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

Redeem
TTP OnDemand GMAT Video Course
Featured Course

Target Test Prep GMAT OnDemand

Scott Woodbury-Stewart’s private virtual classroom — 400 hours of master-class video lessons for the GMAT Focus Edition.

  • 715+ score guarantee — highest in the industry (99th percentile)
  • 52 chapters · 1,500+ lessons · 4,000+ practice questions
  • 400 hours of video · 1,500+ instructor-led HD smartboard lessons
  • 300,000+ students accepted to Harvard, Stanford, Wharton, Booth & Sloan & more
  • 24/7 live support + weekly Zoom office hours with GMAT instructors
  • TTP AI Assist — 24/7 AI-powered virtual tutor for instant help
  • 1,200+ flashcards + AI-powered study assistant & daily calendar
  • OnDemand, LiveTeach & GMAT Bootcamp formats available
  • Also: GRE, SAT Math & Executive Assessment courses
  • MBA Admissions Consulting now available
  • 🏆 2025 EdTech Breakthrough Award: Test Prep Solution Provider of the Year
  • 200,000+ students served
  • 5-day free trial — $0 to start, no auto-billing, cancel anytime
★★★★★ 5.0 (559 reviews)
130-pt guarantee
$0 to start then $127/mo
Start Free 5-Day Trial Read 559 Reviews →

Interest and principle

Expert replies
Post new topic Post Reply
Previous Topic Next Topic
User avatar
Senior | Next Rank: 100 Posts
Posts: 75
Joined: Fri Jun 26, 2015 7:43 am

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
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
GMAT Instructor
Posts: 15539
Joined: Tue May 25, 2010 12:04 pmFollowed by: 1906 members
Location: New York, NY
Thanked: 13060 times
GMAT Score:790

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.
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
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Junior | Next Rank: 30 Posts
Posts: 10
Joined: Sun Dec 04, 2011 11:42 am

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 %.
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Master | Next Rank: 500 Posts
Posts: 186
Joined: Sat Dec 24, 2016 12:38 amFollowed by: 3 members
Thanked: 5 times

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
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
GMAT Instructor
Posts: 15539
Joined: Tue May 25, 2010 12:04 pmFollowed by: 1906 members
Location: New York, NY
Thanked: 13060 times
GMAT Score:790

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.
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
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
GMAT Instructor
Posts: 2630
Joined: Wed Sep 12, 2012 3:32 pmFollowed by: 119 members
Location: East Bay all the way
Thanked: 625 times
GMAT Score:780

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.
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
User avatar
GMAT Instructor
Posts: 1462
Joined: Thu Apr 09, 2015 9:34 amFollowed by: 22 members
Location: New York, NY
Thanked: 39 times

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
Top
Join the discussion
Log in to postLogin with Googleuse password
QUOTE IN REPLY
Post new topic Post Reply