A family made a down payment of $75 and borrowed the balance

Question

A family made a down payment of $75 and borrowed the balance on a set of encyclopedias that cost $400. The balance with interest was paid in 23 monthly payments of $16 each and a final payment of $9. The amount of interest paid was what percent of the amount borrowed?

(A) 6%
(B) 12%
(C) 14%
(D) 16%
(E) 20%

(A) 6%
(B) 12%
(C) 14%
(D) 16%
(E) 20%

Enael · Accepted Answer

If it helps:

52/325 could be approximated to 16% by trying to make the denominator 100, 1000, 10000, etc.

So if you multiply by 3/3 you would get (52*3)/(325*3) = 156/975 which would be pretty close to 0.156 if we assume 975 = 1,000. That's a quick way to get the 16%.

Hope it helps!

GMAT TIGER · Answer

borrowings = 400-75 = 325

total pmt = 23x16 + 9 = 377
so int = 377 - 325 = 52
interest in terms of borrowing = 52/325 = 16%D.

Bunuel · Answer

A family made a down payment of $75 and borrowed the balance on a set of encyclopedias that cost $400,  means the following:
   The set of encyclopedias cost $400; 
  The family made a down payment of $75, so they paid $75. 
  The family borrowed the remaining amount, hence they borrowed $400 - $75 = $325.

The balance with interest was paid in 23 monthly payments of $16 each and a final payment of $9,  means the following:
   The borrowed sum of $325 was paid in 23 monthly payments of $16 each and a final payment of $9. 
  The payment was 23*16 + 9 = $377. 
  The interest was 377 - 325 = $52.

The amount of interest paid was 52/325 = (4*13)/(25*13) = 4/25 = 16/100 = 16%.

Answer: C.

Hope it helps.

GMATBLACKBELT · Answer

I get D.

400 is total. they borrowed 400-75 or 325$.

23*16 + 9 = 377$

now 377-325=52.

52/325=.16 or 16%

shuvodip04 · Answer

Total amount borrowed = 400 - 75 = 325.

Total amount paid = 23*16 + 9 = 377

interest paid = 377-325 = 52

So percentage = 52/325 * 100 = 52/13*4 = 4*4=16% D

0Lucky0 · Answer

chetan2u   IanStewart 
"set of encyclopedias that cost $400" seems to imply that the set of encyclopedias cost $400, off of which the balance was borrowed. So it seems to imply that the amount borrowed was 400.
I don't understand how people are able to interpret this statement as 400 - 75 = 325? Where does it say that?

0Lucky0 · Answer

Where does this "remaining amount" statement come from? from what I read, the family made a down payment of "75" and borrowed the rest off of 400$ worth of Encyclopedias so total 75+400 = 475 Total?

Bunuel · Answer

The question clearly says that the set of encyclopedias cost $400. So, your interpretation is not right.

0Lucky0 · Answer

Oh yea, I am not disputing that. That's what I am also saying, that the Encyclopedias cost 400$, But what I am having trouble understanding is where does it say that the down payment is to be subtracted from that 400? It says "borrowed the balance" which means after making a down payment of 75$, it borrowed 400$ more, so total payment is 475.

Bunuel · Answer

Your interpretation does not make sense. If the encyclopedias cost $400 and the family paid $75, why should they borrow $400? Sorry, that's all I have to say about this problem.

KarishmaB · Answer

"the balance was borrowed" means "the remaining was borrowed"
"balance" means what is left in this context. I borrowed $100 from you and later returned $40 say. If I ask you, "What is my balance?" it means how much is remaining? How much more do I have to give you.

"A family made a down payment of $75 and borrowed the balance on a set of encyclopedias that cost $400"
means they paid $75 right away and then borrowed the remaining $325 from some and paid to get the set.
To this someone, then they made monthly payments.

0Lucky0 · Answer

"remaining $325 "? How do you deduce that it means " remaining $325 " ?

It says "Borrowed the balance" on a set of encyclopedias that cost $400" ==> Translation ==> "Borrowed the amount left after making a down payment of 75$. So whatever amount that was left after paying 75$,
Now what is this amount that was left? ==> "on a set of encyclopedias that cost $400", meaning the encyclopedias cost 400$ and so 400$ was borrowed but since this 400$ is the balance amount after making a down payment of 75$ so 75 + 400 = 475$ is the total amount to be paid.

KarishmaB · Answer

A word means many different things depending on context. That is why we say 'reading newspapers, magazines etc.' is important.

0Lucky0 · Answer

I agree completely and I still stand by my point, I completely agree with you that the word "balance" means "remaining" but where we don't agree is if 400$ is what is remaining or if 400$ after deducting 75$ is what is remaining. From the statement, it clearly says that "remaining is 400", whereas you seem to imply that remaining is "400-75".
The statement in the question can be restated as "balance is 400$". Not sure how a statement this clear can be interpreted as "balance is 400 - downpayment".

chetan2u · Answer

Hi,

A family made a down payment of $75 and borrowed the balance on a set of encyclopedias that cost $400.

You may interpret the sentence as you are saying. However, borrowed the balance AGAINST something would have been better in that case.

Secondly, what has he made the down payment for? There is nothing else but set of encyclopaedias. So, he gives a down payment and the balance is borrowed for buying set of encyclopaedias, which cost 400$

KarishmaB · Answer

You are clearly given that the set costs $400, not $475... "set of encyclopedias that cost $400."

Also I suggest you to not stand by your point. It is an official question and they decide how they express what they want to say. We all have to fall in line. 
Instead, invest your time in figuring out how GMAC phrases its questions and what they imply when they say something.

Snehaaaaa · Answer

0Lucky0
I'm not an expert, trying to clear the confusion here.

I understand from your statement that you are not clear whether the encyclopedia was the product that was purchased or mortgaged.

As per the question, "Borrowed the balance on a set of encyclopedias" means that the family borrowed the remaining amount of money needed to purchase the encyclopedias after making the down payment. In this case, the encyclopedias cost $400, and the family made a down payment of $75.

So, the balance on the set of encyclopedias, which is the remaining amount to be paid, is calculated by subtracting the down payment from the total cost of the encyclopedias:

Balance = Total cost - Down payment
Balance = $400 - $75
Balance = $325

Therefore, the family borrowed $325 to cover the remaining cost of the encyclopedias.

Hope this helps

Abhishek009 · Answer

400 - 75 = 325  (Borrowed amount)

Interest paid :  9 + 16*23 - 325 = 52

\frac{52}{325}*100 = 16 %, Answer must be (D)

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A family made a down payment of $75 and borrowed the balance

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