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Compound interest questions

This topic has 4 expert replies and 1 member reply

Compound interest questions

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How could I solve the compound interest questions when they ask for calculating the rate to a high power
Like 17,000 * 1.0082^8 for example
Is there an easy way to solve this

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GMAT/MBA Expert

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Shikatokika wrote:
How could I solve the compound interest questions when they ask for calculating the rate to a high power
Like 17,000 * 1.0082^8 for example
Is there an easy way to solve this
On the GMAT, you'd never be required to make such a calculation.

Cheers,
Brent

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Hi Shikatokika,

Are you working with practice materials that are asking you to perform that type of calculation? Since the GMAT will NOT ask you to do that type of work, you might be using materials that aren't appropriate for. There are plenty of quality resources to be found though, so you might want to consider your options.

GMAT assassins aren't born, they're made,
Rich

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Thank you guys for your reply.

It is true that the other one I got it from one of the online problem solving, and not from the OG, however here is the question that got me confused
OG16 - PS104

Leona bought a 1 yr, $10,000 certificate of deposit that paid interest at an annual rate of 8% compounded semiannually
What was the total amount of interest paid on this certificate at maturity

A $10,464
B $864
C $816
D $800
E $480

So the answer was 10,000 (1+ 0.08/2) ^ 2x1
which will be 10,000 (1.04)^2

Is there a way to make such calculation easier?
By elimination we shall eliminate A, D, and E
But how to know whether it's B or C

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Hi Shikatokika,

Instead of trying to solve this problem with one 'big' calculation, you would likely find it easier to just do it in 'pieces'

Since the interest is generated semi-annually, you'll calculate 4% interest after 6 months and then another 4% interest (on the new total) after then next 6 months:

Start: $10,000
6 months later: $10,000 + (.04)(10,000) = $10,400
12 months later: $10,400 + (.04)(10,400) = $10,816

The question asks for the total interest earned --> $816

Final Answer: C

GMAT assassins aren't born, they're made,
Rich

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