (PV) of the Current Drug ($39.24 billion) and New Drug ($80.91 billion). Could someone help please?
Current Drug
• Currently, the insurance company expects to pay for all Alzheimer’s patients. We expect that 4 million will become Alzheimer’s patients. At $60,000 per patient, insurance companies would expect to pay a total of $240 billion.
• The interviewee should consider the time value of money. Discounting 20 years, assuming a discount rate of 10%, we calculate $39.24 billion. (The interviewer could suggest that the 10%, 20-yr discount factor is 1/6 to make things simple, and the interviewee would arrive at a total cost of $40 billion.)
New Drug
• There are 24 million individuals, and at $30 a month for 20 years, the total cost would be 24 million × $30/month × 12 months/year × 20 years = $172.80 billion. Assuming a discount rate of 10% for this 20-year perpetuity, we conclude that the drug coverage would cost $80.91 billion in today’s dollars. (The discount factor here is 1/6.)
I am studying for GMAT and a friend sent this exercise and I did not understand how to arrive at the Present Value (PV) of the Current Drug ($39.24 billion) and New Drug ($80.91 billion). Could someone help please?
Current Drug
• Currently, the insurance company expects to pay for all Alzheimer’s patients. We expect that 4 million will become Alzheimer’s patients. At $60,000 per patient, insurance companies would expect to pay a total of $240 billion.
• The interviewee should consider the time value of money. Discounting 20 years, assuming a discount rate of 10%, we calculate $39.24 billion. (The interviewer could suggest that the 10%, 20-yr discount factor is 1/6 to make things simple, and the interviewee would arrive at a total cost of $40 billion.)
New Drug
• There are 24 million individuals, and at $30 a month for 20 years, the total cost would be 24 million × $30/month × 12 months/year × 20 years = $172.80 billion. Assuming a discount rate of 10% for this 20-year perpetuity, we conclude that the drug coverage would cost $80.91 billion in today’s dollars. (The discount factor here is 1/6.)
01 Nov 2015, 16:30
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Hi cstephan,
The GMAT won't ask you these types of questions, so it's really not worth your time to study them. You WILL be asked to deal with ratios/percents and you will do lots of arithmetic throughout the Quant section though, so you have to make sure that those skills are sharp.
1) How long have you been studying?
2) What resources have you been using?
GMAT assassins aren't born, they're made,
Rich
The GMAT won't ask you these types of questions, so it's really not worth your time to study them. You WILL be asked to deal with ratios/percents and you will do lots of arithmetic throughout the Quant section though, so you have to make sure that those skills are sharp.
1) How long have you been studying?
2) What resources have you been using?
GMAT assassins aren't born, they're made,
Rich
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