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Intern
Joined: 12 Feb 2012
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12 Feb 2012, 10:11
Q1 ) An organization has a car financing scheme in place for its employees in close cooperation with a bank.The organization will pay for the car but plans to earn 15% simple interest on the price only once at the end of the next two years. The return plan consists of two equal yearly payments;one instantaneous down payment and the other as a installment at the end of the current year. This will be deposited in the organization bank and will earn an interest of 12% per year compounded annually. If the car costs Rs 6,00,000.00. What is the periodic amount payable by the employee ??

A) 190599.73 B) 3,00,000.00 C) 3,45,000.000 D) 29,0000.53

Q2 ) A young mother plans to deposit Rs 5000(tax exempt saving account) beginning six months from now, and at the end of each semiannual period consecutively for the next 2 years(from now),in order to ensure that she meets the expenses of her babys early schooling.Interest is earned at the rate of 16%per year compounded sem-annually. What will the total interest be after two years from now, immediately after her last payment.

1) 4333 B) 2530.56 C) 1232 D) 2500

Please explain how these can be solved and any concepts involved. Your help is appreciated.

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Magoosh GMAT Instructor
Joined: 28 Dec 2011
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12 Feb 2012, 16:11
Hi, there. I'm happy to give my 2¢ on these.

For both questions, I am not getting one of the answer choices, so I don't know if I am interpreting the scenarios correctly. I can, though, demonstrate the mathematical techniques one would need in questions like this.

Question #1
An organization has a car financing scheme in place for its employees in close cooperation with a bank.The organization will pay for the car but plans to earn 15% simple interest on the price only once at the end of the next two years. The return plan consists of two equal yearly payments;one instantaneous down payment and the other as a installment at the end of the current year. This will be deposited in the organization bank and will earn an interest of 12% per year compounded annually. If the car costs Rs 6,00,000.00. What is the periodic amount payable by the employee ??

Here is my understanding:
1) Right now, employee pays x
2) over the first year, that earns 12% APR
3) at the end of the first year, the employee pays another x
4) all those funds earn 12 APR over the second year
5) at the end of two years, the total amount including all interest should equal 15% of the price of the car.

As an American with some cultural limitations, I am unfortunately not as familiar with the Rupees system, so I will just say that the cost of the car is \$60000 in US money.

15% of \$60000 is (0.15)*60000 = 9000.

Employee puts in x.
Then, 12% interest ---> amount in account is 1.12x.
Then, add another x ----> amount in account is x + 1.12x = 2.12x
Then 12% interest ---> amount in account is 1.12*2.12x = 2.3744x

This must equal 9000, so 9000 = 2.3744x ----> x = 9000/2.3744 = \$3790.43

That's exactly how the question would run with American dollars. I don't know if I am missing something crucial about the Rupees system.

Question #2
A young mother plans to deposit Rs 5000(tax exempt saving account) beginning six months from now, and at the end of each semiannual period consecutively for the next 2 years(from now),in order to ensure that she meets the expenses of her baby's early schooling. Interest is earned at the rate of 16%per year compounded semi-annually. What will the total interest be after two years from now, immediately after her last payment.

Again, I am going to use US \$5000, and I don't quite understand Rupees enough to understand why that answer would be different.

Start = account empty
6 months = \$5000
12 months = (5000)*1.16 + 5000 = 10800
18 months = (10800)*1.16 + 5000 =17528
24 months = (17528)*1.16 + 5000= 25332.48

So, after 24 months, the young mother has deposited 4*5000 = 20000 in principle, so that means the interest is

interest = 25332.48 - 20000 = \$5332.48

Again, this is the perfectly correct answer if the question were in US dollars. I'm not sure what different the currency makes.

BTW, both of these are much more difficult that something you would be expected to calculate on the GMAT. Remember that you have access to no calculator on the GMAT.

I hope that's helpful. Please let me know if you have any questions on what I've said.

Mike
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Mike McGarry
Magoosh Test Prep

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Intern
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12 Feb 2012, 22:08
Thanks Mike, but the answers as you know are not right

And Rupees doesn't make any difference as you said. Its just a currency.

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Magoosh GMAT Instructor
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13 Feb 2012, 10:27
Dear Mubbashir

If I may ask, what is the source of these questions? Do we know if this source is reputable? Also, has the text of the questions been faithfully reproduced from the source? A slight difference in wording could lead to a sizable difference in the calculation.

I am very interested in resolving this discrepancy.

Mike
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Mike McGarry
Magoosh Test Prep

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