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Approximation

by 1947 » Wed Jun 13, 2012 10:20 am
An investment compounds annually at an interest rate of 34.1% What is the smallest investment period by which time the investment will more than triple in value?
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by Brent@GMATPrepNow » Wed Jun 13, 2012 10:57 am
1947 wrote:An investment compounds annually at an interest rate of 34.1% What is the smallest investment period by which time the investment will more than triple in value?
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For this question, I'd use an annual interest rate of 33%. In other words, the investment will increase by 1/3 each year.
Let's say we begin with $100, and see how many years it takes to exceed $300.

Year 0: $100

Year 1: $100 + 1/3 of $100 is about $133

Year 2: $133 + 1/3 of $133 = $133 + about $44 = $177

Year 3: $177 + 1/3 of $177 = $177 + about $58 = $235

Year 4: $235 + 1/3 of $235 = $235 + about $78 = more than $300

So, the answer is B

Cheers,
Brent
Brent Hanneson - Creator of GMATPrepNow.com
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