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

Redeem

help me

This topic has expert replies
Post new topic Post Reply
Previous Topic Next Topic
Newbie | Next Rank: 10 Posts
Posts: 1
Joined: Fri Apr 22, 2011 1:43 pm

help me

by vidhimistry » Tue Apr 26, 2011 5:36 am
A 2-year certificate of deposit is purchased for k dollars. If the certificate earns interest at an annual rate of 6 percent compounded quarterly, which of the following represents the value, in dollars, of the certificate at the end of the 2 years ?
Top
Source: — Problem Solving |
User avatar
GMAT Instructor
Posts: 15539
Joined: Tue May 25, 2010 12:04 pm
Location: New York, NY
Thanked: 13060 times
Followed by:1906 members
GMAT Score:790

by GMATGuruNY » Tue Apr 26, 2011 5:55 am
vidhimistry wrote:A 2-year certificate of deposit is purchased for k dollars. If the certificate earns interest at an annual rate of 6 percent compounded quarterly, which of the following represents the value, in dollars, of the certificate at the end of the 2 years ?
The formula for repeated percent change in which a value is repeatedly increased by r%:

Final amount = Original Amount * (1 + r/100)^number of changes.

In the problem above:
Original amount = k.
r = 6/4 = 1.5. (Every quarter the certificate receives 1/4 of the 6 percent interest.)
Number of changes in 2 years = 8. (Every quarter for 2 years = 4*2 = 8 changes).

Thus:
Final amount = k*(1 + 1.5/100)� = k*(1.015)�.
Private tutor exclusively for the GMAT and GRE, with over 20 years of experience.
Followed here and elsewhere by over 1900 test-takers.
I have worked with students based in the US, Australia, Taiwan, China, Tajikistan, Kuwait, Saudi Arabia -- a long list of countries.
My students have been admitted to HBS, CBS, Tuck, Yale, Stern, Fuqua -- a long list of top programs.

As a tutor, I don't simply teach you how I would approach problems.
I unlock the best way for YOU to solve problems.

For more information, please email me (Mitch Hunt) at [email protected].
Student Review #1
Student Review #2
Student Review #3
Top
User avatar
Master | Next Rank: 500 Posts
Posts: 243
Joined: Sun Jul 12, 2009 7:12 am
Location: Dominican Republic
Thanked: 31 times
Followed by:2 members
GMAT Score:480

by MAAJ » Tue Apr 26, 2011 6:46 am
I got a different formula, where am I wrong?

K * (1 + i)^n

i = interest rate. Because 6% is anually we must convert it to a quaterly interest rate. Because there are "three" quaters in a year (3 * 4Q = 12) , then we must divide the interest rate by 3. So instead of 0.06 we should use 0.02

n = # capitalizations. If in one year there are 3 quaters, in two years there should be 6 quaters. So we must use n = 6 to calculate compound interest 6 times.

Putting it all together:

K *(1+0.02)^6
K *(1.02)^6
"There's a difference between interest and commitment. When you're interested in doing something, you do it only when circumstance permit. When you're committed to something, you accept no excuses, only results."
Top
Master | Next Rank: 500 Posts
Posts: 118
Joined: Wed Mar 16, 2011 12:51 am
Location: New Delhi, India
Thanked: 12 times
Followed by:1 members

by pankajks2010 » Tue Apr 26, 2011 9:25 am
In a year there are 4 quarters and every quarter has 3 months.

Thus, the annual interest rate would get divided by 4 and not 3.

Similarly, the time period (n) would become 2*4=8 and not 6.
Top
User avatar
Master | Next Rank: 500 Posts
Posts: 243
Joined: Sun Jul 12, 2009 7:12 am
Location: Dominican Republic
Thanked: 31 times
Followed by:2 members
GMAT Score:480

by MAAJ » Tue Apr 26, 2011 10:05 am
Oh now I see... it's a bit different in spanish...

I though quaterly meant "cuatrimestralmente" in spanish, which means every four months.

Verbal is killing me even in the Quantitative section :(
pankajks2010 wrote:In a year there are 4 quarters and every quarter has 3 months.

Thus, the annual interest rate would get divided by 4 and not 3.

Similarly, the time period (n) would become 2*4=8 and not 6.
"There's a difference between interest and commitment. When you're interested in doing something, you do it only when circumstance permit. When you're committed to something, you accept no excuses, only results."
Top
Post new topic Post Reply
• Page 1 of 1