Hi yeshuashley,

This is an interest rate question; based on it's wording, it requires the use of the compound interest formula (although you could calculate the interest every 6 months "by hand", but that would take a bit of work).

In most GMAT questions of this type, interest is calculated once per year, with the following formula:

Total = (Principal)(1 + R)^T

Principal = the initial money invested
R = Interest Rate per year
T = Number of years

So if you invested $100 at 10% compound interest for 2 years, you'd have....

($100)(1 + .1)^2
($100)(1.21)
$121 at the end of the two years.

In this question, we're calculating interest semi-annually, which means we calculate every 6 MONTHS. This changes the calculation a bit. Since we're calculating interest twice a year, we have to essentially "double the T and halve the R." This question includes one more "quirk" - the period of time is NOT in full years - it's five 6-month periods. This leads us to....

Principal = $X
R = 4%
T = 5 periods

We can TEST VALUES by picking a number for the Principal:

($100)(1.04)^5

This would be a real tedious calculation IF we didn't have the answers to work with. Since we're receiving 4% interest per period, and there are 5 periods, we know that 4%(5 periods) = 20%.....but since we're compounding the interest, the total would be a little bit more than 20%. There's only one answer here that accounts for the initial Principal and interest that is a little more than 20%.

Final Answer: C

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