Data Sufficiency

LUANDATO wrote:Stewie deposits $5000 at a compounded interest rate. What is the interest Stewie will earn after 3 years?

(1) The interest is calculated on a monthly basis.
(2) The annual rate of interest is 6%.

The OA is C.

I'm really confused with this DS question. Please, can any expert assist me with it? Thanks in advanced.

The formula for the computation of compound interest is CI = P[(1 + r%)^n - 1]; where P = Principal or Sum, r = rate interest and n= number of periods

We are given that P = $5000 and n = 3 years.

(1) The interest is calculated on a monthly basis.

We do not know the value of r. Insufficient.

(2) The annual rate of interest is 6%.

We are given that r = 6%, but we cannot assume that the computation of rate is based on the annual basis. It may be half-yearly, quarterly, or even monthly. Insufficient.

(1) and (2) combined:

We have n = 3*12 = 36 periods since the interest is calculated on a monthly basis. Similarly, the rate of interest r = 6/12 = 0.5%.

CI = P[(1 + r%)^n - 1]

CI = 5000[(1 + 0.5%)^36 -1] = a finite number. Sufficient.

There is no need to compute this as with DS, you need to be only sure that you would get an answer.

The correct answer: C

Hope this helps!

-Jay
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