Novak invested $5000 in scheme A for 4 years, which gave a fixed rate

Question

Novak invested $5000 in scheme A for 4 years, which gave a fixed rate of return each year. From the second year of this investment, the interest earned on scheme A in the previous year was reinvested annually in scheme B, whose annual rate of interest, compounded annually, varied with the performance of scheme B in that particular year. If the total interest earned from both the schemes in the first 3 years was $500, $550 and $710 respectively and scheme B offered an interest rate of 5 percent per annum in the fourth year, what was the total interest in dollars that was earned in the fourth year from both the schemes?

A.415

B.563

C.588

D.628

E.735

A.415

B.563

C.588

D.628

E.735

Kinshook · Accepted Answer

Given:  Novak invested $5000 in scheme A for 4 years, which gave a fixed rate of return each year. From the second year of this investment, the interest earned on scheme A in the previous year was reinvested annually in scheme B, whose annual rate of interest, compounded annually, varied with the performance of scheme B in that particular year. If the total interest earned from both the schemes in the first 3 years was $500, $550 and $710 respectively
 Asked:  Scheme B offered an interest rate of 5 percent per annum in the fourth year, what was the total interest in dollars that was earned in the fourth year from both the schemes?

$5000 is invested in scheme A @10% per annum giving fixed interest of $500
Total interest accrued in 3 years = 500 + 550 + 710 = $1760

Interest earned is reinvested in Scheme B @ 5% in 4th year => Interest earned in scheme B = 1760 *5% = 88

Total interest earned in scheme A & scheme B in 4th Year = 500 + 88 = $588

IMO C

TestPrepUnlimited · Answer

After the first year, we only have the interest from scheme A. Therefore, the fixed interest we receive each year from A is $500.

Scheme B has a principal of 500 + 550 + 710 = 1760.

The interest from B is 1760*5% = 88.

The interest from A is still 500. Then the total interest is 588.

Ans: C

Crytiocanalyst · Answer

initial intrest 10 percent =500
total amount accumlated = 500 +550 +710 =1760 
5 per cent per year at b = 88

Therefore the total amount = 588

Therefore IMO C

tirthshah2013 · Answer

I am confused in this question. The total interest earned 1760 includes the interest from scheme A and scheme B. And only the interest earned from scheme A is reinvested in scheme B. So why are we calculating the total interest of 4 years by adding the first 3 interests?

Please let me know what I missed.

I got the correct answer, but it took me a lot of time, and then in the end just added the interests and found the interest on the same. By luck, I got the answer correct, but didn't understand the question.

vijayram24 · Answer

For these questions, we can split the interests and add them in a tabular format for better clarity. From the question stem , we get that from Scheme A we get fixed 10% interest every year. So dynamic part is all about Scheme B

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Novak invested $5000 in scheme A for 4 years, which gave a fixed rate

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Novak invested $5000 in scheme A for 4 years, which gave a fixed rate

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