RBBmba@2014 wrote:A bank offers an interest of 5% per annum compounded annually on all of its deposits. If 10,000$ is deposited, what will be the ratio of the interest earned in the 4th year to the interest earned in the 5th year?
(A) 1:5
(B) 625 : 3125
(C) 100 : 105
(D) 1004 : 1005
(E) 725 : 3225
OA : C
@ Experts - What could be the fastest and smartest way to solve this sort of problem under time constraint?
The interest ratio from one year to the next is always THE SAME.
Since the amount in the account increases by 5% each year, the amount of interest also increases by 5% each year.
Thus, if $100 interest is earned one year, then $105 interest is earned the next year.
Resulting ratio from one year to the next = 100:105.
The correct answer is
C.
To verify the line of reasoning above, we can test cases.
Case 1: Amount in the account in the 4th year = 2000.
4th-year interest = 5% of 2000 = 100.
Amount in the account in the 5th year = 2000 + 100 = 2100.
5th-year interest = 5% of 2100 = 105.
(4th-year interest) : (5th-year interest) = 100:105.
Case 2: Amount in the account in the 4th year = 4000.
4th-year interest = 5% of 4000 = 200.
Amount in the account in the 5th year = 4000 + 200 = 4200.
5th-year interest = 5% of 4200 = 210.
(4th-year interest) : (5th-year interest) = 200:210 = 100:105.
In each case, the resulting interest ratio is THE SAME.
Private tutor exclusively for the GMAT and GRE, with over 20 years of experience.
Followed here and elsewhere by over 1900 test-takers.
I have worked with students based in the US, Australia, Taiwan, China, Tajikistan, Kuwait, Saudi Arabia -- a long list of countries.
My students have been admitted to HBS, CBS, Tuck, Yale, Stern, Fuqua -- a long list of top programs.
As a tutor, I don't simply teach you how I would approach problems.
I unlock the best way for YOU to solve problems.
For more information, please email me (Mitch Hunt) at
[email protected].
Student Review #1
Student Review #2
Student Review #3
