Compound interest questions

Expert replies

Shikatokika: Newbie | Next Rank: 10 Posts; Posts: 5; Joined: Mon Apr 18, 2016 6:43 amFollowed by: 1 member

by Shikatokika » Wed May 04, 2016 6:13 am

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

Like this post

Source: Beat The GMAT — Problem Solving | Wed May 04, 2016 6:13 am

GMAT/MBA Expert

Brent@GMATPrepNow: GMAT Instructor; Posts: 16207; Joined: Mon Dec 08, 2008 6:26 pmFollowed by: 1268 members; Location: Vancouver, BC; Thanked: 5254 times; GMAT Score:770

by Brent@GMATPrepNow » Wed May 04, 2016 12:08 pm

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

Brent Hanneson - Creator of GMATPrepNow.com

Like this post

GMAT/MBA Expert

[email protected]: Elite Legendary Member; Posts: 10392; Joined: Sun Jun 23, 2013 6:38 pmFollowed by: 511 members; Location: Palo Alto, CA; Thanked: 2867 times; GMAT Score:800

by [email protected] » Wed May 04, 2016 3:08 pm

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

Contact Rich at [email protected]

Like this post

DavidG@VeritasPrep: Legendary Member; Posts: 2663; Joined: Wed Jan 14, 2015 8:25 amFollowed by: 128 members; Location: Boston, MA; Thanked: 1153 times; GMAT Score:770

by DavidG@VeritasPrep » Wed May 04, 2016 3:31 pm

For official compound interest questions, see here: https://www.beatthegmat.com/compound-int ... 12277.html

or here: https://www.beatthegmat.com/if-a-loan-of ... 76962.html

Veritas Prep | GMAT Instructor

Veritas Prep Reviews
Save $100 off any live Veritas Prep GMAT Course

Like this post

Shikatokika: Newbie | Next Rank: 10 Posts; Posts: 5; Joined: Mon Apr 18, 2016 6:43 amFollowed by: 1 member

by Shikatokika » Wed May 04, 2016 7:40 pm

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

Like this post

GMAT/MBA Expert

[email protected]: Elite Legendary Member; Posts: 10392; Joined: Sun Jun 23, 2013 6:38 pmFollowed by: 511 members; Location: Palo Alto, CA; Thanked: 2867 times; GMAT Score:800

by [email protected] » Thu May 05, 2016 9:22 am

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

Contact Rich at [email protected]

Like this post

Post new topic Post Reply

• Page 1 of 1

GMAT Course Reviews

559 reviews

1168 reviews

431 reviews

359 reviews

147 reviews

5/5

5 Star (560 Reviews)

"Target Test Prep is the closest to the official version of the GMAT exam, about 99% accuracy in terms of the quality and quantity of information. The course has excellently created singular sets of focused lessons and tests for every possible topic that one could come across in the official GMAT exam."

"The TTP course maximizes the efficiency of the time you spend studying. It will take time and effort but I could almost guarantee that if you complete the course exactly as it is laid out you will get an amazing score. They also have a very responsive team willing to help with any questions you might have."

"TTP has two things that I think no other test prep company offers: A teaching approach that reinforces understanding and an attitude that will give you the mental preparedness needed to succeed on the test. TTP gives you a deep understanding of the concept you need to know while teaching you how to think."

Write a Review