Is there a better way to answer this question?
Matt is planning to buy a car in three years. He wants to invest $5000 now and hopes to have $6000 to spend on the car when he buys it. What kind of interest rate would he need if his investment is compounded monthly?
A solution to this problem would be:
I used the formula like so: A=p(1+r/n)^nt
*6000=5000(1+r/12)^12 times 3
*6000=5000(1+r/12)^36
-divide sides by 5000
^1/36(1.2)=((1+r/12)^36)^1/36
1+r/12=1.00508
subtracting both sides by 1
r/12=0.00508
then multiply both sides by 12
r=approx 0.061 or 6.1%
is there a better way to solve this question?
Compound Interest
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- Brent@GMATPrepNow
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What's the source of this question?datonman wrote:Is there a better way to answer this question?
Matt is planning to buy a car in three years. He wants to invest $5000 now and hopes to have $6000 to spend on the car when he buys it. What kind of interest rate would he need if his investment is compounded monthly?
A solution to this problem would be:
I used the formula like so: A=p(1+r/n)^nt
*6000=5000(1+r/12)^12 times 3
*6000=5000(1+r/12)^36
-divide sides by 5000
^1/36(1.2)=((1+r/12)^36)^1/36
Should be: (1.2)^(1/36)=((1+r/12)^36)^1/36
1+r/12=1.00508
subtracting both sides by 1
r/12=0.00508
then multiply both sides by 12
r=approx 0.061 or 6.1%
is there a better way to solve this question?
What are the answer choices?
You've set things up correctly, but the GMAT would never require you to evaluate (1.2)^(1/36)
Cheers,
Brent
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Hi datonman,
Brent is correct - the GMAT would never ask you to calculate this complex of a result. The question would also include the answer choices, so you could use them to your advantage and likely avoid the big calculation entirely.
GMAT assassins aren't born, they're made,
Rich
Brent is correct - the GMAT would never ask you to calculate this complex of a result. The question would also include the answer choices, so you could use them to your advantage and likely avoid the big calculation entirely.
GMAT assassins aren't born, they're made,
Rich
- DavidG@VeritasPrep
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