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yosita18
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Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid Updated on: 06 Feb 2019, 02:04
Originally posted by yosita18 on 25 Aug 2016, 07:45.
Last edited by Bunuel on 06 Feb 2019, 02:04, edited 3 times in total.
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15% (low)

Question Stats:

82% (01:45) correct 18% (02:18) wrong based on 130 sessions

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Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid interest at 12% p.a., interest being compounded quarterly. what is the expected total amount of interest which must be paid on this certificate by the end of 6 months?

(A) $5940
(B) $5000
(C) $6020
(D) $6090
(E) $5050

Show Spoiler
There might be many ways of calculating Compound Interest.
But, when I use the following formula:
A = P (1+R/C)^NC

P = Principal Amount
R = Annual Interest Rate (as a Decimal)
C = Number of "Compoundings" Per Year
N = Number of Years
A = Final Amount

Can you please help solve this question using the above formula?
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abhimahna
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Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid 25 Aug 2016, 10:15
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yosita18
Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid interest at 12% p.a., interest being compounded quarterly. what is the expected total amount of interest which must be paid on this certificate by the end of 6 months?

Ans: $6090

There might be many ways of calculating Compound Interest.
But, when I use the following formula:
A = P (1+R/C)^NC

P = Principal Amount
R = Annual Interest Rate (as a Decimal)
C = Number of "Compoundings" Per Year
N = Number of Years
A = Final Amount

Can you please help solve this question using the above formula?
Show more

Another way to solve this question without using formula.

Since, interest is compounded quarterly, I can say 3% per quarter.

Now, Principle is 1,00,000 .

Apply 3% interest on it , you will get interest earned = 3000

Now after 1st quarter, New principle will be 103000

Again apply 3% on the new principle, you will get New principle = 106090.

Hence, Interest earned in 6 months = 6090.
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Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid 25 Aug 2016, 07:52
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yosita18
Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid interest at 12% p.a., interest being compounded quarterly. what is the expected total amount of interest which must be paid on this certificate by the end of 6 months?

Ans: $6090

There might be many ways of calculating Compound Interest.
But, when I use the following formula:
A = P (1+R/C)^NC

P = Principal Amount
R = Annual Interest Rate (as a Decimal)
C = Number of "Compoundings" Per Year
N = Number of Years
A = Final Amount

Can you please help solve this question using the above formula?
Show more


You've already mentioned the formula, just substitute the values.
\(A = 1,00,000 ( 1 + \frac{12}{400})^2\)
raised to 2 because the question asks for only \(\frac{1}{2}\) year and \(\frac{1}{2}*4 = 2\)
= \(10^5(1.03)^2 = 1,06,090.\)

so Interest is 1,06,090 - 1,00,000 = 6,090
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Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid 14 Oct 2018, 00:26
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100000 is the principal
3 % will be the interest rate

In 6 months, there will be 2 quarters so no. of cycle will be 2

1st cycle simple interest: 3000
2nd cycle simple interest: 3000
2nd cycle interest on 1st cycle simple interest: 90
adding all three : 6090$
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Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid 06 Feb 2019, 01:56
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yosita18
Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid interest at 12% p.a., interest being compounded quarterly. what is the expected total amount of interest which must be paid on this certificate by the end of 6 months?

(A) $5940
(B) $5000
(C) $6020
(D) $6090
(E) $5050

There might be many ways of calculating Compound Interest.
But, when I use the following formula:
A = P (1+R/C)^NC

P = Principal Amount
R = Annual Interest Rate (as a Decimal)
C = Number of "Compoundings" Per Year
N = Number of Years
A = Final Amount

Can you please help solve this question using the above formula?
Show more

Dear Moderator,
Can OA for this question please be updated, Thank you.
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Active GMAT Club Expert! Tag them with @ followed by their username for a faster response.
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Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid 06 Feb 2019, 02:04
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stne
yosita18
Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid interest at 12% p.a., interest being compounded quarterly. what is the expected total amount of interest which must be paid on this certificate by the end of 6 months?

(A) $5940
(B) $5000
(C) $6020
(D) $6090
(E) $5050

There might be many ways of calculating Compound Interest.
But, when I use the following formula:
A = P (1+R/C)^NC

P = Principal Amount
R = Annual Interest Rate (as a Decimal)
C = Number of "Compoundings" Per Year
N = Number of Years
A = Final Amount

Can you please help solve this question using the above formula?

Dear Moderator,
Can OA for this question please be updated, Thank you.
Show more

Done.

This is a copy of the following OG question: https://gmatclub.com/forum/leona-bought ... 43742.html
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Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid 04 Dec 2023, 04:53
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Senthil1981
yosita18
Fiona purchased a 1-year, $1,00,000 certificate of deposit that paid interest at 12% p.a., interest being compounded quarterly. what is the expected total amount of interest which must be paid on this certificate by the end of 6 months?

Ans: $6090

There might be many ways of calculating Compound Interest.
But, when I use the following formula:
A = P (1+R/C)^NC

P = Principal Amount
R = Annual Interest Rate (as a Decimal)
C = Number of "Compoundings" Per Year
N = Number of Years
A = Final Amount

Can you please help solve this question using the above formula?


You've already mentioned the formula, just substitute the values.
\(A = 1,00,000 ( 1 + \frac{12}{400})^2\)
raised to 2 because the question asks for only \(\frac{1}{2}\) year and \(\frac{1}{2}*4 = 2\)
= \(10^5(1.03)^2 = 1,06,090.\)

so Interest is 1,06,090 - 1,00,000 = 6,090
Show more

Great explanation Senthil1981.
To clarify if interest after 3 months, is the year is 3/12 = 1/4? Similarily if it's 9 months, will it be 9/12 = 3/4 ?
Could you confirm? Thanks
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