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

 It is currently 17 Oct 2019, 20:58

### 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

# The difference in compound interest earned on a deposit (compounded an

 new topic post reply Question banks Downloads My Bookmarks Reviews Important topics
Author Message
TAGS:

### Hide Tags

Manager
Joined: 21 Sep 2012
Posts: 208
Location: United States
Concentration: Finance, Economics
Schools: CBS '17
GPA: 4
WE: General Management (Consumer Products)
The difference in compound interest earned on a deposit (compounded an  [#permalink]

### Show Tags

Updated on: 08 Dec 2014, 04:49
5
00:00

Difficulty:

65% (hard)

Question Stats:

59% (02:32) correct 41% (02:56) wrong based on 51 sessions

### HideShow timer Statistics

The difference in compound interest earned on a deposit (compounded annually) in year 1 and year 2 is \$ 40. Had the interest rate been three times its present value, the difference would have been how much?

A) 40/3
B) 40
C) 120
D) 360
E) 420

Originally posted by desaichinmay22 on 08 Dec 2014, 04:32.
Last edited by Bunuel on 08 Dec 2014, 04:49, edited 1 time in total.
Edited the question.
Math Expert
Joined: 02 Sep 2009
Posts: 58402
Re: The difference in compound interest earned on a deposit (compounded an  [#permalink]

### Show Tags

08 Dec 2014, 04:53
1
desaichinmay22 wrote:
The difference in compound interest earned on a deposit (compounded annually) in year 1 and year 2 is \$ 40. Had the interest rate been three times its present value, the difference would have been how much?

A) 40/3
B) 40
C) 120
D) 360
E) 420

CASE 1:
Deposit = \$x;
Rate of increase = r.

Interest yearned in 1 year = xr. Deposit in 1 year = x + xr.
Interest yearned in 2 year = (x + xr)r.
The difference = (x + xr)r - xr = xr^2 = 40.

CASE 2:
Deposit = \$x;
Rate of increase = 3r.

Interest yearned in 1 year = x(3r). Deposit in 1 year = x + 3xr.
Interest yearned in 2 year = (x + 3xr)3r.
The difference = (x + 3xr)3r - 3xr = 9xr^2. Since from CASE 1 we know that xr^2 = 40, then 9xr^2 = 9*40 = 360.

Hope it's clear.
_________________
GMAT Tutor
Status: Tutor - BrushMyQuant
Joined: 05 Apr 2011
Posts: 622
Location: India
Concentration: Finance, Marketing
Schools: XLRI (A)
GMAT 1: 700 Q51 V31
GPA: 3
WE: Information Technology (Computer Software)
Re: The difference in compound interest earned on a deposit (compounded an  [#permalink]

### Show Tags

08 Dec 2014, 04:54
Let Deposit be P, Let rate of interest be R (in decimal)
Compound interest earned in 1st year = P(1+R)^1 - P = PR [CI = P*(1+R)^n]
Compound interest earned in 2nd year = P(1+R)^2 - PR - P [CI for 2 years - Interest in 1st year - Principal] = P + 2PR + PR^2 - PR - P = PR + PR^2
Difference in compound interest earned in 1st and 2nd year =
PR + PR^2 - (PR)
= PR^2 = 40

If rate of interest is 3R then
(following similar procedure) Difference in Compound interest would be = P*(3R)^2 = 9PR^2

So, Difference will be 9 * 40 = 360
So, Answer will be D

Hope it helps!

desaichinmay22 wrote:
The difference in compound interest earned on a deposit (compounded annually) in year 1 and year 2 is \$ 40. Had the interest rate been three times its present value, the difference would have been how much?

A)40/3
B)40
C)120
D)360
E)420

_________________
Non-Human User
Joined: 09 Sep 2013
Posts: 13240
Re: The difference in compound interest earned on a deposit (compounded an  [#permalink]

### Show Tags

02 Mar 2018, 21:33
Hello from the GMAT Club BumpBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.
_________________
Re: The difference in compound interest earned on a deposit (compounded an   [#permalink] 02 Mar 2018, 21:33
Display posts from previous: Sort by

# The difference in compound interest earned on a deposit (compounded an

 new topic post reply Question banks Downloads My Bookmarks Reviews Important topics

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