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Vlad invests $4,000 at a 5% interest rate compounded semi-annually.

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Bunuel
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Vlad invests $4,000 at a 5% interest rate compounded semi-annually. [#permalink] New post   17 Feb 2023, 01:48
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60% (02:12) correct 40% (02:16) wrong based on 91 sessions
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Vlad invests $4,000 at a 5% interest rate compounded semi-annually. Pavel invests $4,000 at a 5% simple interest rate. How much interest does Vlad earn than Pavel after one year ?

A. $0
B. $2.5
C. $5
D. $205
E. $210
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B
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rororo
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Re: Vlad invests $4,000 at a 5% interest rate compounded semi-annually. [#permalink] New post   18 Feb 2023, 08:36
Formula for compound interest: principal*(1+interest rate/interest applications per period)^number of interest applications
Formula for simple interest: principal*interest rate*periods
->
Vlad: 4000*(1+0.05/2)^2 = 4202.5
Pavel: 4000*0,05*1 = 4200
Difference = 2.5
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Re: Vlad invests $4,000 at a 5% interest rate compounded semi-annually. [#permalink] New post   02 May 2023, 01:29
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Bunuel GMATNinja

The question should say that the 5% interest rate is annual so that one does not end up at answer choice E because of the ambiguity.
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Re: Vlad invests $4,000 at a 5% interest rate compounded semi-annually. [#permalink] New post   02 May 2023, 07:49
Bunuel wrote:
Vlad invests $4,000 at a 5% interest rate compounded semi-annually. Pavel invests $4,000 at a 5% simple interest rate. How much interest does Vlad earn than Pavel after one year ?

A. $0
B. $2.5
C. $5
D. $205
E. $210

Calculation of CI

1st Half Year , CI = 4000*5*1/200 => 100, So, Amount is 4100
2nd Half Year , CI = 4100*5*1/200 => 102.50, So, Amount is 4202.50

Calculation of SI

Amount is 4000 + 4000*5*1/100 = 4200

Thus, difference in CI and SI is 4202.50 - 4200 = 2.50, Answer must be (B) 2.50
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Re: Vlad invests $4,000 at a 5% interest rate compounded semi-annually. [#permalink]
02 May 2023, 07:49
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