A 2-year certificate of deposit is purchased for K dollars. If the

Question

A 2-year certificate of deposit is purchased for K dollars. If the certificate earns interest at a n annual rate of 6 percent compound quarterly, which of the following represents the value, in dollars, of the certificate at the end of 2 years?

A. k(1.06)^2
B. k(1.06)^8
C. k(1.015)^2
D. k(1.015)^8
E. k(1.03)^4

A. k(1.06)^2
B. k(1.06)^8
C. k(1.015)^2
D. k(1.015)^8
E. k(1.03)^4

HIMALAYA · Accepted Answer

annual interest rate (r) = 6%
term (n) = 2
value of k at the end of 2 yrs, if compounded annually=k(1+r)^n=k(1+0.06)^2


 
quaterly int. rate (r) = 1.5%
term (n) = 2x4 = 8
value of k at the end of 2 yrs, if compounded qtrly =k(1+r)^n=k(1+0.015)^8

so D.

SunShine · Answer

B

k(1+0.06)^8


2 years = 8 times interest if paid quaterly

remgeo · Answer

I am getting answer as A. But there is definitely an easier method than what I have done :oops:

desiguy · Answer

I also got B

since it pays quarterly we take 4*2 (no of years) = 8

christoph · Answer

D)...compund interest is: initial amount*(1+interest/x)^(time*x), where x is the number of times compunded annually

joemama142000 · Answer

should we all memorize this compound interest fomula? or is it not necessary?

duttsit · Answer

I would memorise it. A variation of it is used various contexts(eg money growing by 10% every year, mixture pbs etc)

gamjatang · Answer

It is necessary.

I've taken the test yesterday, and one of the math questions required calculation of compound interest. Obviously, the formular was not given.

GMATT73 · Answer

Got D as well. Just remember that with compound interest the # of compoundings must be multiplied to the # of years---> 4*2=8.

Between B and D, B fails to divide the interest rate (6%) by the compound (4). Therefore, it cannot be 1.06.

(D) by POE

krisrini · Answer

I think its good to know the formula for CI. The formula is
A=P(1+r/100)^n, Where P is the priniciple, R is the rate of interest, and n is the number of years.
In our case P =K, r = 6 and n = 8 (Since the interest is compounded quareterly, and for 2 years there are 8 quarters).

So it is K(1+6/100)^8
K(1.06)^8

GMATT73 · Answer

I think your formula is missing a few factors. We also must divide the interest rate by the # of compoundings per year (n) and multiply n by the number of years (y):

FV (future value)
P (principle)
r (interest rate expressed in decimal form)
n (number of compoundings)
t (time, in years)

 FV=P(1+r/n)^t*n

remgeo · Answer

If this is the formula for Compund Interest, we get interest as 
k(1.015)^8
But we are asked the amount after two years isnt it. 
Please can someone correct me where I am wrong.

HIMALAYA · Answer

k is the initial amount. so end amount at the end of 2 years = k (1.015)^8

bmwhype2 · Answer

yes this is the correct answer. its a very simple question.

 FV=P(1+r/n)^t*n 
k   ^ (4*2)

k   ^8
therefore D

tarangchhabra · Answer

Annual Rate of interest= 6%
Quaterly rate of interest= 6/4% = 1.5%

Now, periods of compounding in 2 years= 8 (8 quarters)
Thus k(1.015)^8

Answer: D

JMGrana · Answer

I picked up initially on the fact that there are 2 years (or 8 quarters), but fell for the ANNUAL RATE of 1.06 because i forgot to divide that .06 interest rate by 4 quarters. Subtle.

Probus · Answer

Bunuel ,
This question needs an edit 
The question reads
A 2-year certificate of deposit is purchased for K dollars. If the certificate earns interest at  a n annual rate of 6 percent compound quarterly, which of the following represents the value, in dollars, of the certificate at the end of 2 years?

While i guess it should be :
A 2-year certificate of deposit is purchased for K dollars. If the certificate earns interest at an annual rate of 6 percent compound quarterly, which of the following represents the value, in dollars, of the certificate at the end of 2 years?

Bunuel · Answer

______________________
Edited. Thank you.

bumpbot · Answer

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A 2-year certificate of deposit is purchased for K dollars. If the

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