Interest

Expert replies

talaangoshtari: Master | Next Rank: 500 Posts; Posts: 154; Joined: Wed May 21, 2014 4:29 amFollowed by: 1 member; Thanked: 8 times

by talaangoshtari » Wed Jun 10, 2015 2:06 am

$400 is placed in an account earning an annual interest rate of %6. If the account is compounded annually, how much more interest is earned in the second year than in the first?

A. $1.22
B. $1.33
C. $1.43
D. $1.44
E. $1.54

Like this post

Source: Beat The GMAT — Problem Solving | Wed Jun 10, 2015 2:06 am

GMATGuruNY: 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 » Wed Jun 10, 2015 2:32 am

talaangoshtari wrote:$400 is placed in an account earning an annual interest rate of %6. If the account is compounded annually, how much more interest is earned in the second year than in the first?

A. $1.22
B. $1.33
C. $1.43
D. $1.44
E. $1.54

First-year interest = 6% of 400 = $24.
Here, the interest is COMPOUNDED.
Implication:
In the second year, the interest will be higher because 6% is earned not only on the $400 principal (6% of $400) but also on the $24 of interest accrued in the first year (6% of $24).
Thus, the increase in interest is equal to the value in red:
6% of 24 = $1.44.

The correct answer is D.

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

Like this post

GMAT/MBA Expert

Brent@GMATPrepNow: GMAT Instructor; Posts: 16207; Joined: Mon Dec 08, 2008 6:26 pmFollowed by: 1268 members; Location: Vancouver, BC; Thanked: 5254 times; GMAT Score:770

by Brent@GMATPrepNow » Wed Jun 10, 2015 6:32 am

talaangoshtari wrote:$400 is placed in an account earning an annual interest rate of 6%. If the account is compounded annually, how much more interest is earned in the second year than in the first?

A. $1.22
B. $1.33
C. $1.43
D. $1.44
E. $1.54

Initial investment: $400
After 1 year: $400 + (6% of $400) = $400 + $24 = $424
After 2 years: $424 + (6% of $424) = $424 + $25.44 = whatever
We can see that the interest earned in the 2nd year is $1.44 than the interest earned in the 1st year.

Cheers,
Brent

Brent Hanneson - Creator of GMATPrepNow.com

Like this post

Post new topic Post Reply

• Page 1 of 1

GMAT Course Reviews

559 reviews

1168 reviews

431 reviews

359 reviews

147 reviews

5/5

5 Star (560 Reviews)

"Target Test Prep is the closest to the official version of the GMAT exam, about 99% accuracy in terms of the quality and quantity of information. The course has excellently created singular sets of focused lessons and tests for every possible topic that one could come across in the official GMAT exam."

"The TTP course maximizes the efficiency of the time you spend studying. It will take time and effort but I could almost guarantee that if you complete the course exactly as it is laid out you will get an amazing score. They also have a very responsive team willing to help with any questions you might have."

"TTP has two things that I think no other test prep company offers: A teaching approach that reinforces understanding and an attitude that will give you the mental preparedness needed to succeed on the test. TTP gives you a deep understanding of the concept you need to know while teaching you how to think."

Write a Review