BREAKING: Target Test Prep releases Brand New 2026 On Demand GMAT prep course

Redeem
TTP OnDemand GMAT Video Course
Featured Course

Target Test Prep GMAT OnDemand

Scott Woodbury-Stewart’s private virtual classroom — 400 hours of master-class video lessons for the GMAT Focus Edition.

  • 715+ score guarantee — highest in the industry (99th percentile)
  • 52 chapters · 1,500+ lessons · 4,000+ practice questions
  • 400 hours of video · 1,500+ instructor-led HD smartboard lessons
  • 300,000+ students accepted to Harvard, Stanford, Wharton, Booth & Sloan & more
  • 24/7 live support + weekly Zoom office hours with GMAT instructors
  • TTP AI Assist — 24/7 AI-powered virtual tutor for instant help
  • 1,200+ flashcards + AI-powered study assistant & daily calendar
  • OnDemand, LiveTeach & GMAT Bootcamp formats available
  • Also: GRE, SAT Math & Executive Assessment courses
  • MBA Admissions Consulting now available
  • 🏆 2025 EdTech Breakthrough Award: Test Prep Solution Provider of the Year
  • 200,000+ students served
  • 5-day free trial — $0 to start, no auto-billing, cancel anytime
★★★★★ 5.0 (559 reviews)
130-pt guarantee
$0 to start then $127/mo
Start Free 5-Day Trial Read 559 Reviews →

Compound Interest!

Expert replies
Post new topic Post Reply
Previous Topic Next Topic
User avatar
Junior | Next Rank: 30 Posts
Posts: 28
Joined: Sun Jan 01, 2012 9:45 pm
by RSK » Sun Jan 15, 2012 7:37 am
Hi guys,

Can someone help me understand how this problem can be solved quickly?

If $1000 was invested at an annual interest rate of 5.6% compunded annually, which of the following represents the amount the investment was worth after 3 years?

1000 (1.056)(3)
1000 (3+1.056)
1000 [1+3(0.056)]
1000 [1+(0.056)^3]
1000 (1.056)^3

Thanks!! =)
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Source: — Problem Solving |
User avatar
Master | Next Rank: 500 Posts
Posts: 425
Joined: Wed Dec 08, 2010 9:00 amFollowed by: 7 members
Thanked: 56 times
GMAT Score:690

by LalaB » Sun Jan 15, 2012 10:23 am
it is a formula.u have to know it by heart.

principal amount*(1+r/n)^t
1000(1+0.056/1)^3
1000(1.056)^3
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Legendary Member
Posts: 966
Joined: Sat Jan 02, 2010 8:06 amFollowed by: 21 members
Thanked: 230 times

by shankar.ashwin » Sun Jan 15, 2012 3:45 pm
Simple Interest = Pnr/100

Compound Interest = P[1+r/100]^n

where, P - principal
n - number of years and r - rate of interest.

given, P = 1000,n=3 and r = 5.6

Scan the answer choices, only E is of the form of the CI formula.
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
Legendary Member
Posts: 626
Joined: Fri Dec 23, 2011 2:50 amFollowed by: 10 members
Location: Ahmedabad
Thanked: 31 times

by ronnie1985 » Sun Jan 15, 2012 7:53 pm
Use the binomial expansion rule to make the approximation
(1+x)^n = 1 + nC1*x + nC2 x^2 + ...
Now for x <<1 x^2 and higher powers can be ignored
Here x = 0.056.
Follow your passion, Success as perceived by others shall follow you
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
Legendary Member
Posts: 626
Joined: Fri Dec 23, 2011 2:50 amFollowed by: 10 members
Location: Ahmedabad
Thanked: 31 times

by ronnie1985 » Sun Jan 15, 2012 7:55 pm
But one of the answer choices is the same as the compound interest formula for amount which is option (E)
Follow your passion, Success as perceived by others shall follow you
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
Junior | Next Rank: 30 Posts
Posts: 28
Joined: Sun Jan 01, 2012 9:45 pm

by RSK » Mon Jan 16, 2012 5:59 am
What is the correct formula? The formula posted by Shankar is different from yours and does not take into account whether the interest is compounded annually, biannually, etc.
LalaB wrote:it is a formula.u have to know it by heart.

principal amount*(1+r/n)^t
1000(1+0.056/1)^3
1000(1.056)^3
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Senior | Next Rank: 100 Posts
Posts: 63
Joined: Sat Dec 24, 2011 9:47 am
Location: India

by him1985 » Mon Jan 16, 2012 6:21 am
Hi RSK,

Correct formula is: Compound Interest = P[1+r/100]^n

where, P - principal
n - number of years and r - rate of interest.

given, P = 1000,n=3 and r = 5.6 . Correct answer is E.
Himanshu Chauhan
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
Junior | Next Rank: 30 Posts
Posts: 28
Joined: Sun Jan 01, 2012 9:45 pm

by RSK » Mon Jan 16, 2012 6:25 am
A=P(1+r/q)^(nq)

The above is correct because it allows us to calculate the amount even if the interest is compounded twice or thrice a year, etc.

A= amount accumulated after n years including the interest.
r = interest rate as a decimal
n = no. of years
q = no. of times it is compounded
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Post new topic Post Reply
• Page 1 of 1