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17 May 2018, 06:02
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C
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
15%
(low)
Question Stats:
85% (01:28) correct
15%
(01:38)
wrong
based on 89
sessions
History
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Not Attempted Yet
After a period of 3 years, how much greater is the interest income on $5,000 invested in investment A, which yields X percent interest compounded annually, than on the same amount invested in investment B, which yields Y percent simple annual interest?
(1) After 1 year, the interest income from investment A is $500.
(2) After 3 years, the interest income from investment B is $1,500.
(1) After 1 year, the interest income from investment A is $500.
(2) After 3 years, the interest income from investment B is $1,500.
17 May 2018, 06:39
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Bunuel
What is to be found?
The difference between interest earned after 3 years in investment A and investment B.
Information from question stem
1. Investment: $5000
2. Period of investment: 3 years
3. Investment A: X% compounded annually
4. Investment B: Y% simple annual interest.
Statement 1: After 1 year, the interest income from investment A is $500.
Year 1 - interest earned through simple interest or compound interest will be the same as long as compounding is done annually.
Compounding is done annually in investment A.
So, interest of $500 = r% of investment = r% of 5000
So, r = 10%
We can use this information to find the interest on investment A. But we have no information about interest from investment B.
Statement 1 alone is NOT sufficient.
Statement 2:After 3 years, the interest income from investment B is $1,500.
We do not know anything about investment A.
Statement 2 alone is NOT sufficient.
Combining the two statements:
Using statement 1, we can compute interest earned for 3 years from investment A. Using statement 2, we know what is earned in investment B. So, we will be able to find the difference.
Statement together sufficient. Choice C.
Note: Do not spend time computing the interest value in investment A to 0.331(5000) = $1655 and hence the difference to be $155. Knowing that the number will be unique will suffice.
17 May 2018, 17:40
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No math necessary.
We're told that:
- $5,000 is invested in investment A for 3 years at X% compound interest, and
- $5,000 is invested in investment B for 3 years at Y% simple interest
The question boils down to finding the interest rate of each investment. The fact that one has compound interest and the other simple interest doesnt matter and is only meant to throw you off in my opinion... because in either case, interest depends on 3 variables... principal, interest rate, and time period.
Statement 1
Interest is a function of principal, interest rate, and time period. We know the interest, principal, and time period, so we can calculate the interest rate for A. No info on B.
Statement 2
Interest is a function of principal, interest rate, and time period. We know the interest, principal, and time period, so we can calculate the interest rate for B. No info on A.
Combining both we have the answer.
Answer: C
We're told that:
- $5,000 is invested in investment A for 3 years at X% compound interest, and
- $5,000 is invested in investment B for 3 years at Y% simple interest
The question boils down to finding the interest rate of each investment. The fact that one has compound interest and the other simple interest doesnt matter and is only meant to throw you off in my opinion... because in either case, interest depends on 3 variables... principal, interest rate, and time period.
Statement 1
Interest is a function of principal, interest rate, and time period. We know the interest, principal, and time period, so we can calculate the interest rate for A. No info on B.
Statement 2
Interest is a function of principal, interest rate, and time period. We know the interest, principal, and time period, so we can calculate the interest rate for B. No info on A.
Combining both we have the answer.
Answer: C
