If $1 were invested at 8 percent interest compounded annually, the total value of the investment, in dollars, at the end of 6 years would be
A) (1.8)^6
B) (1.08)^6
C) 6(1.08)
D) 1 + (0.08)^6
E) 1 + 6(0.08)
I tend to confuse compound and simple interest, and how to find the total vs just the interest.
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Compound interest
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LulaBrazilia
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Patrick_GMATFix
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Brent@GMATPrepNow
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You can use this formula to calculate compound interest:LulaBrazilia wrote:If $1 were invested at 8 percent interest compounded annually, the total value of the investment, in dollars, at the end of 6 years would be
A) (1.8)^6
B) (1.08)^6
C) 6(1.08)
D) 1 + (0.08)^6
E) 1 + 6(0.08)
Final balance = P( 1 + r/c)^nc where:
P = the principal (the initial investment)
r = the annual interest rate expressed as a decimal
c = the number of times the interest is compounded each year
n = the number of years the investment collects interest
For this question, P = $1, r = 0.08, c = 1, n = 6
So, the FINAL BALANCE = 1( 1 + 0.08/1)^[(6)(1)]
= (1.08)^6
= B
Cheers,
Brent
Last edited by Brent@GMATPrepNow on Thu Oct 12, 2017 2:55 pm, edited 1 time in total.
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Abhishek009
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CI = P( 1 +R/100)^NLulaBrazilia wrote:If $1 were invested at 8 percent interest compounded annually, the total value of the investment, in dollars, at the end of 6 years would be
A) (1.8)^6
B) (1.08)^6
C) 6(1.08)
D) 1 + (0.08)^6
E) 1 + 6(0.08)
I tend to confuse compound and simple interest, and how to find the total vs just the interest.
*In this case P = 1 , R = 8 , N = 6
Hence Ci will be = 1(1 + 8/100)^6
1(1+0.08)^6 = (1.08)^6
Abhishek
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Jeff@TargetTestPrep
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Using the compound interest formula, we have:LulaBrazilia wrote:If $1 were invested at 8 percent interest compounded annually, the total value of the investment, in dollars, at the end of 6 years would be
A) (1.8)^6
B) (1.08)^6
C) 6(1.08)
D) 1 + (0.08)^6
E) 1 + 6(0.08)
future value = present value(1 + rate/n)^nt
(in which n = number of compounding periods in a year and t = total number of years)
future value = 1(1 + 0.08/1)^(1)(6)
future value = (1.08)^6
Answer: B
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Brent@GMATPrepNow
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You can use this formula to calculate compound interest:LulaBrazilia wrote:If $1 were invested at 8 percent interest compounded annually, the total value of the investment, in dollars, at the end of 6 years would be
A) (1.8)^6
B) (1.08)^6
C) 6(1.08)
D) 1 + (0.08)^6
E) 1 + 6(0.08)
Final balance = P( 1 + r/c)^nc where:
P = the principal (the initial investment)
r = the annual interest rate expressed as a decimal
c = the number of times the interest is compounded each year
n = the number of years the investment collects interest
For this question, P = $1, r = 0.08, c = 1, n = 6
So, the FINAL BALANCE = 1( 1 + 0.08/1)^[(6)(1)]
= (1.08)^6
Answer: B
Cheers,
Brent
Brent Hanneson - Creator of GMATPrepNow.com
