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## James invested $5000 in scheme A for 1 year at a simple ## Timer 00:00 ## Your Answer A B C D E ## Global Stats Difficult e-GMAT James invested$5000 in scheme A for 1 year at a simple annual interest rate of 5% and invested another $10000 in scheme B for one year at an annual interest rate of 10% compounded semi-annually. What is the positive difference between the interest earned by James from scheme A and scheme B? A. 250 B. 775 C. 1025 D. 1750 E. 2000 OA B. ### GMAT/MBA Expert GMAT Instructor Joined 08 Dec 2008 Posted: 12733 messages Followed by: 1246 members Upvotes: 5254 GMAT Score: 770 AAPL wrote: e-GMAT James invested$5000 in scheme A for 1 year at a simple annual interest rate of 5% and invested another $10000 in scheme B for one year at an annual interest rate of 10% compounded semi-annually. What is the positive difference between the interest earned by James from scheme A and scheme B? A. 250 B. 775 C. 1025 D. 1750 E. 2000 OA B. Scheme A Interest = 5% of$5,000 = $250 Scheme B 10% interest compounded semi-annually means that the interest is compounded 2 times (in 1 year) at a rate of 5% each time One option is to apply the compound interest formula, but since we're only compounding the interest twice, it may be faster to just perform those 2 calculations. After 6 months, the interest = 5% of$10,000 = $500 So, the value of the investment =$10,000 + $500 =$10,500

After 12 months, the interest = 5% of $10,500 =$525
So, the value of the investment = $10,500 +$525= $11,025 So, the accumulated interest =$11,025 - $10,000 =$1,025

What is the positive difference between the interest earned by James from scheme A and scheme B?
Difference = $1,025 -$250 = $775 Answer: B Cheers, Brent _________________ Brent Hanneson – Creator of GMATPrepNow.com Use our video course along with Sign up for our free Question of the Day emails And check out all of our free resources GMAT Prep Now's comprehensive video course can be used in conjunction with Beat The GMAT’s FREE 60-Day Study Guide and reach your target score in 2 months! ### GMAT/MBA Expert GMAT Instructor Joined 25 Apr 2015 Posted: 2204 messages Followed by: 17 members Upvotes: 43 AAPL wrote: e-GMAT James invested$5000 in scheme A for 1 year at a simple annual interest rate of 5% and invested another $10000 in scheme B for one year at an annual interest rate of 10% compounded semi-annually. What is the positive difference between the interest earned by James from scheme A and scheme B? A. 250 B. 775 C. 1025 D. 1750 E. 2000 For scheme A, the amount of interest earned is 5000 x 0.05 = 250 dollars. For scheme B, since the interest is compounded twice a year, the annual interest rate of 10% is halved for each 6-month compounding period. 10,000 x 0.05 = 500 dollars are earned in the first 6 months. Thus, the principal is now 10,500. 10,500 x 0.05 = 525 dollars are earned in the last 6 months. So a total amount of interest earned is 1,025 dollars. So the difference is 1,025 - 250 = 775 dollars. Answer: B _________________ Scott Woodbury-Stewart Founder and CEO • Magoosh Study with Magoosh GMAT prep Available with Beat the GMAT members only code • FREE GMAT Exam Know how you'd score today for$0

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