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by gmat_for_life » Fri Feb 26, 2016 11:32 pm
Hello Mitch,

I made a mistake while solving this question by calculating the initial interest as (10,000*2*6)/(100*12) and got the interest value as $100. Could you please help me understand why is this incorrect?

Regards,
Amit
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by GMATGuruNY » Sat Feb 27, 2016 3:31 am
gmat_for_life wrote:Hello Mitch,

I made a mistake while solving this question by calculating the initial interest as (10,000*2*6)/(100*12) and got the interest value as $100. Could you please help me understand why is this incorrect?

Regards,
Amit
The expression in red could serve to answer the following question:
If $10,000 is invested in an account that earns 2% ANNUAL interest, how much interest is earned over the first 6 months?
But none of percentages in the posted problem are given as ANNUAL interest rates.
Thus, the expression in red is inappropriate.

From the prompt:
Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months.
Thus, the interest earned at the end of 6 months = 2% of 10,000 = 200.
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by gauravprashar17 » Sat Mar 26, 2016 8:38 am
How would one solve this problem, if the interest were calculated every 6 months(@ 2% percent), every 12 months(@ 3%) and every 18 months(@4%) and the interest would be added everytime to the amount.
Also, how do we know that the interest is 2% per 6 month and not per year. Same for 3 and 4 %.
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by rsarashi » Mon Jun 19, 2017 10:19 am
But none of percentages in the posted problem are given as ANNUAL interest rates.
Thus, the expression in red is inappropriate.
Hi GMATGuruNY ,

Can you please explain what do you mean by the above statement? Because I was also taking time period.

Please explain sir.

Thanks
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by GMATGuruNY » Tue Jun 20, 2017 5:46 am
rsarashi wrote:
But none of percentages in the posted problem are given as ANNUAL interest rates.
Thus, the expression in red is inappropriate.
Hi GMATGuruNY ,

Can you please explain what do you mean by the above statement? Because I was also taking time period.

Please explain sir.

Thanks
If the prompt stated that the $10,000 investment earns 2% annual interest, then the interest earned in first 6 months could be calculated as follows:
Annual interest = 2% of 10,000 = $200.
Interest after 6 months = half the annual interest = (1/2)(200) = $100.

But the prompt does NOT indicate that 2% is an ANNUAL interest rate.
It states only that the contract will pay 2 percent interest at the end of 6 months.
Thus, the interest earned after 6 months = 2% of 10,000 = $200.
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by Matt@VeritasPrep » Thu Jun 22, 2017 9:37 pm
rsarashi wrote:
But none of percentages in the posted problem are given as ANNUAL interest rates.
Thus, the expression in red is inappropriate.
Hi GMATGuruNY ,

Can you please explain what do you mean by the above statement? Because I was also taking time period.

Please explain sir.

Thanks
Good question to ask! This concept will be important in your MBA as well - you need to know the terms, how often the interest is compounded, etc.
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by Jeff@TargetTestPrep » Sat Jun 24, 2017 7:04 am
muralithe1 wrote:Jolene entered an 18-month investment contract that guarantees to pay 2 percent interest at the end of 6 months, another 3 percent interest at the end of 12 months, and 4 percent interest at the end of the 18 month contract. If each interest payment is reinvested in the contract, and Jolene invested $10,000 initially, what will be the total amount of interest paid during the 18-month contract?

A. $506.00

B. $726.24

C. $900.00

D. $920.24

E. $926.24
After 6 months, Jolene has 10,000 x 1.02 = 10,200 dollars.

After 12 months, Jolene has 10,200 x 1.03 = 10,506 dollars.

After 18 months, Jolene has 10,506 x 1.04 = 10,926.24 dollars.

Thus, the total interest made was 926.24 dollars.

Answer: E
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