• NEW! FREE Beat The GMAT Quizzes
Hundreds of Questions Highly Detailed Reporting Expert Explanations
• 7 CATs FREE!
If you earn 100 Forum Points

Engage in the Beat The GMAT forums to earn
100 points for $49 worth of Veritas practice GMATs FREE VERITAS PRACTICE GMAT EXAMS Earn 10 Points Per Post Earn 10 Points Per Thanks Earn 10 Points Per Upvote ## Jeremiah invests his savings of$120,000 by dividing it

tagged by: AAPL

## Jeremiah invests his savings of $120,000 by dividing it ## Timer 00:00 ## Your Answer A B C D E ## Global Stats Difficult Manhattan Prep Jeremiah invests his savings of$120,000 by dividing it between two interest-earning accounts. He puts 3/4 of his savings in an account that earns lower interest and 1/4 of his savings in an account that earns higher interest. He has no other accounts that earn interest and he makes $3,636 in interest by the end of the year. If one account earns 2 percent annual interest, and both accounts are compounded semiannually, what percent interest does the other account earn? A. 3 B. 4 C. 5 D. 6 E. 7 OA D ### GMAT/MBA Expert GMAT Instructor Joined 25 May 2010 Posted: 15344 messages Followed by: 1864 members Upvotes: 13060 GMAT Score: 790 AAPL wrote: Manhattan Prep Jeremiah invests his savings of$120,000 by dividing it between two interest-earning accounts. He puts 3/4 of his savings in an account that earns lower interest and 1/4 of his savings in an account that earns higher interest. He has no other accounts that earn interest and he makes $3,636 in interest by the end of the year. If one account earns 2 percent annual interest, and both accounts are compounded semiannually, what percent interest does the other account earn? A. 3 B. 4 C. 5 D. 6 E. 7 On the GMAT, compounded interest is typically just a bit more than simple interest. Since the answer choices are all greater than 2% -- the percentage given in the prompt -- they must represent the HIGHER interest rate, with 2% representing the LOWER interest rate. Lower rate: Since 3/4 of the savings earn the lower 2% rate. we get: (3/4 )(120,000) = 90,000 at the lower rate, implying$30,000 at the higher rate.
Since the 2% lower rate is compounded semi-annually, we get:
Interest earned = a bit more than 2% of 90,000 = a bit more than $1800. Higher rate: Interest earned at the higher rate = (total earnings) - (amount earned at the lower rate) â‰ˆ 3636-1800 = 1836. We can PLUG IN THE ANSWERS, which represent the higher rate. When the correct answer is applied to the remaining$30,000, a bit more than $1800 in interest will be earned. D: 6%, compounded semi-annually Here, the interest earned = a bit more than 6% of 30,000 = a bit more than 1800. Success! The correct answer is D. _________________ Mitch Hunt Private Tutor for the GMAT and GRE GMATGuruNY@gmail.com If you find one of my posts helpful, please take a moment to click on the "UPVOTE" icon. Available for tutoring in NYC and long-distance. For more information, please email me at GMATGuruNY@gmail.com. Student Review #1 Student Review #2 Student Review #3 Free GMAT Practice Test How can you improve your test score if you don't know your baseline score? Take a free online practice exam. Get started on achieving your dream score today! Sign up now. ### GMAT/MBA Expert GMAT Instructor Joined 25 Apr 2015 Posted: 2791 messages Followed by: 18 members Upvotes: 43 AAPL wrote: Manhattan Prep Jeremiah invests his savings of$120,000 by dividing it between two interest-earning accounts. He puts 3/4 of his savings in an account that earns lower interest and 1/4 of his savings in an account that earns higher interest. He has no other accounts that earn interest and he makes $3,636 in interest by the end of the year. If one account earns 2 percent annual interest, and both accounts are compounded semiannually, what percent interest does the other account earn? A. 3 B. 4 C. 5 D. 6 E. 7 OA D Since all the answer choices are greater than 2, we can see that the account that earns 2 percent annual interest is the one that earns the lower interest (letâ€™s call it account A), and thus it has 120,000 x 3/4 =$90,000 (before earning any interest). And the one that earns higher interest (letâ€™s call it account B) has $30,000 (before earning any interest). Since the interest is compounded semiannually, account A will earn: 90,000 x 0.01 =$900 for the first half of the year, and

(90,000 + 900) x 0.01 = 90,900 x 0.01 = $909 for the second half of the year. So the total amount of interest account A earns is 900 + 909 =$1809. That means account B earns 3636 - 1809 = $1827. We see that account B only has 1/3 of the amount of account A, yet it earns about the same amount in interest. It must mean that the interest rate of account B must be 3 times that of account A; that is, account B must be earning 6 percent annual interest. Letâ€™s verify thatâ€™s the case: If account B earns 6 percent annual interest, it will earn: 30,000 x 0.03 =$900 for the first half of the year, and

(30,000 + 900) x 0.03 = 30,900 x 0.03 = $927 for the second half of the year. So the total amount of interest account B earns is 900 + 927 =$1827, which is exactly the amount of interest it earns for the year. So its interest rate must be 6 percent.

_________________

Scott Woodbury-Stewart
Founder and CEO
scott@targettestprep.com

See why Target Test Prep is rated 5 out of 5 stars on BEAT the GMAT. Read our reviews

### GMAT/MBA Expert

GMAT Instructor
Joined
25 Apr 2015
Posted:
2791 messages
Followed by:
18 members
43
AAPL wrote:
Manhattan Prep

Jeremiah invests his savings of $120,000 by dividing it between two interest-earning accounts. He puts 3/4 of his savings in an account that earns lower interest and 1/4 of his savings in an account that earns higher interest. He has no other accounts that earn interest and he makes$3,636 in interest by the end of the year. If one account earns 2 percent annual interest, and both accounts are compounded semiannually, what percent interest does the other account earn?

A. 3
B. 4
C. 5
D. 6
E. 7

OA D
Since all the answer choices are greater than 2, we can see that the account that earns 2 percent annual interest is the one that earns the lower interest (letâ€™s call it account A), and thus it has 120,000 x 3/4 = $90,000 (before earning any interest). And the one that earns higher interest (letâ€™s call it account B) has$30,000 (before earning any interest).

Since the interest is compounded semiannually, account A will earn:

90,000 x 0.01 = $900 for the first half of the year, and (90,000 + 900) x 0.01 = 90,900 x 0.01 =$909 for the second half of the year.

So the total amount of interest account A earns is 900 + 909 = $1809. That means account B earns 3636 - 1809 =$1827. We see that account B only has 1/3 of the amount of account A, yet it earns about the same amount in interest. It must mean that the interest rate of account B must be 3 times that of account A; that is, account B must be earning 6 percent annual interest. Letâ€™s verify thatâ€™s the case:

If account B earns 6 percent annual interest, it will earn:

30,000 x 0.03 = $900 for the first half of the year, and (30,000 + 900) x 0.03 = 30,900 x 0.03 =$927 for the second half of the year.

So the total amount of interest account B earns is 900 + 927 = $1827, which is exactly the amount of interest it earns for the year. So its interest rate must be 6 percent. Answer: D _________________ Scott Woodbury-Stewart Founder and CEO scott@targettestprep.com See why Target Test Prep is rated 5 out of 5 stars on BEAT the GMAT. Read our reviews • 1 Hour Free BEAT THE GMAT EXCLUSIVE Available with Beat the GMAT members only code • FREE GMAT Exam Know how you'd score today for$0

Available with Beat the GMAT members only code

• Award-winning private GMAT tutoring
Register now and save up to \$200

Available with Beat the GMAT members only code

• 5 Day FREE Trial
Study Smarter, Not Harder

Available with Beat the GMAT members only code

• Free Practice Test & Review
How would you score if you took the GMAT

Available with Beat the GMAT members only code

• Get 300+ Practice Questions

Available with Beat the GMAT members only code

• Free Veritas GMAT Class
Experience Lesson 1 Live Free

Available with Beat the GMAT members only code

• Magoosh
Study with Magoosh GMAT prep

Available with Beat the GMAT members only code

• Free Trial & Practice Exam
BEAT THE GMAT EXCLUSIVE

Available with Beat the GMAT members only code

• 5-Day Free Trial
5-day free, full-access trial TTP Quant

Available with Beat the GMAT members only code

### Top First Responders*

1 Ian Stewart 57 first replies
2 Brent@GMATPrepNow 31 first replies
3 Jay@ManhattanReview 29 first replies
4 GMATGuruNY 20 first replies
5 ceilidh.erickson 15 first replies
* Only counts replies to topics started in last 30 days
See More Top Beat The GMAT Members

### Most Active Experts

1 Scott@TargetTestPrep

Target Test Prep

211 posts
2 Max@Math Revolution

Math Revolution

88 posts
3 Brent@GMATPrepNow

GMAT Prep Now Teacher

70 posts
4 Ian Stewart

GMATiX Teacher

65 posts
5 GMATGuruNY

The Princeton Review Teacher

39 posts
See More Top Beat The GMAT Experts