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Problem Solving — algebra and arithmetic (GMAT Focus Edition)
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Interest forumlas

by joannabanana » Sat Nov 20, 2010 6:41 am
I haven't studied the formulas for simple or compound interest since high school and I don't remember seeing them in any of my GMAT books (and I've gone through quite a few at this point!), but today while taking a GMAT prep CAT there was a question asking about the simple interest of something. Can someone please tell me what formulas I should know that are related to inteterest, just in case I come across a similar question?
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by Tani » Sat Nov 20, 2010 7:48 am
Simple interest only pays interest on the principle each year. Compound pays interest on the principle plus any accrued interest from prior years. The formulas are:

Simple interest:

Total = Principle * (1 + interest rate * number of years)

Compound interest:

Total = Principle * (1 + interest rate)^number of years
Tani Wolff
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